Archive for the 'Commodities Exchange' Category

New commodity exchange to transform Ghana’s agriculture

Photo credit: Government of Ghana

Photo credit: Government of Ghana

Investors aim to finalize fund-raising for a new Ghana Commodity Exchange (GCX) during the coming month. A private-public consortium has been put together to create a regional hub for trading commodities, including Ghanaian institutions Data Bank Agrifund Manager Ltd, Ecobank Ghana Ltd, UT Bank Ghana Ltd and a minority shareholding by the Government of Ghana, and international investors such as the International Finance Corporation (IFC, part of the World Bank Group), the private-equity 8 Miles Fund, and eleni, a company which describes itself as Africa’s “premier commodity exchange promoter”.
According to an announcement by eleni, the consortium partners and the Government of Ghana have jointly signed a Letter of Intent with the aim of completing the investment process by April 2014 and launching the GCX over the coming 12 months.
Dr. Eleni Gabre-Madhin, chief executive officer of eleni, is noted for the successful creation of the Ethiopian Commodity Exchange (ECX) as we saw in this story last year. Her model is different from many consultancy models as she is primarily an agricultural economist interested in helping farmers and production while making markets more efficient. She does not see the commodity exchange as only a trading screen, but as a key part of modernizing the whole agricultural marketing system. Successfully improving warehousing, storage, logistics, crop quality and farmer financing are all critical to the success of the venture, in her view.
According to yesterday’s announcement (13 Mar): “A second consortium is also in formation for a large-scale investment in warehouse and logistics infrastructure and equipment in 8 delivery sites around Ghana, as a strategic eco-system partner to the GCX.”
Ghana’s President John Dramani Mahama had announced the GCX on 25 Feb in his second State of the Nation address: “As part of efforts to create an orderly, transparent and efficient marketing system for Ghana’s key agricultural commodities to promote agricultural investment and enhance productivity, the Government has committed itself to the establishment of a Ghana Commodity Exchange (GCX) and associated Warehouse Receipt System (WRS).
“This move is to encourage market access and fair returns for smallholder farmers and to facilitate the formalization of informal agricultural trading activities. It is expected that the establishment of the Ghana Commodity Exchange will position it as a West Africa regional hub for commodity trading activities.”
Agriculture accounts for 22.7% of Ghana’s fast-growing $73 billion GDP and employs 41.5% of the 29m population, according to statistics website Quandl.
The GCX will start with spot and futures trading of agricultural commodities, including maize, soybeans, paddy rice, palm oil and groundnuts. Once these and the related deliveries of actual crops are settled, the GCX aims to introduce other key agricultural and
non-agricultural commodities and to position itself as a future regional trading platform.
According to Gabre-Madhin: “We can think of no better time and no better place than Ghana today to start a new thrust of developing an efficient and transparent price discovery platform. Ghana’s exchange has every potential to become a leading West African hub for globally traded commodities and we are excited to partner with the consortium to bring this idea to reality. The African commodity exchange momentum is real.”
Robert Dowuona Owoo, former head of policy, research and IT at Ghana’s Securities and Exchange Commission, is the GCX Project Coordinator. The SEC had commissioned a feasibility study on a commodity exchange in 2010 and set up a technical committee.
According to Samuel Ashitey Adjei, MD of Ecobank Ghana Ltd: “This exchange will undoubtedly have a transformative impact on our economy and we are very pleased to
be backing it.”

IFC and Soros invest in feeding data to farmers

IFC and the Soros Economic Development Fund have both invested $1.25 million of equity in Esoko, a Ghanaian technology firm, to help provide small holder African farmers and businesses with timely crop information that can be shared via text messaging. According to its website, Esoko can also transmit weather data and farmer helplines to agricultural experts.
Esoko CEO Mark Davies said: ““Our platform was developed by African software engineers here in Accra, Ghana, and has been a totally local, market-driven initiative” said. “IFC and SEDF have a strong track record of helping local companies get the funding and advice needed to expand into new regions and markets. With their support we hope to export this African technology all around the world.”
Current market information and efficient markets will help farmers to make educated, cost-effective decisions when buying and selling their crops, to farm more efficiently and to get better value for their crops. Transforming the warehousing and logistics across the economy, as was done in Ethiopia, transforms the economics of agriculture and is likely to result in increased food production and better livelihoods for farmers without increasing consumer prices.

