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Monday, 16 January 2012

Zambian Agricultural Commodity Exchange

An interesting presentation on the constraints facing the development of ZAMACE, including some of the restructuring proposals. The full paper can be found here.
ZAMACE - Institutional Changes and Persistent Challenges - Dec 2011


  1. " Internal RP Capital documents project the value of Zamtel in 2015 being in excess of US5 Billion, the benefit of which the Zambian people would not have enjoyed. "

    $5 billion is not $257 million. And of course now we know that the Rupiah Banda adminstration/RP Capital's made the GRZ *pay them* $77 million, which they then put on the Zambian people's tab by borrowing $75 million from a Chinese infrastructure fund.

    This is pure fraud. The valuation was fraudulent, the sale was fraudulent.

    The Zambian people were robbed of $5 billion. Plus $77 million.

  2. 3.1.2. Process adopted

    i. RP Capital Partners Cayman Islands were sourced and engaged by the Ministery of Communications and Transport (MoCT) by its Minister Dora Siliya.

    ii. Dora Siliya unilaterally and arbitrarily signed a MoU with RP Capital Partners Cayman Islands. She stated to the Tribunal that this was on the recommendation of her staff who had reviewed a dossier submitted by RP Capital Partners and were satisfied with their review.

    The Committee was unable to find any documentary evidence supporting the Minister’s claims. To the contrary the Committee has obtained a MoCT internal memo which in fact contradicts the Minister’s statement. This Committee places on record that this memo was neither mentioned nor availed to the Tribunal.

  3. I found this paper very enlightening on the structure and incentives within ZAMACE and agricultural marketing in Zambia in general. The recommended remedies proposed in the last section appear to be solid first steps towards re-alignment of current structures that disincentivise participation in the exchange by key participants.

    I speculate that the origins of the difficulties being faced by ZAMACE at this time can be traced at least in part to the emphasis on membership by traders (grain buyers) as opposed to brokers (grain sellers) in an exchange process whose primary purpose historically is to enable farmers to obtain competitive bids for their products and avoid captive status to a single purchaser. It is particularly revealing that according to the report fully 68% of all trades recorded by ZAMACE are still "registered" trades conducted off the floor between brokers and traders on a single-bidder basis without open competition. I think that one significant factor encouraging this practice must be that ZAMACE charges a fee of 2% for such registered trades, while assessing both buyers and sellers each 1.5% (total cost of 3% once a trade is complete) for trades conducted on the exchange floor. This is a clear disincentive to enter into an open bidding situation if agreement can be reached between two parties off the floor. While there is likely some persuasive rationale for the discrepancy between fee structures, equalising the costs of both transaction types would seem a simple step towards encouraging brokers to actively seek contracts which provide the highest available bid for farm products.

    I should also note that ZAMACE charges a monthly membership fee (recently raised by 25% due to low trading volumes and resulting shortfalls in collection of the per trade fees alluded to above), which is unrelated to the amount of trading the member conducts either on the floor or through "registered" contracts. One simple mechanism to increase use of the exchange floor for transactions would be to off-set this fee by a percentage (possibly 100%) of the per-trade fees paid by the member over the course of the month. In other words if a member trades exclusively through "registered" contracts, the full monthly fee would be due, in addition to the per-trade fees based on the value of the contracts. If a member engages in competitive trades on the exchange floor however, the per-trade fees incurred would be credited against the monthly fee, reducing or eliminating it entirely for members engaging in significant volumes of trade. Such a re-alignment of incentives would serve to encourage brokers and traders to reconsider the potential profitability of floor trading as opposed to the more traditional "registered" contract process.

    While small "tweaks" in incentive structure such as these are unlikely in and of themselves to alter trading behaviours across the spectrum of the agricultural marketing industry, I feel that they could add to the overall restructuring proposed by the IAPRI paper and help to make ZAMACE more sustainable and valuable as an institution to farmers seeking fair value for their products.


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