Foreign currency inflows have taken a further knock in the six months to June, dimming Zimbabwe’s prospects of recovery after the new policy intervention, after gold earnings fell 31 percent in the six months to June mainly on the back of subdued production and increased incidences of smuggling.
Gold is Zimbabwe’s top export earner accounting for close to 38 percent of the total earnings.
Fears have heightened that the new currency regime announced by Government towards the end of June could lead to a further decline on gold deliveries amid reports that already the bulk of the gold produced by small scale miners is now being smuggled out in favour of hard currency.
This has put a strain on the country’s inflows considering that Government securitised some of its facilities from Afreximbank with gold receipts. .
Latest statistics from the Reserve Bank of Zimbabwe show that gold exports plummeted 31 percent to US$490 million during first six months of 2019 from US$715 million earned during the same period last year due to crippling foreign currency shortages and power outages.
Gold production in the six-month period dropped by 28 percent to 12,2 tonnes from 17 tonnes during the same period a year earlier.
Earlier this year, government has projected to reach a target of 40 tonnes by year end but with massive power cuts, forex shortages and suspected smuggling the target is fast becoming a distant reality.
Producers of the “yellow metal” now need to produce more than 27 tonnes during the second half of the season – which is traditionally the strongest half in the sector – to reach record deliveries which are now almost a mission impossible given the circumstances on the ground.
RBZ governor John Mangudya told Business Times on Wednesday that monetary authorities are concerned by the low deliveries and are now rushing to devise mechanisms to improve and incentivise gold deliveries.
“During the first six months of 2019, small scale gold producers delivered 7,3 tonnes while large scale miners managed 4,9 tonnes with a cumulatively total of 12,2 tonnes with export earnings valued at US$490 million from US$715 million the prior year,” said Mangudya.
The RBZ chief believes that if the small scale miners’ gold facility is improved to above $200 million that would encourage them to deliver to Fidelity Printers and Refiners.
However, small scale miners want the forex retention levels reviewed from the current 55 percent to above 70 percent to start delivering gold to FPR.
Tobacco which is the country’s second largest forex earner is also going through difficult times with earnings dropping to US$427 million during the 78 days of trading from US$737 million earned same period last year.
Tobacco has had its fair share of challenges as farmers continue to have running
battles with government over pricing.
Traditionally between February and September the country relies on tobacco export earnings but with dwindling revenues the country is likely to struggle more.
It is the first time in many years since the country has looked for credit lines during the tobacco selling season as witnessed when the Afreximbank extended US$500 million for interbank system.
This shows the country will rely more on borrowings as both its forex drivers are struggling.
Tobacco and gold contribute 59 percent of the total export earnings.
Meanwhile, worryingly imports appear to be on the rise again, following a sharp decline in the first quarter of the 2019. The average monthly import bill for 2019 so far at $391 million is noticeably lower than 2018 and 2017 comparatives at $590.8 million and $457 million respectively. Imports have been on a rise since March and the challenging manufacturing environment is likely to increase import reliance.
Earlier this month the government released its new industrial policy which among its objectives aims at achieving 10% per annum growth in merchandise exports and 2% per annum growth for the manufacturing sector. Currently, according to the May statistics the country’s export basket is dominated by non-manufactured goods. In total, the top 5 exports account for 75% of the total export earnings, illustrating the need for diversification as well as more value addition in local production.
- Additional reporting Tinashe Makichi and FinX