Nigeria’s Abuja Commodity Exchange set for privatization

The Nigerian Government is planning to privatize the Abuja Securities and Commodities Exchange (www.abujacomex.com) by mid-2014, according to Arunma Oteh, Director General of Nigeria’s Securities and Exchange Commission (SEC). According to an interview on Bloomberg, the aim is to revive trading.
Oteh said: “The Government wants to privatize the only commodity exchange and it had committed to doing it by the end of last year. It didn’t meet that deadline, but it’s planning to do something by the middle of 2014.
“We have a number of both domestic players and international players who are very interested. They’d rather acquire the privatized exchange, so they’re trying to see how far the government is going with this initiative and if not they’re prepared to seek a registration for a new commodity exchange.”
One of the key investors interested is local firm Heirs Holdings Ltd, based in Lagos but with interests across Africa in banking, energy, real estate and agriculture. Chairman Tony Elumelu said in an interview in December the company wants to acquire the Abuja exchange when it is sold or else it will apply to the SEC to set one up.
Heirs Holdings is an investor with Berggruen Holdings and 50 Ventures in African Exchange Holdings Ltd (AFEX www.africaexchange.com). This facilitates an exchange using NASDAQ OMX technology which can be accessed anywhere in the world through the X-Stream electronic trading platform. Other key figures in AFEX include managing partner Jendayi Frazer, who was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009) and Nicholas Berggruen whose charitable trust funds the investment arm to take “a long-term, patient capital value-oriented approach”.
AFEX has set up the East African Exchange (EAX www.ea-africaexchange.com) in Kigali, with the first node launched in Jan 2013 and the first regional auction – 50 metric tons of maize at $398 per metric ton – between a Ugandan seller and Rwandan buyer in November 2013. Expansion is planned for Kenya and Uganda to build a regional exchange.
AFEX also set up an electronic warehouse receipt system in Nigeria last November, working with the Nigerian Grain Reserve Agency and the Agriculture Ministry. This links farmers and traders as part of the groundwork to set up a commodities exchange, according to Bloomberg.
According to AFEX website: “Warehouse storage is critical complementary infrastructure to any commodity exchange. Properly managed warehouse facilities allow farmers to safely store their harvest without worrying about loss of value until market prices are favorable. An electronic warehouse receipt (e-WR) is issued by the warehouse and represents the stored commodity and is the security instrument that is traded on the exchange. It is only transferable through the electronic system, avoiding issues such as side selling, theft, forgery, etc.
“Berggruen Holdings signed a Memorandum of Understanding establishing a strategic partnership with the East African Community (EAC) Secretariat to support the goals of regional economic and financial integration. With this strategic partnership, AFEX will seek to share its strengths, expertise, experience, technologies, methodologies, and resources in order to advance the goal of regional integration of capital markets.”
“Our vision is to create lasting institutions that will capitalize on Africa’s agricultural potential, support African farmers, achieve food security, provide energy security, and improve Africa’s overall global trade competitiveness.”
Nigeria has a fast-growing population which is already 170 million people. It produced Africa’s third-biggest cocoa harvest in 2013 and produces cotton, sugar and other crops.
The ASCE website says it was originally set up as a stock exchange in 1998 and started electronic trading in 2001 and was converted into a commodity exchange 3 months later and brought under the supervision of the Federal Ministry of Commerce. The website does not appear to have been updated recently.

