A NEW foreign currency retention facility introduced by the Reserve Bank of Zimbabwe (RBZ) this week is expected to inject fresh life into ailing gold minin
g operations and exporting companies that had been on the brink of collapse, analysts and industry players have said.
Analysts said the increase in foreign currency retention levels to 70% would mean more resources for exporting companies which would be bolstered by the devaluation of the local currency undertaken by the central bank on Monday.
Basilio Sandamu, the CEO of the Horticultural Promotion Council, said: “It’s a positive development but it takes time for the impact to be felt.”
Chamber of Mines CEO, David Murangari, said the review of the foreign currency retention policy would help revive the mining sector, particularly gold producers.
“This means more resources for projects,” said Murangari.
“We expect the development to translate into increased productivity,” he added.
He said the major problem affecting the mining sector was the shortage of foreign currency to import inputs and equipment.
RBZ governor Gideon Gono said on Monday exporters would retain 70% of all their foreign currency proceeds in foreign currency accounts.
Previously, exporters retained 70% for 30 days before disposing it on the official market. Gold producers only retained 40% of their receipts in foreign currency accounts.
Gono also devalued the Zimbabwe dollar from US$1:$101 195 to US$1:$250 000.
The rate had been stuck at US$1:$101 195 since January this year.
However, the greenback is currently trading at around US$1:$620 000 on the parallel market.
Economic consultant John Robertson said the devaluation was a positive development but indicated that this remained far lower than that on the parallel market.
He said the disparity between the official exchange rate and the parallel market was huge and the premium on the parallel market would force those with foreign currency to offload receipts on that market to increase margins.
“The gap between the official and parallel exchange rates is too wide,” said Robertson.
He said miners who had the opportunity to smuggle gold outside the country were likely to continue doing so in order to sell their foreign cash on the parallel market.
However, Robertson admitted that the new foreign currency retention policy would boost productivity in the short-term, ensuring that exporting firms would survive the tumultuous operating environment.
“Retaining 75% for miners and 70% for exporters will enable them to increase output and realise higher revenues,” he said.
Murangari said besides restoring capacity and lost confidence, the decision to review the foreign currency retention levels would also make planning easier for miners.
The future of the country’s mining sector had become uncertain due to the poor exchange rate system coupled with the poor foreign currency retention policy.
Asked if the disparity between the official and parallel market rates would result in smuggling, Murangari said he was not aware of any formal producer who was involved in smuggling activities.
“The smugglers are not our members,” he said.
Murangari said although the official exchange rates still significantly lagged behind the parallel market exchange rates, both exporters and miners were cushioned by the increased retention level.