Efforts to enhance Zimbabwe’s markets and financial systems are in full swing as many of the promises that have been made come to fruition though success may vary. The Victoria Falls Stock Exchange, The Zimbabwe Receivables exchange and the bringing of the first ETF to the ZSE have all been rolled out. Now the next idea to make it from talking to action will be the Zimbabwe Mercantile Exchange, a combined approach to commodity marketing, warehousing and financing which is set to launch on the 31st of March 2021. The exchange is set to bring more and better options to farmers in particular though concerns still loom over the degree of government involvement.
The idea of a mercantile exchange is used the world over. It provides a centralised place where commodity marketing can be done. While much of the chatter concerning the ZMX has focused on farmers the system can extend to other extractive industries such as mining. The easiest way to understand the mercantile exchange concept is to look at the current setup in tobacco marketing. In fact, the quagmires that plague tobacco marketing can display the advantages of a mercantile exchange. Tobacco farmers bring their tobacco in bails (which vary in size and quality) to the auction floors where buyers examine and buy tobacco. One of the major issues has been the disappointment of farmers getting lowly offer prices. Payment has also been a problem. With disputes over price, timing and currency. What a mercantile exchange does is bring firstly a standardised format to the produce. This is then combined with a warehousing function, so the produce is held on behalf of farmers while awaiting a final destination. In addition to this banks come in and offer loan facilities to farmers against warehoused crops as collateral. The mercantile exchange will also allow farmers and buyers to enter into futures contracts, these guarantee a buyer for the farmer to come harvest time. So you can see the mercantile exchange concept brings many advantages to both farmers and buyers.
The devil is in the details
As Zimbabweans, we have become accustomed to great ideas that do not quite play out as we expected. While we await the details of the rules around the mercantile exchange there are hints we already have that the idea may not play out quite as the theory suggests. The government has expressed a desire to influence the market for strategic grains such as maize and wheat while letting other crops be market-determined. Observers are slightly worried about the degree of government intervention which has caused many problems in the functionality of other exchanges. The rules and regulations of the exchange will soon be released and give us a clearer picture of how it will function.
The ZMX has the potential to change the game for farmers, buyers and other market participants. The exchange has been a long time coming and we can finally count down to its operations. Banks have been signed up to offer credit based on warehoused produce. Dry tests have been run to assess the smooth flow of transacting on the system. One thing we can appreciate is that those behind the exchange, namely Finsec, TSL, CBZ and the Government, want to launch with a platform that covers the true needs of clients. They are working on mobile money integration as well to ensure seamless transacting.
It is of course very early days but we could be taking the first steps towards alleviating the struggles farmers have experienced perenially with tobacco and other farmers experienced last year with lockdown closing fresh produce markets. We will keep a watch on this story develops and will take a special interest in the rules and regulations that will be announced.