Ethiopian Commodity Exchange trades over USD1bn in year to July

According to an Ethiopian Government press release, Traders on the Ethiopian Commodity Exchange (www.ecx.com.et) transacted some Birr 20 billion ($1.05 bn) worth of commodities on the trading floor during the 2012/13 Ethiopian state budget year, which is until 7 July 2013.
Anteneh Assefa, Chief Executive Officer of the ECX, said that a total of 552,000 metric tons of traded commodities, which included coffee, sesame and haricot white beans, were involved. Coffee made up 45% of the total volume of trade, sesame 40% and haricot white beans 15%. The Exchange’s revenue from its services, including warehousing, was reported to have reached Birr 193 million The ECX has 358 members and 12,000 customers. Since starting in 2008 the value of trade has risen from Birr 2.7 bn.

JSE adds derivatives: grain specific to silos and more silver and platinum futures

South Africa’s JSE Ltd (www.jse.co.za) continues to expand its commodity derivatives range. It has added silver and platinum “quanto futures” to its existing gold, copper and Brent crude quanto futures launched earlier this year. It is also helping develop the South African grain market by allowing Safex silo receipts to complete a futures contract, so that producers and buyers can trade grain with a bid or offered premium depending on location, for instance if a buyer wants grain in a particular location.
The JSE has partnered with Rand Merchant Bank, which is the initial market maker. The commodities are referenced as part of the JSE’s existing licensing agreement with the CME Group.

Commodity gain, without currency pain
According to a JSE press release on 1 Nov, a quanto future is a derivative instrument which, on the JSE, is a ZAR-denominated commodity investment product which delivers the same payoff as a pure USD-denominated commodity investment. This lets investors gain exposure to the foreign underlying commodity without being exposed to the USD-ZAR exchange rate. It simplifies decisions and allows investors to focus only on the returns of the underlying commodity.
Chris Sturgess, Director of the JSE’s Commodities Division, says: “We have seen keen interest expressed in the new Quanto Futures we offer and by adding silver and platinum to the product offering, we continue to provide derivative market participates with opportunities to easily access the international commodities markets.”

Growing grain markets
Trading in grain silo receipts to settle grain futures contracts is likely to benefit both producers and buyers, according to another JSE press release. Producers can negotiate a better price for stock in the specific silo represented in the receipt by placing an “offer” onto the system for a premium over and above the Safex price. Buyers such as millers and processors will benefit through access to bid at all registered delivery points at a premium per ton, regardless of whether or not physical grain is on offer. Buyers will be able to bid for preferred delivery locations. Previously no bids were permitted without available stock on offer.
There are more than 200 registered delivery points. The silo owner continues to guarantee the quality and quantity of the physical stock on the Safex silo receipt. However, the JSE guarantees the cash-flow process and settlement, so there is no risk of counterparty default. Settlement will take place over a 2-day cycle, meaning a trade is settled the next business day after trade, eliminating the delayed payments generally associated with cash market transactions.
The price when making physical delivery is a function of Safex’s mark-to-market price on the day, less the location differential (indicative transport cost) to the registered delivery point. With this new functionality the value of grain at each delivery point can be negotiated transparently between buyer and seller and included in the final settlement price.
The JSE says it offers a first-world trading environment, with world-class technology, surveillance and settlement, in an emerging market context. It is among the world’s top 20 largest equities exchanges by market capitalisation.

BaDEx getting ready to launch as Zambia’s second securities exchange

A new securities exchange in Lusaka (Zambia) is installing tried-and-tested bond and derivative trading software and says it will be ready to launch operations next month, May 2012. BaDEx has trading platforms that include spot and derivative trading in bonds, currency, commodities (such as derivatives on metals and silo certificates on the spot market) and a variety of other derivatives including agricultural commodities, precious metals, equity and energy.

There is also a central scrip depository system (CSD) with a separate core management, risk solution, surveillance and settlement systems and platforms. The CSD will apparently link to CSDs in South Africa, Europe and the US and with the central Bank of Zambia’s real-time gross settlement system.

BaDEx, also known as Bond and Derivatives Exchange, reports that it was licensed by Zambia’s Securities and Exchange Commission on 1 January 2012 and the licence covers all securities under the Securities Act – bonds, equity, derivatives and commodities. It has signed a contract effective 12 March with South Africa’s STT (www.sttsoftware.co.za, which has also provided the JSE’s  bond trading software for many years), for STT to immediately deploy trading, clearing, settlement and surveillance systems, and systems for auctioning government securities that will be suitable for the central bank, among others.

