LIVINGSTONE MARUFU
Zimbabwe’s foreign currency shortages are expected to worsen in 2020 as the country’s highest forex earner, gold’s export earnings fell 28% to US$946m in 2019 from US$1.33bn in 2018.
The decline comes after the second largest forex earner, tobacco, also made a subdued performance during the past year, leaving Zimbabwe on the edge of economic impulsion due to the rising demand for forex in the economy.
The development comes at a time when the country is grappling with forex shortages and fuel shortages, power outages and looming drought. Economists say Zimbabwe is in a fix as no international institution is willing to extend its credit lines to the country due to its high default rate.
It is understood that the “all weather multi-lending institution” Afreximbank is slowly tightening screws. Business Times gathered that Afreximbank promised to extend lines of credit to the country in March this year but early indications show the promise is unlikely to be met. With gold and tobacco production plummeting economic analysts predict 2020 to be an even tougher year than 2019.
Figures obtained from the Reserve Bank of Zimbabwe (RBZ) show that gold deliveries fell 16% to 27.6 tonnes in 2019 from 33.2 tonnes in 2018. This means that Zimbabwe missed the 40 tonnes target.
“Gold export earnings for 2019 fell 28% to US$946m from US$1.3bn in 2018 due to suspected smuggling, fuel shortages and lack of technology. From the 27.6 tonnes, small scale miners managed 17.4 tonnes against primary producers who managed 10.2 tonnes,” RBZ said in e-mailed responses.
Despite the fall in cumulative gold deliveries, the yellow metal recorded an increase of 30% to 1.84 tonnes in November 2019 from 1.41 tonnes during the same period in 2018. That was the second month in 2019 to record an increase from the previous year month on month comparison. In December 2019, the yellow metal was up 72% to 2.77 tonnes from 1.6 tonnes during the same period the previous year.
RBZ said the increase of gold production towards the tail end of 2019 was due to increased fuel allocations to miners and the drawing down of Gold Development Initiative Fund. The yellow metal contributes 38% of the country’s total earnings and more than 60 percent to the mining sector which happens to be the highest forex earning sector in the country.
Though Zimbabwe missed the 40 tonne gold target in 2019, the country managed to reach its second highest record output. Last year’s output is the second best since 1980. In October gold deliveries went up 17% to 2,402 tonnes from 2,048 tonnes delivered during the same period last year but the last three months of the year do not speak the whole story as deliveries fell during the first nine months of the year due to unfriendly mining policies.
The reduction of the forex retention levels by the Reserve Bank of Zimbabwe to 55% from 70% last year in February has created arbitrage opportunities for miners who are smuggling gold to South Africa.
Some smugglers close to the corridors of power are believed to be offering 90% forex retention threshold thereby wooing miners to sell through the illegal channels. According to Finance and Economic Development minister Mthuli Ncube close to 34 tonnes of the yellow metal were smuggled to Rand Refinery in Cape Town, with South African authorities beneficiating gold into jewellery.
President Emmerson Mnangagwa also disclosed last year that he discovered that US$60 million worth of gold was sold through informal channels to a Dubai-based company. Some miners, especially large scale producers, are believed to be selling their gold to suspected smugglers to get more forex for their operations.
Experts say ccx that established mining companies with huge capital can’t be dominated by less organised small scale producers who don’t have basic mining machinery.
Mining experts say the decline was mainly because of power outages which intensified during the month of June, inefficient mining and processing technologies in use, inappropriate mining methodologies especially at a time when most mines have deepened beyond 30 metres and inappropriate ore hoisting machinery from the deep mine shafts.
The government is planning to increase forex retention to 70 % this year but the miners want retention to be above 80%. Monetary authorities argued that the remaining percentage will be used to import fuel, grain, medicines and fertilisers among other essentials. Miners and RBZ have been on the collision course since last year, with over five meetings cancelled due to lack of preparedness to face each other and other commitments.
All eyes are on the RBZ governor John Mangudya as to what he will do on forex retention threshold during his Monetary Policy Statement presentation at the end of January. Miners expect the monetary authorities to announce a favourable forex retention threshold that will lure miners to formally sell their minerals.
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 by contributing US$4bn export earnings by 2023.
Gold Miners Association of Zimbabwe chief executive Irvine Chinyenze said subdued gold performance means that the economy is likely to underperform given its importance to the economy.
“Zimbabwe needs a lot of forex to buy grain, fertiliser, fuel, drugs and electricity among other critical goods but with the depressed gold exports, forex shortages are likely to be worse than last year.
“However, the decline in yellow metal export earnings is a result of policy failure by monetary authorities who reviewed forex retention threshold downwards instead of upwards. If the central bank is entertaining any hopes of improving forex earnings, it should review forex retention levels to above 80%,” Chinyenze said.
