TAURAI MANGUDHLA/ LIVINGSTONE MARUFU
FOREX-starved Zimbabwe faces a tough task to balance expenditure on critical imports as foreign currency receipts plunge further in the coming four months, Business Times reports.
Foreign currency receipts are driven by mineral exports with gold being the major component of the revenues, followed by tobacco. The two have underperformed this year leaving the economy’s foreign currency cycle at its lowest. As a result, analysts contend there is need to diversify forex sources and grow contributions from other foreign currency earners.
The mining sector generated US$1.3bn, which constitutes 68% of total export receipts in the first half of 2019, while tobacco receipts closed July at US$527m. Tobacco trading takes place during the marketing season that usually runs between March and July. Gold, on the other hand, is affected by the rainy season which has started.
Small-scale and artisanal miners, whose component to overall output has been growing over the years, are the most affected due to their poor mining methods and the lack of adequate equipment and expertise. As such, operations are normally low among small-scale and artisanal miners during the wet season.
Gold production figures for January to September 2019 amounted to 22 tonnes, with small-scale and artisanal miners contributing 16 tonnes, which is 73% of the total output.
Traditionally, it is that time of the year the central bank chief John Mangudya announces an Afreximbank bailout in the form of credit lines or other schemes in order to assure the nation the ship is not sinking. This time around, that option is not available given that Afreximbank stopped Zimbabwe from accessing new money under whatever terms until March, worsening Zimbabwe’s forex situation.
This raises questions around Zimbabwe’s performance in terms of paying back what it owes to the bank as well as confidence issues. With foreign currency shortages crippling the economy, government resolved to retain 45% of foreign currency earned by miners and feed into the market through the interbank system. Corporates are angry at the monetary authorities’ directive that they utilise their foreign currency within 30 days or it will be liquidated at the prevailing interbank rate.
This has resulted in the smuggling of minerals, such as gold and the use of informal channels to sell and receive payments. Official figures indicate a 9% slump in forex receipts in the first nine months of 2019 after underperformance by gold, platinum, tobacco and tourism.
In 2019, tobacco farmers delivered 259.3m kg to the tobacco floors, worth US$526.6m, compared to 252.6m kg which earned US$737.4m last year. Tobacco’s future is uncertain as the crop suffers from pricing difficulties, due to high costs of inputs and cartels who are manipulating prices.
Failure to pay farmers in hard currency has made it difficult for them to buy inputs and go back to the fields. Gold miners, who get 55% of their money in foreign currency, are also singing the blues and have turned to the more lucrative black market at the expense of national coffers.
Zimbabwe’s new monetary reforms and unfavourable prices being offered by the authorities have given life to side marketing in the gold sector following the emergence of a powerful cartel comprised of foreign dealers and some local politicians who are now bypassing the official channels for a lucrative market beyond the country’s borders.
The wet season is a challenge for small-scale producers who now account for the bulk of production.
According to Marufu Sithole, the deputy president of the Zimbabwe Miners Federation, “when the rains come, production is affected and it is a challenge. Our people sometimes do not have adequate equipment and their mines are not structured properly, but we will continue to educate our people so that they improve productivity throughout the year.”
Analyst Batanai Matsika said Zimbabwe’s dependence on small-scale producers was a structural problem in itself which needed to be addressed. “We need the primary producers to take the lead, they bring FDI and it’s an issue of the investment climate, electricity, and foreign currency retention rules that need to be addressed,” he said. “With tobacco, it is seasonal and it has got its ups and downs which creates problems for our economy.”
Matsika said the long-term solution is not to depend only on exports. “We need to grow the foreign receipts yes, but there is also credit lines, FDI, donor funds, aid and diaspora remittances which we can also grow.”
To him, Zimbabwe’s confidence crisis needs to be addressed. “When we talk of credit lines, we are talking about banks and the multilateral lenders, and this is where confidence issues and re-engagement come into play,” Matsika added.
