HomeBusinessBanker mulls pan-African commodity exchange

Banker mulls pan-African commodity exchange

Goromonzi’s Botswana-headquartered Bourse Africa is working with Financial Technologies Group, an Indian firm, to set up a pan-African bourse.

This comes at a time the government promoted Commodity Exchange of Zimbabwe (Comez) is still to take-off since its launch in January.

The Securities Exchange Commission of Zimbabwe (SECZ) confirmed inquiries by Bourse Africa and said there was currently no rule on the number of players.

The number, according to SECZ boss Tafadzwa Chinamo, will be determined by the market.
He said the regulator had so far received an application from the Ministry of Industry and Commerce and had made its comments on the application for further clarification.

A commodity exchange is a market in which multiple buyers and sellers trade commodity-linked contracts on the basis of rules and procedures laid down by the exchange.

There are two types of contracts that can be traded on the commodity exchange: spot contracts and derivative contracts. In spot contracts there is buying, selling and trading of physical commodities. There is delivery and payment for designated quantities and guaranteed quality.

Under derivative contracts, players manage price risks through hedging. There are investment and arbitrage opportunities.

In international commodity exchanges all counterparties are guaranteed fulfillment of obligations (profit, losses and payments). There is also quality and quantity guarantee for the buyer to get the commodity they have ordered.

All the transactions are underpinned by the Central Counterparty Clearing House and backed by a Settlement Guarantee Fund.

Goromonzi said the Fund woulod have US$25 million. He told Standardbusiness the country needed a commodity exchange as a mechanism to generate fair pricing and access for small producers.

Farmers have in the past clashed with government over the producer prices especially maize arguing  that final prices did not take into account costs of production.

He said the  commodity exchange could also be a physical trading platform for the domestic trading community. It could also boost commodity financing. A farmer who delivers commodities is given a warehouse receipt which could be used to secure financing from the banks.

This means instead of waiting for government’s support, farmers can use the warehouse receipts to obtain funding from banks. Banks want collateral for them to finance agriculture.

He said physical trading on a world-class exchange platform could attract foreign traders, thus enhancing liquidity on the exchange. A commodity exchange facility also provides risk management solutions largely through hedging instruments traded on the exchange.

A farmer from, say, Muzarabani could buy the futures contract which assures the farmer of a certain price in future. With a futures contract, the farmer would be able to know how much he would get and this helps in planning.

Analysts say Zimbabwe couldtake a leaf from India which had inadequate financing in the commodity sector and government interventions but turned the corner when the Multi Commodity Exchange of India Ltd (MCX) was set up.

Today MCX is the sixth largest commodity exchange in the world. At least US$8 billion is traded per day and an estimated 500 000 jobs were created in seven years.

Goromonzi said African countries needed a commodity exchange solution that could organise markets at different levels, that is, domestic trade, regional trade as well as international trade.

“Most African countries are too small to compete in global terms to realistically support a world-class exchange. however, historical statistics show that Africa collectively exports nearly 30% more than the largest commodity exporter (Russia) – hence Africa’s collective voice through a common exchange platform, will be very powerful ” Goromonzi said.

Bourse Africa, he said, would initially start as a commodity spot and futures exchange for agriculture, metals, currencies and energy before “expanding rapidly into bonds, interest rates and then asset classes”.

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