Zimbabwe to set up commodities exchange as agriculture activity intensifies

It came as good news to us that Zimbabwe will be opening a commodities exchange known as Comez (Commodities Exchange of Zimbabwe).

The agricultural sector in Zimbabwe remains one of the main pillars of the economy and the Ministry of Finance estimates that the sector registered a growth rate of 33.9% in 2010. The growth is expected to be largely driven by maize, tobacco, sugar and cotton. Zimbabwe closed its Agricultural Commodities Exchange in 2001, when the government gave the state-owned Grain Marketing Board (GMB) a monopoly on the trading of corn and wheat.

Comez will, however, be managed by various stakeholders, including the state, banks and farmers’ unions and indications are that private investors would be invited to take up shares in Comez. “We should create a transparent, open and accessible commodities market where both buyers and sellers can participate knowing the prevailing prices,” Minister of Industry and Commerce, Welshman Ncube said. Comez is set to regularise trading of commodities in line with market fundamentals and increase financing availability for the agricultural sector.

Trading will be on the basis of warehouse receipts issued by exchange operated or approved warehouses which guarantee quality and quantity of products. The use of the warehouse receipt system as the physical storage and delivery mechanism is in line with global trends, also involving the use of an electronic trading system. Farmers can therefore use the receipts as collateral when borrowing funds from local banks. New financial instruments such as futures and options will also assist in locking in commodity prices and hedging against volatility.

While there is no indication as to when Comez will officially start operating, the new development has come at a time when Zimbabwe expects to gain economic leverage through the sale of tobacco this coming season. The country will start to sell its 2010-2011 tobacco crop on 15 February 2010. Indications are that Zimbabwe may sell as much as 150 million kilogrammes of tobacco during the 2011 selling season, which is an improvement from the 123.5 million kilogrammes sold in the 2009-2010 season.

Overall, the outlook for agricultural commodities in 2011 is positive. Key factors of course will be the global cyclical recovery and easy hurdles for global consumption to surpass constrained global production. Some of the agricultural names worth the look on the Zimbabwe Stock Exchange would be the likes of AICO, Ariston, Hippo, Padenga, SeedCo and TSL.

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.