Zimbabwe’s bullion, which has been in a bubble since 2017, could burst this year after gold export receipts plunged 21% to US$770.4m in the first 11 months of this year from US$971.5m realised in the same period last year due to Covid-19 effects, delays in in payments for deliveries and rampant smuggling.
Official data obtained from Fidelity Printers and Refiners (FPR) this week shows that gold deliveries plunged to 17.59 tonnes during the 11 months of 2020 from 24.88 tonnes recorded in the same period last year.
Consequently, gold exports, which have been on a roll for the past three years, could be knocked off the top spot as the country’s leading export earner for the first time in three years by diaspora remittances.
Diaspora remittances in the first 10 months of the year have reached US$760m. There is a highly likelihood that diaspora remittances would overtake gold given that the festive season which has gripped the country, is usually the peak period for remittances.
Coincidentally, this is the low season for gold production as rains have compounded misery to the sector. The sector has also become more prone to smuggling triggered by delays in payments.
Another key export receipts earner, tobacco, also took a turn for the worse this year, falling 13.8 % to US$398m during the 10 months to October from US$462m earned during the same period last year due to fall in the tobacco deliveries this year.
Reserve Bank of Zimbabwe governor John Mangudya, this week revealed the grim side of the gold market, meaning the bubble is all set to burst.
“Exports for November went up 13% to reach US$73.4m from US$64.8m earned during the month of November, however, cumulatively gold shipments have plunged 21% to reach US$770.4m from US$971.5m due to Covid-19 effects which restricted the flight of cash into the country,” Mangudya told Business Times.
Zimbabwe was on track during the first half of the year when the country’s export earnings went up 2,6% to US$476.2m from US$464m earned during the same period last year due to the review of foreign currency retention threshold and increased fuel allocations this year.
However, rampant smuggling began in July when Fidelity delays in payments took up to eight weeks forcing miners to opt for alternative markets for the yellow metal.
Strict lockdown measures put in place by the government to curb the spread of Covid-19 also played a part.
The mining sector was, however, exempted and given essential service status, which allowed players in the sector to operate and import essential consumables.
Fidelity Printers and Refiners general manager Fradreck Kunaka said in the month of November gold deliveries declined 20% to 1.48 tonnes from 1.84 tonnes recorded during the same month last year.
Kunaka said FPR was dedicated to pay gold miners on time but Covid-19 has made gold payments difficult due to the fact that they import cash, adding payments are now made “within five days”.
This year, the Meteorological Services Department has predicted normal to above rainfall patterns, a situation which is good for agriculture but bad for mining, especially small-scale mines.
“The rainy season has always hampered the operations of artisanal and small-scale miners in their gold production as evidenced by the decline in gold deliveries and export receipts during this time of the year,” he said.
Gold Miners Association of Zimbabwe chief executive Irvine Chinyenze said gold export receipts were bound to fall down as delays in payment were expected to force miners to look for alternative markets where full payments are done on the spot.
It is estimated that over 35 tonnes of gold have been smuggled so far this year.
“The decline in export receipts was a result of delay in payments as miners look for an alternative market to capitalise and continue producing,’’ Chinyenze said.
“The political figures and powerful business people who are against the idea of ending Fidelity monopoly are the ones providing alternative markets. They should become frank with themselves to stop that rot as long as they control these syndicates the anti-smuggling unit is toothless.
Quick payments and high forex retention levels will end low deliveries and export receipts but given that big figures are greedy, very little will be done to solve that.”
In a recent report on Zimbabwe’s gold subsector, FPR’s gold buying monopoly was blamed for the plunge. The report said the development of the gold sector was crucial if President Emmerson Mnangagwa’s government is to salvage prospects for Zimbabwe’s economic recovery from decades of economic stagnation.
Gold contributes 38% of the country’s export receipts and Zimbabwe, which is desperately short on hard currency, should plug all leakages to ensure the country does not lose exports receipts of US$2bn annually.
Gold world prices have not dropped radically during the worldwide pandemic as the yellow metal prices ranged between US$53,000 per kilogramme to US$63,000 per kilogramme during the reported time.
When the world gold prices are around US$61,000 FPR pays gold producers between US$45,000per kg and US$53,000 per kg, a practice that encourages smuggling and erodes industrial mining profits, leading companies to close mines.
Zimbabwe is targeting 100 tonnes of gold per year by 2023, a figure which is expected to help the sector to earn US$12bn yearly and only if forex retention threshold, fundamentals and funding issues are addressed. Gold is expected to lead the charge with US$4bn.