Patience Maringanguva
An economy is as good as the opportunities it fully utilises. Zimbabwe’s recent gains in GDP growth and industrial recovery have a lot to owe to the mining sector and the players taking opportunities to explore, mine, sell, or refine and sell. The government, to an extent, has also taken its opportunities on minerals’ value chains including on ensuring it receives royalties from an expanded tax base in the sector.
However, the US$12 billion industry plans and trajectory still have more gears to engage. Zimbabwe should not continue to further miss or delay tapping into an over US$10 billion a year market where the benefits would significantly support our local currency and further growth against the US$12 billion target for the mining sector.
The volatility levels in our financial markets and currency, the desperate and adverse propensity to seek a store of value in scarce foreign currency against low exports, and the investor confidence levels can all find a much needed panacea if stakeholders moved with speed to ensure Zimbabwe’s financial environment and investment field had the establishment of Exchange Traded Commodities on the market, especially those focused on minerals.
Defining the Exchange Traded Commodities
Financial instruments that track the price of a specific commodity or a basket of commodities like gold, silver, or oil. ETCs provide direct exposure to commodity prices, and in most forms are backed by the physical commodity itself or Futures contracts. Unlike ETFs, which I am pleased have increased from one to about four on the ZSE, ETCs will not hold company equity or their issued bonds on the market. They would be focused on the commodity itself.
Importantly, physical commodities backing the ETC will be held as ETCs are commonly backed by physical holdings of the commodity, or by derivative contracts (like Futures). For physically backed ETCs, the commodity (e.g. nickel, uranium, lithium, diamonds, gold, rare earths etc.) is stored in secure vaults managed by trusted custodians. Each ETC share represents a specific quantity of the commodity in secure vaults, ensuring transparency and investor confidence.
Minds will already have wandered towards how custodians of fiat currencies have previously lost people’s trust, and how corruption lessens belief in a product’s transparency and hence low investor confidence.
This is why I would suggest Zimbabwe starts at physically backed ETCs and not the alternative synthetic ETCs which deploy swaps or Futures contracts replicating commodity price movements without possession of the physical asset. The integrity of an ETC depends on strict auditing and regulatory oversight to confirm the existence and proper management of the underlying assets — that is why this proposition and encouragement of ETCs as market products missing in Zimbabwe herein promulgates a start at physical holdings so that consumer focus and basis for choice centres on market force interactions with ETCs rather than a fear of electronic ledger manipulation for a product not even within or recoverable in Zimbabwe. Focusing on market forces makes buy-in easier.
Market forces such as supply and demand, geopolitical developments (like current Russia-Ukraine, Israel-Gaza situations), interest rates, and inflation directly influence ETC pricing. As an example, increased global demand for gold drove up its price increasing the value of gold-backed ETCs.
As a clear opportunity lost by Zimbabwe, if we had an ETC on Gold, individuals who wanted to invest a portion of their capital in June 2024 will have seen its value rise circa. 22 percent up to this moment in mid-March 2025. For a farmer in between Zimbabwe’s main cropping seasons (May-October 2024), their capital will have appreciated upwards of 9 percent. That is how an ETC could have helped the economy and individuals. That is also how a market force could impact the ETC.
Similarly, changes in commodity production levels, trade restrictions, or shifts in investor sentiment can affect ETC values. Currency fluctuations, especially in import-heavy countries like how Zimbabwe has been for a while, can also impact ETC prices. As ETCs reflect real-time market dynamics, they offer an accessible way for investors to gain exposure to commodity trends (which show prices depreciating and appreciating). The question then becomes why market forces impinging on ETC prices is a welcome value proposition for Zimbabwe. But first, it would be the most gross of negligence to ignore the gaps in our participation compared to other markets and money that could have been made in current market conditions.
Only 3 percent of African retail investors currently access gold investment, compared to 12-15 percent in developed markets. Potential to mobilise $8-12 billion in domestic African capital currently outside formal financial systems. US$400m is a figure that Zimbabwe could include in its gold market gunpowder keg via ETCs, but is instead leaving out of the gold market to move inefficiently. Structured properly, some research says a gold ETC could retain 30-40 percent more mineral royalties within the country. ZWL agenda would have thundering footsteps towards full establishment and full de-dollarisation.
Silver’s industrial linkage means Silver ETCs could bridge investment and industrial demand, potentially increasing industrial utilisation by 25-30 pecent in manufacturing sectors. Current silver ETC market depth is approximately 60 pecent lower in African markets than global equivalents. As this market is prone to fixing, price differentials between African and global silver markets show inefficiencies of 5-7 pecent that ETCs could address.
Whilst the MMCZ does its best, it can be strengthened as an organisation that is both internally and externally supportive of the Diamond industry. Diamond ETCs could reduce valuation opacity by approximately 40-50 percent based on some estimates. Further benefits from structured ETCs with a diamonds focus is an increase in domestic cutting and polishing activities by 20-25 percent. The ETCs would go some way at addressing why African diamond producers currently receive 15-22 percent below true market value due to intermediation costs. Issues the general public do not participate in and hence do not fathom.
