Zim’s first commodity exchange edges closer

Zimbabwe edged closer to fully operationalising its first-ever commodities trading platform − the Zimbabwe Mercantile Exchange (ZMX) − after licensing 22 operators to issue warehouse receipts.

ZMX will operate an automated warehouse receipt system, which enables commodity holders to deposit their produce with a designated warehouse in exchange for a storage receipt.

The warehouse receipt is a negotiable instrument usable as collateral for credit facilities or an instrument of exchange in the commodities’ spot market.

The platform will facilitate trade in farm produce such as (selected) grains, coffee, groundnuts, macadamia nuts, millet, oats, pecan nuts, rapoko, rice, sorghum, sugar beans, tea, cowpeas and roundnuts.

While maize, soyabeans, wheat and barley are on the controlled commodities list, which restricts farmers to sell to the Grain Marketing Board or contractor who would have financed their production, warehouse receipts can still be issued for the produce.

ZMX general manager Mr Gerald Munema told The Sunday Mail Business that significant progress had been made in putting up the logistical infrastructure to fully operationalise the system.

This entailed developing the operational framework and supporting legislation, which is now in place.

Twenty-two warehouses have been licensed countrywide, while several other facilities are reportedly still under inspection.

“We needed supporting rules and enabling Statutory Instruments (SIs). That has been done now,” he said.

“There was also a need to train warehouse operators on the issuance of warehouse receipts and inspection for quality standards.”

Storage infrastructure, he said, had been certified to meet both local and global benchmarks, since Zimbabwe will open the exchange to global players.

Once commodities are delivered to the warehouse, quality inspectors will grade and certify the commodities.

Produce that does not meet expected quality would be rejected.

“We are dealing with food and the quality (of the warehouse infrastructure) has to be top-notch. We have been training people on how to issue receipts. We have issued warehouse receipts worth 220 000 tonnes,” Mr Munemo added.

A warehouse receipt from ZMX was as good as cash and is usable as security for getting credit from financial institutions, he said.

So far, four banks have agreed to recognise the receipt as collateral security.

The exchange is a partnership between Government and private sector participants that include Financial Securities Exchange (Finsec), a licensed securities exchange; TSL Limited, a publicly traded agro-industrial business; and CBZ Holdings, a publicly traded financial services business, among others.

ZMX – launched by Government last year – is designed to curb warehousing and price discovery challenges related to farm commodities, which local farmers encounter.

While agriculture is a key sector in Zimbabwe, accounting for 16 percent of gross domestic product, some producers are not getting the best possible return due to limited access to markets and post-harvest losses.

The exchange is, therefore, envisaged to deal with limited and often costly logistics, including inappropriate or inadequate storage facilities.

When launching ZMX last year, Finance and Economic Development Minister Professor Mthuli Ncube said it would bring convenience and efficiency in marketing farm produce, enhance profitability, access to markets, finance and credit for farmers.

Commodity exchanges are important because they play a vital role in getting commodities to consumers and manufacturers.

However, commodities markets are highly volatile for many reasons, one of which might be commodity speculators.

They also provide price stability and continuous flow of commodities from producers that otherwise wouldn’t exist.

“This public-private partnership initiative will support the seamless trading of agricultural commodities by all players, including the Government itself.

“The innovation, whose operationalisation we are witnessing, will greatly assist in reducing these post-harvest losses, thereby giving our small-scale farmers more value for their efforts,” Prof Ncube said at the time.

Similarly, at the same event, ZMX chair and TSL chief executive officer Mr Derek Odoteye said the platform was a milestone towards achieving a formalised and viable commercial smallholder agriculture sector in Zimbabwe.

“ZMX will assist in encouraging the formalisation of small-scale farmers, which I believe will ensure the sustainability of their farming activities, and will give increased access to both local and international markets as well as avail them properly priced credit facilities by being able to collateralise their farm produce.

“This makes ZMX a one-stop shop for convenient and commodity financing and trading capable of competing with the best in the world,” he said.

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