Dominic Kabanje, CEO of BaDEx, told AfricanCapitalMarketsNews that the exchange is a public-liability company owned by “banks, pension funds and private companies including the major securities dealers in Zambia”. He says they started with 6 local stockbroking members (approach stockbrokers Madison Asset, Integral Initiatives, Intermarket Securities, Laurence Paul Investment Services, Pangaea Renaissance, African Alliance Securities for more information) but are also looking for remote members, working with a South African merchant bank.

Mr Kabanje said they are now doing primary listings. BaDEx will start secondary trading using an online, Internet-based platform when the systems go live and are also seeking to partner with an international clearing house. In a press release he said they had been excited for 18 months: “We are glad to have finally concluded and signed the contract with our software systems vendors. STT applications have been tried and tested in the South African financial markets at the Johannesburg Stock Exchange (JSE), who have used this software for the past 18 years.

“We are currently setting up a network of domestic and foreign-based settlement banks, local and remote foreign members and dealers, institutional underwriters, a clearing house as well as primary panels of domestic, regional and international investors. We plan to link up all willing domestic and regional banks, institutional investors, pension funds, treasury departments, the local central bank, the government debt management office and the local member brokers to our system by providing interfaces and online access to our platforms.

“We will also shortly join the international community of CSDs in South Africa, Europe and the United States initially to facilitate faster and smoother clearing of international securities transactions. The applications from STT and others will enable us to do this and in addition will allow us to compete internationally for bond and derivatives business”.

“I do not see any obstacles from the Zambian side for companies wishing to list. Even SA companies can list on BaDEx. We want Zambian companies to dual list on JSE and BaDEx. At BaDEx we are implementing SADC protocols on the free-trade area as well as enhancing intra-regional trade. An exchange is one such conduit for regional trade. We will, however, have to deal with the problem of exchange controls in SA.”

Michelle Janke, STT’s Managing Director, said the company was happy to reach further into SADC: “We have worked closely with the executives of BaDEx for more than a year, and the closely formed relationship will stand us in good stead over the coming months whilst we deliver all the software applications and prepare the new securities market in Zambia to go live. We hope that in due course through an ongoing cooperation between BaDEx and regional merchant banks we can assist in transforming Lusaka into a key financial hub within the SADC region. We will be there to make this happen operationally.”

Products to be traded include: corporate bonds, municipal bonds, currency futures and options, interest-rate derivatives (including swaps), equity derivatives and commodity derivatives on underlying copper, cobalt, gold, oil, wheat, soya and maize spot markets, bond derivatives market, spot bond market, spot and currency derivatives market, commodities derivatives (including metals) and the commodities spot markets (with silo certificates), agricultural derivatives market, spot equity and equity derivatives markets, precious metals derivatives market and energy derivatives market.

Making the market, the story of the Ethiopian Commodities Exchange

The making of the market – this article by Dr Eleni Gabre-Madhin, CEO of the Ethiopian Commodities Exchange (www.ecx.com.et) gives a fascinating, self-critical and revealing account of the creation of the exchange and the sometimes breakneck pace at which the market grew and took on new commodities such as coffee. It’s very good, and well worth reading in full,  http://www.ifpri.org/sites/default/files/publications/oc70.pdf.

Particularly important is the idea that a commodity exchange will only have traction in Africa if it improves the lives of smaller rural farmers and traders. Eleni puts focus on “the market institutions needed for quality grades and standards, warehouse receipts, market information, coordinated trading, payment systems, and contract enforcement. All of these, I argued, should be established in a holistic and integrated fashion, rather than in the piecemeal approach observed all over Africa in different donor interventions. I pushed further, presenting for the first time the idea that a commodity exchange was precisely the holistic platform that would integrate all of these elements.”

