VFEX moves to fund tobacco

ZIMBABWE'S bourses have moved to help the tobacco farming sector raise foreign currency for their operations, in a development seen as a solution to the industry's a long-running capital crisis.

The Zimbabwe Stock Exchange (ZSE), the Victoria Falls Stock Exchange (VFEX), which exclusively trades in foreign currency, and the Tobacco Industry and Marketing Board (TIMB) agreed this week to work together to deal with the crisis that has affected golden leaf production for some time.

Details of the agreement were not immediately released after the signing of a memorandum of understanding (MoU) by the parties.

But the parties indicated that spin-offs from the deal would help farmers and merchants raise capital.

"Given the funding and marketing challenges faced by small-scale tobacco farmers, funding challenges faced by local tobacco merchants and the limited hedging instruments for farmers in terms of price and weather risks, the Tobacco Industry and Marketing Board, the ZSE and the VFEX are pleased to announce the signing of a memorandum of understanding, which forms the basis for co-operation in the following areas, fundraising for tobacco farmers, fundraising for local tobacco merchants, the compilation and distribution of tobacco production and marketing data, the establishment of a tobacco derivatives market," the parties said in a joint statement.

Full implementation of the MoU is expected to result in increased productivity and smoother cashflows for small-scale farmers, as well as improved capacity for merchants. While thousands of small-scale farmers have entered tobacco farming in the past two decades, they have found the terrain rough in a market largely dominated by big foreign funders who control 96% of the Zimbabwean market.

These big firms, which contract cash-strapped farmers to grow tobacco, have been accused of imposing low price for produce shipped to their warehouses while creaming off farmers' revenue through deductions for supplied inputs.

The MoU came a week after Cabinet approved the tobacco value chain transformation plan, which is meant to transform the sector into a US$5 billion industry by 2025.

The plan is expected to localise tobacco financing, increase production and productivity, and result in  value addition and beneficiation and exportation of cigarettes.

The plan is also expected to help the sector to localise funding of tobacco production.

"The immediate objective is to increase tobacco production and productivity through increasing the yield per unit, increasing the area under crop and minimising losses.

"The above measures are being taken because the country is not getting maximum benefit from its tobacco crop in terms of value addition and beneficiation, Information minister Monica Mutsvangwa, in a post Cabinet Press briefing, recently said.

The VFEX and TIMB deal comes a week after the exchange signed another MoU with the Dubai Gold and Commodities Exchange (DGCX), the leading derivatives exchange — to strengthen bilateral co-operation as well as exchange knowledge around commodity trading.

As part of the agreement, the DGCX will extend technical support, knowledge and skills to VFEX, with the ultimate aim being to establish an international commodities exchange in Zimbabwe. Additionally, VFEX will seek support from the DGCX in coming up with a clearing and settlement commodities exchange framework.