Farai Mabeza, Senior Staff Writer 
THE Financial Securities Exchange Limited (Finsec), in partnership with the government, TSL Limited and CBZ Holdings, has established an agriculture commodities exchange, the Zimbabwe Mercantile Exchange (ZMX). The platform, which provides an organised market place for farmers and buyers of commodities such as grains, is part of the government’s plans to transform the agriculture sector. The Financial Gazette’s Staff Writer, Farai Mabeza (FM) spoke to Finsec general manager, Garikayi Munema (GM), on the development.
FM: Explain how the warehouse receipt system works and how it is linked to a commodity exchange?
GM: When a farmer brings their produce to a warehouse, they will be issued with a receipt which specifies the type, weight and grade of commodity deposited. The warehouse receipt is a document of title and is issued by a participating warehouse.
The warehouse receipt can be negotiable and can be transferred from one holder to another. Trading on the ZMX Commodity Exchange shall be based on warehouse receipts, meaning that investors will trade warehouse receipts which give the holder title to the commodities stored in the warehouse.
Garikayi Munema, Finsec general manager
FM: Who are the key participants in the commodity exchange?
GM: There are the warehouses whose main role is storage of the commodities. The warehouse will also provide additional services such as weighing and grading and they are required to ensure adequate insurance cover for the commodities.
Then there is the exchange itself providing an automated platform for buy and sell orders to be matched and settled as well as disseminating marketing information. Settlement banks will handle the movements of funds from buyers to sellers and the remittance of any statutory fees and other commissions while the custodian bank will offer custodianship of the exchange’s settlement accounts and client’s physical warehouse receipts.
ZMX will have collateral managers to manage the commodities on behalf of lenders who extend credit facilities to warehouse receipt holders and quality inspectors whose primary role involves grading and certification of commodities on behalf of warehouse operators and lenders. All the exchange activities are monitored by the relevant regulatory authorities.
FM: How do farmers benefit from the commodity exchange?
GM: A commodity exchange has several benefits for the farmer and these include, but are not limited to, post-harvest loans, security through warehouse receipts issued by certified warehouses, protection through warehouse receipt regulations, enhanced collateral management by ZMX through ZMX rules, warehouse insurance and inspection and stop order facilities.
Being an automated exchange, farmers also benefit through price discovery, real time market information, market-based exit mechanisms and mobile and online convenience.
FM: How inclusive will the ZMX be in terms of accommodating small-scale farmers and traditional grains?
GM: ZMX is designed to cater for all farmers including both large scale and small-scale farmers.
The trading processes have been simplified and the farmer access tools include USSD platforms available on simple phones as a way of ensuring that all farmers are financially included in the trading of their produce.
The list of commodities that will be available for trading on ZMX are defined in the Warehouse Receipt Act and these include the traditional grains such as rapoko, sorghum, groundnuts and jugo beans (round nuts).
FM: What led to the postponement of the April 1 kick-off date and can you update us on what those issues are and how they are being addressed? And are you confident of meeting the new launch date?
GM: The launch date was moved forward to allow for completion of final lawful approvals as well as enactment of statutes relevant to the commodities exchange. We are in constant communication with the relevant authorities and we remain confident that the launch date of April 30, 2021 will be met.
FM: Is the country’s legal landscape ready for a commodity exchange?
GM: The Warehouse Receipt Act [Chapter 18:25] and the Warehouse Receipt (General Regulations, 2020, SI 224 of 2020 have identified commodities that can be traded through warehouse receipts and recognise warehouse receipts as tradeable instruments.
The ZMX spot market rules are being finalised for implementation and that together with already existing Securities and Exchange Act [Chapter 24:25], and Securities Exchange (Financial Securities Exchange) Rules 2020 completes the necessary regulations for the issuance, trading and settlement of warehouse receipts and commodity based derivatives.
FM: There have been attempts to set up a commodity exchange before, how and why will the ZMX be successful?
GM: In coming up with the ZMX concept and process flows, we took into account lessons from previous attempts to establish a commodities exchange in this market.
We also relied a lot on the experience, training and guidance from development partners such as the World Bank, Food and Agricultural Organisation, Indaba Agricultural Policy Research Institute and feedback from farmers and farmer organisations gathered during the pilot phase which has been running since October 2020.
The regulatory environment has been upgraded to better facilitate the establishment and successful operation of a commodity exchange anchored on latest technology. ZMX is a collaboration between the government of Zimbabwe, development partners and the private sector.
FM: What lessons have you learnt from other countries that have set up commodity exchanges?
GM: The major lessons have been the need to ensure adequate supporting regulations are in place and to make the exchange as inclusive as possible through training of commodity producers and buy-in and support from key stakeholders such as farmer unions, bankers, regulators and the government are key considerations for a successful commodity exchange.
FM: Is there any support that ZMX is getting from the government and or multilateral institutions?
GM: The government of Zimbabwe has given ZMX tremendous support through the relevant Acts and statutory instruments to support the operations of the exchange and to govern the participants.
The Ministry of Lands, Agriculture, Fisheries, Water and Rural Resettlement has provided resources for the pilot phase of the project and was central to the drafting, review and approval of commodity exchange rules. Multilateral institutions continue providing technical support to ZMX and its staff and this support is crucial in capacitating the exchange.
FM: Besides the crops listed in the Warehouse Receipt Act what other commodities are you considering?
GM: ZMX would like to introduce more commodities onto the platform. We intend to start by adding horticulture so that fruits, vegetable and fresh-cut flowers can also be traded on the commodity exchange. This will be implemented as soon as the supporting regulations and infrastructure such as cold-chain facilities are established.
FM: Will there be derivative contracts such as futures options? Is there a possibility that you could cover grains under these contracts?
GM: It is our desire to broaden and deepen the capital markets by introducing more diverse products and services including derivative contracts. Development of such products and the supporting systems and regulations is on-going.
FM: How will you treat the issue of payment modalities given the country’s currency structure?
GM: Trading on ZMX will be in local currency until authority is granted by the Reserve Bank of Zimbabwe to allow trading of specific commodities in other currencies besides the local currency.