These were the aims of the ECX, according to a 2005 concept paper: “a commodity exchange would build the needed institutions from the ground up for grading and certifying quality, issuing warehouse receipts, trading, relaying market information to all actors, enforcing contracts, and ensuring payment and delivery. But that was not all. Ethiopia’s commodity exchange would be designed to serve smallholder farmers and small traders, it would not exclude those with less education or less capital, and it would balance the interests of all actors and of the public and private sectors. A commodity exchange would not aim to eliminate traditional markets around the country, but rather to build up these informal markets by adding technology and systems to bring more transparent, more efficient, and more reliable trading to all concerned.”

Later she details the achievements, including: “The value of ECX trades has risen by 368% to reach US$1.1 billion in 2010–11 (NB the Ethiopian fiscal year-end is in July, its calendar year in September, due to a different calendar). Our storage operations have grown from one warehouse in Addis Ababa to 55 warehouses in 17 regional locations, and from 5,000 tons to a total capacity of 250,000 tons. In 2010–11, we graded, weighed, stored, handled, and delivered 4.7 million bags without a single delivery default.

“Membership is at 243, and our clients, who trade through our members, number about 7,800. Farmer cooperatives representing 2.4 million smallholder farmers make up 12% of our membership. We have electronically linked our clearinghouse to 10 partner commercial banks, and we settle US$20m or more daily on a “T + 1” basis (that is, the day after trade)— the only stock or commodity exchange in Africa to do so. In other words, anyone can sell to anyone in Ethiopia and be assured of payment the next morning. We have not had a single payment default, shortfall, or delay since our start. This is a financial revolution in itself.

“Our market data reach far and wide. We ‘push’ price data in real time, in less than 2 seconds, to outdoor electronic ticker boards in 32 rural sites; to our website, which attracts visitors from more than 107 countries daily; to 256,000 mobile subscribers through instant messaging; and to the radio, TV, and print media. Users can also “pull” market data through our toll-free phone-in service, which received more than 1m calls in September 2011. That’s 61,000 calls each trading day, of which 70% were from rural users. This is nothing short of an information explosion in Ethiopia, and we are pushing further still.”

She adds that farmers are now getting 70% of the end price, compared to 38% before the ECX, and this means more investment in production and quality, with volumes in some grades tripling. A new financing system means farmers can use warehouse receipts as collateral for bank loans, bringing new financing to rural areas.

Many are interested in potential for commodity exchanges in Africa as a way of increasing agricultural productivity and combating poverty but it is worth recalling that the ECX only launched after nearly 15 years of studies and research both in Ethiopia and other African markets. It shows that big development success stories are not achieved overnight, or without deep thinking and strategy, coordination and hard work, as well as determination to keep going through mistakes, hostility and downturns.

It also shows the a major contribution markets will play in Africa’s coming development.

High-speed multi-asset exchange launched

The CE Exchange (CEX) launched this morning is expected to bring an important boost to world liquidity and trade. The exchange is an international venture that will trade “anything and everything” using latest international nanosecond technology, according to CEO and founder, Avrilatam Fish.
The commodity section is initially the most active, as screens track soaring prices for gold, oil and other key commodities produced in Africa. The exchange also seeks to draw “a significant portion” of diamond trading back into Africa from shadowy international markets in the Netherlands, Israel and London but some traders are initially reluctant, fearing the new delivery mechanisms could amount to entrapment by southern African law agencies.
Intra-regional currency trade is also a first for the new market, made possible by improved banking systems in several regions. There are two boards, “official” which operates similarly to most international trading systems and “parallel market” where some settlement and delivery problems are already experienced.
However, CEX also promises to open up trading in a wide range of other much needed commodities. Market demand for governance and peace seemed urgent in some countries, and states such as Namibia and Botswana which have settled all disputes peacefully since independence and have democratic institutions and media freedom may be tempted to spread the good news. Outside traders such as Victor Yanukovych (his 2004 election win was annulled after allegations of rigging and lost subsequent free and fair elections) threw into the trading ring his view that it was the right choice to concede even if he did not accept the initial annulment: “I didn’t want dead bodies from Kiev to flow down the Dnipro. I didn’t want to assume power through bloodshed.” Peace futures could attract high prices, arbitraged against the cost of war, although arms traders may stage a dawn raid in coming days.
The transparent trading system also threatens shadowy vulture capital deals by putting millions of hectares of African farmland and rivers onto the land exchange screens. Trading in the cash “grab” market was active with aggressive foreign buyers, but deals priced without the “good tax revenue and sustained benefits for locals” rider seemed to correlate negatively with peace futures trading.
On the press tour after the opening ceremony trading was starting on the husband exchange section. “Faithful and good in house” was drawing more long-term interest than “rich playa”.
Key to the success of the new exchange will be the formidable clearing and settlement systems required of a global commercial activity hub. With a strong emphasis on agricultural and a wide range of other commodities, systems to ensure quality, standardization and prompt delivery of all sold goods are crucial and several hectares behind CEX are devoted to extensive inspection, warehousing, and logistics. Farmers who had forward sold lots of 300 kg of beef for October delivery were offered feeding systems for their 60 kg calves. Cash,gold and diamonds deliveries were being inspected by armed men in dark glasses and radioactive suits were required for inspectors on deals in drums of uranium ore. Peer review and governance mechanisms were being stepped up in order to solidify delivery on the peace market.

