16 November 2011

Zimbabwe: Funding Constraints Hit Commodity Exchange

THE Commodities Exchange of Zimbabwe, launched in January this year, is yet to start trading due to funding constraints.

Industry and Commerce Permanent Secretary Mrs Abigail Shonhiwa confirmed that the operationalisation of the commodity exchange would be clear only once funding had been secured.

"We will be discussing with potential funders within the next four weeks," said Mrs Shonhiwa in an interview last week.

A commodity exchange is a market where buyers and sellers trade commodity-linked contracts on the basis of procedures laid down by the exchange. Such exchanges typically act as a platform for trade in futures contracts, or for standardised contracts for future delivery.

Comez acting chairman Mr Wilson Nyabonda could not comment on the latest development. Early this year, he indicated that private investors would be able to acquire shares in Comez.

Zimbabwe previously had a thriving commodity exchange, which was closed in 2001 when the Government gave the monopoly on maize and wheat trading to the Grain Marketing Board. Comez is expected to start trading only in grains, cereals and oilseeds.

Economists say a commodity exchange can be a viable alternative marketing channel for agricultural produce, as it creates a transparent, open and accessible commodities market where both buyers and sellers can participate with the full knowledge of the prevailing prices.

"The benefits of trading on a commodity exchange are numerous. There is an efficient price discovery mechanism since a commodity exchange is ideally bringing in a large number of buyers and sellers. It reduces price risks because of the laid-down rules, which ensure a guaranteed settlement system," economist Mr Prince Kuipa said.

Mr Kuipa said lack of information had also rendered the marketing process non-transparent, with no protection for the large number of farmers.

As a result, many farmers were selling their produce to intermediaries at low prices just to have some cash to cover day-to-day family costs. These challenges called for alternative efficient marketing systems and the commodity exchange, "can be one such avenue".

He said the availability of rules of transacting across the exchange would ensure the integrity of member companies while brokers were monitored.

Zimbabwe's agricultural sector is on the rebound but many farmers continue to face challenges with production and marketing of their produce. Farmers lack proper storage facilities and incur heavy post-harvest losses due to damage by weevils, rodents and, at times, fungal infestation.

In addition, most farming areas are inaccessible due to poor road infrastructure. This also translates into high transaction costs as the few transporters available charge high prices because of the poor condition of the roads.

In Africa, there is a propensity to set up commodity exchanges, with strong backing from donors. SAFEX, the futures arm of the JSE, is the biggest commodity exchange in Africa. Ethiopia's commodity exchange started trading in 2008 and is regarded as the fastest growing commodity exchange on the continent.

There is an Agricultural Commodity Exchange for Africa in Malawi. Nigeria has Abuja Securities and Commodities Exchange and there is ZamACE in Zambia.

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