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The Herald (Harare)
One of the targets of the Transitional Stabilisation Programme is the operationalisation of the Agriculture Commodity Exchange to guarantee market access for farmers and boost their income.
Given the critical nature of the exchange, we all hoped Finance and Economic Development Minister Mthuli Ncube would move with speed and establish the exchange.
By definition, an Agriculture Commodity Exchange is an organised market where future delivery contracts for graded commodities such as grains, cotton, sugar, tobacco and coffee are bought and sold. It can eliminate price volatilities and the nefarious activities of middlemen.
As the TSP rightly pointed out, some of the major reasons affecting agriculture productivity include marketing gaps and funding. It should therefore be noted that the exchange will help transform agriculture output into effective collateral for borrowing by farmers and help with effective business planning.
It cannot be disputed that Government alone cannot fund agriculture. Liberalising the market will create an environment of a free market system. Corporates including banks will be keen to finance production as an efficient free market system which will create an environment that allows a full ecosystem funding for agriculture.
The operationalisation of the Agricultural Commodity Exchange will also address price volatility, market information asymmetry and post-harvest losses. This will also assist enforcement of regulations for adherence to orderly agricultural marketing in the economy.
According to the TSP, the operationalisation of the Agriculture Commodity Exchange will require promulgation of the Commodity Exchange Act. The harmonisation of the Warehouse Receipt System Act with such existing warehouse receipt system-related pieces of legislation as the AMA Act, GMB Act and Control of Goods Act will be undertaken.
Formal engagements with potential technical partners and investors, as well as service providers, such as banks, collateral managers, warehouse operators and the central security depository will also be necessary.
Zimbabwe can draw lessons from the Ethiopian Commodity Exchange (ECX), the first in Africa that has transformed lives. Established in April 2008, the ECX is viewed as wildly successful in modernising the country’s economy, linking close to 2,5 million smallholder farmers to both local and foreign markets and enhancing food security.
Before its establishment agricultural markets in Ethiopia had been characterised by high costs and high risks of transacting, forcing much of Ethiopia into global isolation.
With only one third of output reaching the market, commodity buyers and sellers traded with people they knew to avoid the risk of being cheated.
Trade was done on the basis of visual inspection because there was no assurance of product quality or quantity and this drove up market costs leading to high consumer prices.
Small-scale farmers, who produce 95 percent of Ethiopia’s output, came to the market with little information and were unable to negotiate better prices for their produce.
The ECX is now transforming to become a global commodity market of choice.
ECX’s mission is to connect all buyers and sellers in an efficient, reliable and transparent market by harnessing innovation and technology and based on continuous learning, fairness, and commitment to excellence.
It is our considered view that Zimbabwe has much to benefit from the Ethiopian experience and we hope to see the Government moving with speed to establish the exchange.
The President has declared agriculture will be one of the pillars to anchor economic revival and as long measures are not taken to support the sector, its contribution will not be significantly felt.
There were sad scenarios during the current tobacco marketing season where merchants connived to short-change the farmers by fixing prices at ridiculously low levels.
This has resulted in just 50 percent of the tobacco farmers buying seeds to prepare for the next farming season, an indication that there will be serious foreign currency shortages next year this time unless Government quickly secures a commodity to cover that gap.
We are saying with the commodity exchange facility, farmers not in urgent demand for cash can use the facility to hold onto their crop as they wait for the market to offer better prices instead of being forced to sell.
It is our hope that with the coming on board of the Agriculture Commodity Exchange, it means economic independence for farmers and ability to plan ahead without being forced to make uneconomic decisions by the environment.
By Dorothy Tuma
There is renewed optimism that Africa’s small and medium sized businesses (SMEs) could be big winners with the launch of the African Continental Free Trade Area (AfCFTA) — the world’s largest such trading zone with a combined current GDP of US$2.5 trillion and a market of over one billion people.
Given the challenges that have prevented Africa’s SMEs from becoming competitive, however, we must ask how this will change under the AfCFTA.