JSE reports 12% jump in commodity derivatives trades in 2010

South Africa’s JSE Ltd (www.jse.co.za) traded 2.1 million commodity derivative contracts in 2010, up 12% on the previous year but still below the record 2.5 mn contracts traded in 2008. The JSE’s Commodity Derivatives market offers grain trading in white and yellow maize, soya, sorghum, wheat and sunflower seed. It also trades metals including gold, platinum, silver and copper and a crude-oil based derivative called the Western Texas Intermediate (WTI), reportedly the world’s most traded commodity.
White maize accounted for 46% of all grains traded on the JSE, wheat accounted for 27% and yellow maize 16%.
The JSE’s head of commodity derivatives, Rod Gravelet-Blondin, said in a press release today (18 Jan) that the local commodity derivatives market continues to attract new participants who aim to eliminate price risks in an increasingly volatile trading environment: “There is far greater understanding among farmers and millers of the uses of agricultural commodity derivatives as a tool to reduce price risk. Because we are a physical delivery market, farmers can lock in prices at the start of a growing season by taking out agricultural commodity derivatives, so that no matter what happens in the course of the year, they will be able to get their Safex price provided they deliver grain to the quantity and quality specified.”
In 2011, the JSE’s Commodity Derivatives market plans to consolidate and build. Gravelet-Blondin says: “That means encouraging new market participants, and continuing to educate people in the benefits and advantages of commodity derivatives.”

Farm productivity soaring in southern Africa

Production is soaring in South Africa and in neighbouring Zambia. South Africa’s maize crop was over 12 million tons in 2010, near a record and helped by relatively strong prices at the start of the growing season, above-average rainfall and better farming practices. Prices are down by about 30% from a year ago, with white maize for delivery in July 2011 now trading at about R1,400 a ton, unusually R80 less than yellow maize, traditionally lower priced and used for animal feed.
Gravelet-Blondin says this is due to: “..a large carry-over of white maize from the previous season, and export demand for South African maize is less buoyant due to improved yields coming out of countries like Zambia. Another factor contributing to the increase in size of the maize crop is the fact that we are now seeing yields of close to five tons per hectare, which is virtually double what we were seeing 10 or 15 years ago. This is due in part to biotechnology, but also to improved farming practices. South African commercial farmers are far more business-minded and professional than was the case 20 or 30 years ago.”

