adminTraditionally, the resource counter dominated the industrial index but the lacklustre movement of the index has left investors scurrying for cover regardless of the attractiveness of commodities markets the world over.
Plans are underway in Zimbabwe to come up with a minerals stock exchange with market rumours setting third quarter of 2013 as the deadline for the project.
It is certainly an interesting development for the economy whose mining industry is operating at between 28 and 35 percent.
Gauteng is in existence because of Egoli wealth, Gaborone owes its existence to diamonds, but the City of Mutare in Zimbabwe does not possess a strong relationship with its resource endowments.
This leaves one wondering whether a minerals exchange will close the gap.
The development and sophistication of both the commodities and equities markets the world over has spurred the transformation of the investment world.
The presence of futures markets, which are typically referred to as derivatives, originated from such exchanges as the one being mooted by the Securities and Exchange Commission. These markets allow for forward contracts where prices can be decided today for future trading, as a mitigation or hedging measure against commodity fluctuations.
Zimbabwean minerals have been exploited for years and used as collateral for trading activities in developed exchanges which include the Toronto Exchange in Canada, New Zealand exchange and a selected few.
The commodities were exported in raw state only to be marketed as finished products when they reached Western capitals and re-imported back to Zimbabwe in finished state as jewellery and other ostentatious commodities.
Only residual deals were traded on the ZSE as the reason for investing on the local bourse was to maintain a grip on managerial decisions which would enable the free flow of the special commodities beyond Zimbabwe’s borders.
This is evidenced by the depressed trading on the ZSE.
The bourse is no longer a barometer of economic activity within the economy. It is heavily discounted and prospects of regaining traction are so dim as external factors such as country risk and the emergence of the Brics will not necessarily raise the prices regardless of the significant appetite for the commodities from the bloc.
The income distribution for the emerging markets economy is still skewed with the pressure on their growth levels to be spread across their entire economy hence the ability to understate the commodity prices.
This will leave the reader wondering what the minerals exchange will do which the incumbent equities market is failing to do.
Are there any barriers to efficiency and promotion of market liquidity on ZSE which will be eliminated with the coming of the commodities exchange?
Are we not going to see the same players dominating the stock exchange trying their luck on the minerals exchange? Are indigenous mining houses quality assets to trade on the minerals bourse given the management deficiencies in most of these corporates?
All these questions will require attention before bringing on board the exchange.
It is imperative to appreciate that a commodities exchange can only be an efficient-cum-reliable tool for pricing commodities and raising fresh capital if the supply side to the economy is stable.
With the liquidity a challenge persisting characterised by trade sanctions Zimbabwe has been subjected to, it cannot be a walk in the park for the authorities as they moot a plan to have such an exchange.
The world over, the success of a commodities exchange is a function of substantial levels of foreign direct investment coupled with economic stability.
Zimbabwe cannot be an exception and the re-engagement process underway between Harare and London is a step in the right direction in order to integrate Zimbabwe into the international financial community.
The informal gold panners (magweja) and people of sort should be nipped in the bud and there is need to formalise the sector entirely before launching the mining stock exchange. In most cases a parallel trade with the informal economy will bring sub-optimal pricing results at the exchange.
Zimbabwe’s mining sector needs a restructuring and a formalised system will boost prospects for economic growth as the corporate will be contributing to the fiscus and at the same time creating jobs and a suitable climate for attracting investment.
The effects of a disintegrated mining sector are apparent if one visits Free State in Sierra Leone where it is hard to believe there are diamonds in that sea of poverty.
An efficient mining exchange is also a function of robust corporate governance and transparency in the management of mining houses, with investors committing their hard-earned funds on the exchange; there cannot be any room for abuse of investors’ funds.
The issue of owning inactive mining claims without even considering engaging in tributary agreements is a thorn in the flesh. It has led to reduced mining output with the opportunity cost of such greedy behaviour manifesting in illegal panning by the surrounding community thus perpetuating poverty levels in Zimbabwe.
Thank you and God bless you.
Christopher Takunda Mugaga is an economist. He is the Head of Research for Econometer Global Capital, a regional finance and economics research firm. He can be
contacted on: [email protected] or +263 772 340 353 / +263 776 266 062.
Online Reporter