Mixed basket ETCs provide 30-35 percent better risk-adjusted returns than single-commodity instruments. By way of development alignment, mixed basket ETCs could direct 25-40 pecent more capital toward strategic minerals needed for energy transition and technology development.
Mixed baskets correlated with export earnings could reduce currency volatility by 10-15 percent in an export dependent economy such as our own.
This describes and quantifies a situation whence we can independently extrapolate Zimbabwe’s trajectory forward, potentially as one of the first movers taking advantage in Pan-African investor focused ETCs. The monetary estimated ranges the Zimbabwean market could benefit from per year depending on market efficiency and other environmental issues are:
Gold ETC: US$160 – 440m
Silver ETC: US$1-3m. Small value but makes a difference through spillover benefits in industry.
Diamonds ETC: US$75-160m
Mixed basket ETC: US$80-220m. This could be actively managed to include minerals like platinum, lithium and rare earths.
In total, Zimbabwe can expand market participation and also get the firepower for economic ancillary benefits to the tune of around and over US$1 billion a year, just from ETCs linked to metals and strategic minerals. That is too much of an amount of money to be left for others to pick from the table whilst we have a currency needing a very supportive ecosystem.
We must accept we have had local currency instability despite improvements here and there. In an economy like ours, with its monetary environment challenges, investor doubts, and challenging behavioural economics, ETCs present a market-driven, transparent investment option. Their prices are influenced by global commodity markets (which the internal and external investors seem to trust more), shield investors from any local currency devaluation (which commands very high levels of fear and anticipation in investors). This linkage provides investors with a hedge against inflation and currency risk. As ETCs reflect real market demand and supply, they encourage fair pricing and can attract foreign investors seeking authentic value propositions. In essence, ETCs can provide Zimbabweans with another option for a store of value compared to the ZWL gold-linked local currency.
The difference and how the ETCs become an option different especially to the ZiG coins too is an important issue to address.
An ETC’s market flexibility is more defined if it includes various commodities, imagine here silver, lithium, platinum and nickel in one ETC. Having such various commodities and being tradable in a way approved or accessed by global markets allows for dynamic pricing. ZiG coins on the other hand are focused solely on gold and their design limits them to mostly internal circulation and approval.
ETCs can be divided into smaller, more affordable units, making them accessible to a wider range of investors. The unit’s correlation to the commodity will be up to the ETC manager’s profiling of the market and the liquidity they want to maintain against anticipated trading volumes. This flexibility can help expand Zimbabwe’s investor base. ZiG coins still suffer divisibility and access limitations; high-value and being physical means they remain less divisible and with little to no participation from smaller investors even on short term basis. Participation is key internally, and strong economies facilitate average citizens’ participation in the opportunities found in other economies.
ETCs are integrated into global Futures markets, enabling better price hedging and for those able to manage external market risks, to participate in high speed short trades. ZiG coins and the infrastructure around them function more as a local hedge against local currency devaluation only. Speaking of opportunities lost, ETCs would allow realisation of external or international market opportunities for more people of Zimbabwe and as likely to be the case, for more companies in Zimbabwe. Allowing investors to purchase fractional units translates to accessibility for a broader demographic, including low to middle-income Zimbabweans – Vision 2030. The low entry barrier encourages wider participation in commodity investments, fostering financial inclusion in an industry where many in Zimbabwe would have to abandon current locations if they wanted to participate on Zimbabwe’s precious metals value chain. Additionally, as ETCs can be traded on exchanges, they offer liquidity and easy exit options. This expansion of the investor base can strengthen our country’s financial markets, promote wealth accumulation, and encourage a more visible Marginal Propensity to Save (MPS), something currently very difficult to measure and use due to large volumes of unbanked cash and the informality levels of economic participants.
On a larger scale, the positive impact to organisations on the value chain is also very clear. If external demand for commodities increases (such that buyers find themselves needing to access Zimbabwean ETCs’ commodity holdings), foreign buyers can engage with ETC managers to acquire ETCs – bringing the supply-v-demand dynamic right to the Zimbabwean ETCs themselves. This interaction provides a pathway for investors to convert their holdings into forex, promoting liquidity. For Zimbabwe and its currency dynamics, this is a valuable mechanism to attract foreign currency, needless to repeat that this supports much needed economic and currency stability. ETC managers can facilitate these conversions, ensuring compliance with financial regulations while promoting global trade partnerships. Of course there are challenges, opportunities, and requisite positive adjustments in the functions of entities like the Mineral Marketing Corporation of Zimbabwe (MMCZ). Compatibility and alignment of all stakeholders and the relevant laws is crucial midwifery to the mining sector and all other sectors receiving a live birth of ETCs’ inherent opportunities.
ETC managers would need to ensure their market analysis and strategy is towards ensuring stimulation of the mining sector by creating additional domestic consumption beyond traditional exports. They will be holding very calculated volumes of commodity inventories that they at times export with cash satisfying some withdrawals and revaluation of ETC units. Steady demand encourages mining operations to expand, leading to economies of scale and reduced production costs. As demand grows, more mining activities may shift from informal to formal sectors, enhancing sector planning and greater integration, regulatory compliance and sustainability.
