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NewsDay

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Missing financial,capital markets infrastructure

Opinion & Analysis
Zimbabwe’s financial and capital markets would function much more effectively and efficiently if certain market infrastructure was in place. This installment reviews some such patently overdue infrastructure whose implementation has been delayed either by bureaucratic bungling, partisan political bickering or sheer acts of omission.

Zimbabwe’s financial and capital markets would function much more effectively and efficiently if certain market infrastructure was in place. This installment reviews some such patently overdue infrastructure whose implementation has been delayed either by bureaucratic bungling, partisan political bickering or sheer acts of omission.

Column by Omen Muza

Mineral Stock Exchange: The listing of mining companies operating in Zimbabwe, either on the Zimbabwe Stock Exchange or on a separate specialised bourse can enhance transparency and accountability in the resources sector. Consequently, this can improve availability of, and access to, mining finance while deepening local capital markets. Some foreign investors are known to speculate on foreign stock exchanges, leveraging on local assets to raise significant amounts of money, usually without commensurate in-country development. The Minerals Marketing Corporation of Zimbabwe recently said it was working on creating a mineral exchange, although no specific details or timelines were given.

Credit Reference Bureau: The availability of a central database from which consolidated and up-to-date credit information can be sourced by credit providers has become a strategic and operational imperative due to odious levels of non-performing loans. A fully functional credit reference framework would prevent predatory debtors from contracting debt in one bank, only to willfully abandon it and contract new debt in another bank. It would also strengthen the credit approval processes of banks, facilitate consistent classification of debt and enable banks to avoid further exposure to sectors already in decline or plagued by declining prospects while reducing the cost of credit for those with good ratings. A few credit bureaus are now in operation, it can be argued that their lack of scale and a truly national outlook militates against their optimal effectiveness.

Commodity Exchange: Following the collapse of its predecessor, the Zimbabwe Agricultural Commodities Exchange in 2001, the Commodity Exchange in Zimbabwe (Comez) was launched amid pomp and fanfare in January 2011 after the Ministry of Industry and Commerce’s study tours to the Ethiopian Commodity Exchange and South Africa Futures Exchange. However, two years after the launch, the first trade is still to take place on Comez, apparently due to turf wars amongst government ministries and funding issues.

The Comez is now long overdue, given its capacity to effectively deal with current challenges such as poor producer prices, government’s tendency to fix prices for agricultural products with distortive impact on markets and trade flows (as manifested by the cotton marketing debacle in the 2012 season), market failure (as manifested by the Grain Marketing Board’s failure to pay farmers for grain deliveries in the past two years). The existence of the Warehouse Receipt Act, however, provides an appropriate regulatory framework for the exchange’s sustainable operations, unlike in Zambia where the relaunch of the Zambian Agricultural Commodities Exchange had to be postponed after the government delayed legislation needed to certify commodity warehouses.

Asset reconstruction companies: Asset reconstruction companies (ARCs) are firms that purchase bad loans from banks and financial institutions at a discount to the value of the asset and restructure those by facilitating investments in the company. As seen in the case of RioZim Limited and Lobels, banks are currently forced to restructure sticky assets as opposed to selling them because asset reconstruction firms do not exist in Zimbabwe.

  • Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory, research and training company with interests in banking, technology and agriculture as well as the convergence area among them.