The Johannesburg Stock Exchange (JSE), Lusaka Stock Exchange (LuSE) and Zambian Commodity Exchange (ZAMACE) are able to progress the launch of derivatives contracts on Zambian agricultural products after the Zambian Government’s signing of an executive order enabling this to proceed.
By delegating the oversight of a warehouse receipting system to ZAMACE, Statutory Instrument (or executive order) 59 of November 2014 enables the three organisations to progress the launch of deliverable derivatives contracts for white maize, wheat and soya beans with approved delivery points in Zambia.
“The JSE is delighted that as a result of the foresight of the Zambian Government and industry participants, we are now able to plan the launch of the contracts,” says Chris Sturgess: Director of Commodities at the JSE. “We began the partnership with ZAMACE in 2011 to offer Zambian market participants with price risk management tools via physically settled grain contracts. We are a step closer to extend the liquidity of the JSE’s grain derivative market into Zambia working very closely with the local commodity exchange that will be responsible for providing the spot market.”
In 2013, the JSE secured the approval from the South African Reserve Bank (SARB) to offer trade in Zambian grain traded and cleared in US Dollars, in collaboration with ZAMACE, to non-residents and qualifying South African and Common Monetary Area corporates. The Bank of Zambia has also extended their support for the collaboration between the Zambian and South African entities. This offering is envisaged to enhance the price discovery and price risk management for Zambian agricultural commodities.
Jacob Mwale, Executive Director of ZAMACE commented as follows, “Through the issuing of SI 59 and appointing ZAMACE Limited as the authorised agency of the Agricultural Credits Act (ACA), 2010 – Zambia can progress the establishment of certified storage and issuance of warehouse receipts. ZAMACE recognises the responsibilities it has been assigned and will be ready to deliver on them by the start of the agricultural marketing season in 2015. We look forward to working with our partners to execute a successful warehouse receipting initiative and enhance the commodities market as a result.”
“The opportunity for LuSE to partner with both ZAMACE and the JSE to further develop the transparency of the grains market in Zambia is a dream come true. The Government was instrumental and continues to be in the development of the capital market in Zambia. It is only right that as the LuSE we roll up our sleeves and get involved in bringing the competences and systems which we have developed over the last two decades to develop another sector which is key to our expansion, “ says Brian Tembo: CEO of LuSE and who for many years headed up ZAMACE. “There are great synergies in the exchange business and working with these two participants I believe we will be able to evolve our grains industry for the better.”
Musika, a non-profit company that stimulates private sector investment in the agricultural market, has played an influential role in the development of the partnership and has committed to support the establishment of the warehouse receipts system. Rob Munro, Musika’s Director of Strategy, adds “Musika welcomes the progressive move by the Ministry of Agriculture and Livestock to initiate these market reforms, and looks forward to working with all stakeholders to advance transparency, price discovery and security in the Zambian commodities market which will benefit all market players, including smallholder producers’.
The JSE has worked closely with LuSE, ZAMACE and other local market participants to finalise the standardised contract specifications including the terms for physical delivery in completion of a derivative contract. The target date for licensing warehouses in accordance with the Agricultural Credits Act and launching the new derivative products is the second quarter of 2015.