As an economy, our growth and diversification equates to such positive externalities’ broader economic benefits; increased activity that further drives growth of supporting industries such as logistics, hospitality, mineral refining, and equipment manufacturing or repair.
A robust ETC market is potentially one unique gateway to Zimbabwe’s exponential curve’s sharp upward-tilt in mining industry and related sectors’ growth. Capital inflows is a characteristic that should be expected from ETCs. Employment growth would definitely follow from expansion in mining and its value chains. Whilst we are busy looking for FDI, there is unallocated or misallocated capital held by Zimbabweans. Would-be Upper-middle income Zimbabweans can start sowing seeds for overshooting or at least ascertaining achievement of the aimed-for upward shift in economic class. Increased demand incentivises technological adoption, improved mining practices, and cheaper cost of capital for projects on required energy production for the sector, further strengthening the sector’s global competitiveness.
What is there to be scared of? Yesteryears’ Old Mutual Implied Rate (OMIR) issues? These can be avoided and surely should no longer be an issue if the ZWL circulation and its value approach are managed well.
The benefits of ETCs can be positively and clearly distinguished from the historical impact of Old Mutual shares (OMs) on currency stability in Zimbabwe. By focusing on the intrinsic nature of ETCs, their market dynamics, and how they align with stabilising the economy, that matter is totally unrelated to the need to cure ETC deficiency in Zimbabwe.
OMs were equity instruments representing ownership in a company with their valuation at the mercy of market speculation, cross-listing price differences, and arbitrage; making them vulnerable to external distortions that impact local currency stability. ETCs on the other hand are directly backed by tangible commodities like gold, silver, nickel, uranium, or a basket of minerals. The value of an ETC is inherently linked to the global price of these commodities, providing a solid, objective measure of worth that is less susceptible to local currency fluctuations. The only worry is if Zimbabweans allow themselves to be fleeced of their ZiG/ZWL by wrong exorbitant pricing against the local currency as evident in most basic goods.
ETCs would possess a commodity-driven value as they are pegged to global commodity prices. ETCs offer an intrinsic hedge against local currency devaluation as opposed to seeking this hedge in the US dollar, a practice that concomitantly puts further pressure on the local currency and its long term sustainability as importers then compete with savers, and remittances for US$s against disproportional export values. For instance, gold-backed ETCs would retain or appreciate in value when the Zimbabwean dollar weakens without the added misfortune of putting adverse pressure on the ZWL.
ETCs limit speculative arbitrage opportunities that can destabilise local markets. Unlike the old cross-listed OMs, ETCs are typically structured to reflect global commodity prices uniformly. A reduction in speculative attacks on the ZWL can follow as ETCs could strengthen it by dint of anchoring its value indirectly to globally recognised commodity prices (this time the commodities being those mined from our own highly endowed Zimbabwean soils). The ZWL is doing that itself with gold prices to an extent and the ZiG coins to a larger extent. The international gold price correlation to platinum or nickel itself will have the market quickly stabilising around a relevant ETC’s correlation to the appropriate market driven ZWL or ZiG coin price. This is the reason why some of us were asking for a gold backed currency for years; speculative attacks on our currency and economic environment must be stopped. As ETCs are generally backed by verified physical commodities stored in secure vaults, with strict issuance and redemption processes, this structure minimises the chances of speculative manipulation. All players would need to set strict rules for each other for market order and ETC market sincerity.
The MMCZ’s mandate which includes ‘developing new markets for Zimbabwean minerals, marketing minerals directly in regional and international markets, evaluating rough and polished diamonds, and ensuring accountability of national mineral resources through monitoring and inspection strategies’ should be supportive of building the case for ETCs as a positive market force. Where their exclusive authority over mineral marketing can present challenges to the establishment of ETCs in Zimbabwe, the light should be seen on what powers are essential to let go of for the good of the country. Of importance is thoroughly reviewing if their centralised power hinders necessary market dynamics and liquidity essential for ETCs to function effectively. Before that, the existing legal framework needs to be optimised, and hopefully, on resultant balance, accommodate the operational structures required for establishment of ETCs in Zimbabwe.
In fact, regulating ETCs is not as hard as chasing smugglers or closing loopholes for the smuggling of the precious commodities! It is not as hard as investigating corrupt individuals interfering with optimal marketing of minerals. ETCs involve straightforward regulatory oversight! The focus is on verifying commodity holdings and ensuring fair pricing mechanisms. Lessen the load on the Border officers, ZRP and ZACC and at the same time grow the economy. MMCZ, Securities Exchange Commission of Zimbabwe, FIU and other key players should be able to handle this profitable job.
As Zimbabwe, I believe we should be running breathless towards the opportunities being washed away by time whilst we watch. ETCs presently have a wasted present moment in Zimbabwe and Africa. We need to make the ETCs future an urgent objective. Let us have not one ETC, but let us have some! — https://thoughtsofa-patriot.blogspot.com/