What does it mean to be competitive? The International Trade Centre’s Business Management System framework (BMS) defines a competitive business as one that offers goods or services on its own terms, yet customers willingly subscribe.
The ITC’s definition reminds me of a local baker in my home town of Jinja, Uganda. Known by her customers only as “Mrs. Batambuze”, the bakery produced limited quantities of bread at a frequency and price which she determined. In turn, every day we happily lined up at Mrs. Batambuze’s bakery at 4 pm and willingly paid her above-average prices for freshly baked bread. We devotedly bought her bread on her terms.
Africa’s SMEs - particularly those in the informal sector - struggle with one if not all of the above features of a competitive business, including control over desired quantity, desired quality, timely delivery and cost.
Generally speaking, Africa’s SMEs find it almost impossible to reach the competitive position described above. Instead, customers dictate terms, which leaves businesses vulnerable to customer whims and undue pricing pressure in already vulnerable economies.
In spite of their weak negotiating position, Africa’s informal businesses – which are primarily woman-owned - contribute an estimated 50 percent of GDP on the continent. In addition, they create six in 10 jobs in their respective economies.
Yet, the informal sector generates mixed reactions. While some appreciate its job creation role, others view it as a collection of tax-evading free-loaders.
So how will SMEs benefit from AfCFTA? Consider the typical informal business example of Jane Were (not her real name). Jane is a Kenyan woman cross border trader at the Western Kenya / Eastern Uganda border, who makes peanut butter and a soy-based drink at home. Jane sells her processed products across Kenya at whatever price she can get and dreams of becoming an exporter.
Like thousands of other women whose kitchens double as food processing units across Africa, Jane runs an unregistered business and sells products that are not quality certified. These informal business owners believe certification and registration are too complex and expensive.
One has to wonder how she and many others like here will become competitive enough to benefit under AfCFTA.
Unsurprisingly, the “messy” informal sector is largely excluded from business support programs that are easier to implement and track in the well-organized and identifiable formal sector.
Legally registered businesses on the other hand, can borrow from commercial financial institutions, bid on government contracts, apply for government grants and participate in government funded training programs.
As we think about the challenges facing the informal sector, it is important to recognize that the informal sector includes businesses at different development levels. Some are literally pre-formal and need just a slight nudge towards business registration. However, they operate outside the nudging circles.
As AfCFTA becomes a reality, we will all have a role to play in ensuring that no one is left behind.
The process should start with ensuring that sufficient funds are mobilised by the African Union Development Agency in order to support studies that will provide a deeper understanding of the sector and its specific needs. This research can then support evidence-based decision-making.
Next, national governments have a responsibility to create a business environment that encourages and motivates pre-formal SMEs to register (as individual businesses or as partnerships) and thus qualify to compete for opportunities available to registered businesses.
Additionally, national governments should encourage their own bureaus of statistics to identify and count informal business operators and measure their economic contribution. We know, for example, that informal businesses and their owners belong to formal, organised groups like local administrative units, religious communities or business associations. Those could all be census starting points.
This action alone will allow us to better serve informal businesses through tailored support programmes and well informed advocacy for an improved business environment.
All of these steps will increase transparency and make the informal sector more visible. This will, in turn, create a pipeline of pre-formal businesses for transition to the formal sector and therefore place them in a position to access future AfCFTA opportunities.
Consequently, increasingly competitive SMEs like Jane’s will advance towards profitable exports and AfCFTA wins.
The AfCFTA will create a market of one billion people. But, unless we proactively seek to find ways to include informal businesses - which are largely female-owned - large parts of Africa’s population will remain excluded from its opportunities.
We should not wait to support Africa’s SMEs. AfCFTA’s future success depends on it.
Dorothy Tuma chairs the East African Women in Business Platform, which represents the views of 20,000 women business owners in six partner states, and has over 15 years of experience in enterprise development with a bias towards women entrepreneur.