How commodity exchanges reduce risk

Safex was launched in 1995 to provide agricultural commodity derivatives trading as a mechanism to address price risk for producers and users. It started out offering grain futures contracts, but has since expanded its range of traded instruments. It is part of the evolution of risk control. Initially the government used to manage price risks for farmers and millers through price controls. When the market deregulated in the 1990s the price risk moved to farmers and users.
Grains trade on the basis of physical delivery meaning that any contract traded can result in physical delivery to a grain silo in South Africa. However, recently the JSE introduced cash-traded corn contracts, for which physical delivery is not required, which are based on prices set by the Chicago Board of Trade, part of the largest commodities trading market in the world. US corn contracts currently trade at a R450 premium to South African white maize, according to the JSE. These contracts are pure financial instruments which makes them appealing to a broader range of market participants.
Chris Sturgess, general manager at the JSE’s Commodity Derivatives market, says: “The price of South African maize is often correlated to the international prices set in Chicago. But South Africa maize prices fluctuate between import and export parity depending on whether there is a surplus or shortfall of maize. Many traders keep an eye on the spread between US corn prices and South African white maize and look for opportunities to profit from a widening or narrowing of this spread.”
The WTI oil contract can also help companies reduce their fossil fuel costs by buying WTI futures when prices are low. Should oil prices rise, companies will be able to offset higher fuel prices paid at the pump with profits made on the oil futures. WTI contracts on the JSE are traded in rand rather than US dollars, providing greater price transparency for local companies. Sturgess says: “This is something we are encouraging local companies with high fuel bills to explore… Companies can also reduce currency exposure through the JSE’s range of currency derivatives.”
Gravelet-Blondin says there is a greater level of sophistication among commodity derivatives traders seeking opportunities for hedging or profit. For example, it is possible to trade the difference between gold and platinum prices, on the basis that the two prices are correlated and any divergence in the spread provides an opportunity for profit.

Zimbabwe launches COMEZ Commodities Exchange

The new Commodities Exchange of Zimbabwe (COMEZ) is open, but no date is yet set for the start of trading. At the launch on 14 January, Industry and Commerce Minister Welshman Ncube said the exchange would be managed by the State, banks and farmers’ unions, according to a report in Bloomberg’s Business Week.
Zimbabwe previously had a thriving Commodity Exchange, which was closed in 2001 when the Government gave the monopoly on corn and wheat trading to the Grain Marketing Board. COMEZ will end the GMB monopoly, although the State will continue to play a strong role.
Bloomberg quotes Ncube saying: “We should create a transparent, open and accessible commodities market where both buyers and sellers can participate knowing the prevailing prices.”
To start with the new commodities exchange will trade only grains, cereals and oil seeds. The chairman of Comez, Wilson Nyabonda (the previous president of the Zimbabwe Commercial Farmers Union) said that private investors would be able to acquire shares in COMEZ.
Zimbabwe needs 2.09 million metric tons of corn (maize) the staple food according to the UN World Food Programme and the Food and Agriculture Organization, but the last harvest was 1.35 mn mt and 1.68 mn Zimbabweans depend on food aid. The winter wheat requirement is stated at 410,000-450,000 according to some sources, and the harvest was reported at 10,000 mt.
According to a recent report in the businessdigest of the Zimbabwe Independent, agriculture in Zimbabwe is recovering well, particularly tobacco, partly aided by subsidized fertilizer. However, there is a huge need for financing to rehabilitate irrigation schemes and improving farms, as well as supporting the recently settled “A2 farmers”.
There is a trend to set up commodity exchanges, with strong backing from donors. The leader in Africa is SAFEX, the commodities and futures arm of South Africa’s JSE Ltd (www.safex.co.za). Next is the new and fast-growing Ethiopia Commodity Exchange (www.ecx.com.et, trading started in April 2008). There is an Agricultural Commodity Exchange for Africa (www.Aceafrica.org, based in Malawi but serving smaller farmers in 5 countries) and Nigeria has Abuja Securities and Commodities Exchange. ZamACE in Zambia is active (www.zamace.com), followed by Uganda Commodity Exchange (www.uce.co.ug). Malawi and Kenya ACEs (www.kacekenya.co.ke) for the domestic market appear to have run out of donor funding, according to web reports and the Kenyan Government and the East Africa Grain Council are considering a replacement in Kenya. Projects and studies are underway in Ghana and Tanzania and Sudan is watching developments with interest.
Commodity exchanges are part of a move to try to revitalize agricultural productivity in Africa and should be seen as part of a holistic solution, including agricultural extension, support infrastructure for small farmers including quality warehousing, and finance as well as market price information.