As Zimbabwe grapples with successive droughts that are costing the economy billions of dollars annually, the country has to pin its hopes on the extractive industry — gold in particular, Reserve Bank governor John Mangudya has said.
By Taurai Mangudhla
At a Zimbabwe National Chamber of Commerce (ZNCC) breakfast meeting on the launch of bond notes held last week in the capital, Mangudya said “the skies are empty” while the ground remains rich.
If exploited, the country’s vast natural resource endowment has the potential to turn around the country’s economic fortunes, Mangudya said.
The country’s gold reserves, in particular, could be a huge game changer, but have been barely exploited.
“We have arguably the second largest gold reserves per square kilometre in the whole world,” said Mangudya.
“We have got 13 million tonnes of gold, proven, underground but since 1980 we have only managed to mine 580 tonnes.
Some people put it at 580 000 tonnes when I said this before because they thought the number is too small but it’s 580 tonnes and we still have a long way to go,” Mangudya added.
“Future generations will laugh at us, saying ‘they did nothing with these resources’. We might differ on the how part but we must provide incentives,” he said.
Mangudya defended his decision to introduce bond notes which he said are an incentive to exporters.
“That 5% is what we are funding. In relation to the price of gold, we fund about US$55 per ounce at current prices.
We are saying if we fund it using US dollars, the money will go out. If we don’t pay the incentive it means our exports will continue to go down,” Mangudya said.
Gold remains one of Zimbabwe’s major exports, raking in as much as US$10,061 billion between 1980 and 2015, according to central bank figures. Gold exports amounted to US$2,3 billion between 1980 and 1990 before growing marginally to US$2,5 billion between 1991 and 2000.
Between 2001 and 2009, gold exports stood at US$1,9 billion before peaking to US3,3 billion in the period between 2011 and 2015 mainly on account of increased production due to new investment in the multiple currency regime that brought stability in the economy.
Zimbabwe’s gold deliveries to state buyer Fidelity Printers and Refiners (Fidelity) went up by 18% to 9,6 tonnes in the first half of 2016 compared to the same period last year and are poised to reach government’s target of 24 tonnes by year end on account of a number of measures introduced to stimulate the sector, latest figures show.
Including gold processed from Platinum Group Metals (PGMs) amounting to 1,1 tonne between January and June 2016, total gold production during the period amounted to 10,7 tonnes which is 13,3 tonnes shy of the annual target, the central bank said in its mid-year monetary policy statement.
“The projected annual gold delivery for 2016 is 24 tonnes. In this regard, the half-year delivery of 10,7 tonnes indicates that the targeted 24 tonnes is achievable as more gold is usually produced during the second half of the year,” said the RBZ.
Zimbabwe’s gold production peaked to 30 232 tonnes in 1999 from 11 414 tonnes when the country gained independence in 1980. Production hit 3 071 tonnes in 2008 at the height of hyperinflation and economic stagnation as producers suffered from a lack of capital and erratic supply of utilities.
In terms of contribution to the economy, the yellow metal contributed US$242,2 million in 1980 and peaked in 2012 when gold contributed US$714,9 million to the economy. The country’s gold also fetched its highest per ounce at 1 664 per ounce compared to as little as US$272,65 per ounce in 2000.
The increase in gold deliveries comes after government reduced royalties from 5% to 3% on incremental output with a cap of 5% for large-scale primary producers, and from 3% to 1% for small-scale and artisanal miners as well as the firming of international gold prices, from an average of US$1 181,21 per ounce in the first quarter to about US$1 259,35 per ounce during the second quarter of 2016.
The relative stability of power availability in the second quarter of 2016, introduction of a 5% export incentive scheme by the RBZ in May 2016 as well as improved visibility of Fidelity due to work being done by the gold mobilisation and monitoring committee have also been attributed to the growth in gold deliveries, thereby reducing leakages of the yellow metal across the country’s porous borders.
Mangudya said a number of policy measures were being adopted to enhance confidence and production in the economy, including in the gold sector, while simultaneously ensuring sustained financial stability.
Mangudya said a US$20 million gold development initiative facility to support small-scale and artisanal miners was being finalised.
“The RBZ has secured US$20 million for Fidelity to support small-scale and artisanal mining operations in order to increase gold production in the country,” said Mangudya.
“With underground gold reserves estimated to be around 13 million tonnes, Zimbabwe’s rich gold reserves are clearly under-exploited. Only 586 tonnes have been officially mined over the past 36 years from 1980 to August 2016. There is, therefore, great scope to vigorously promote the mining of gold across the country in order to liquefy the economy,” added the central bank chief.
He said the gold development initiative (GDI) or the formalisation process of the small-scale producers which will be executed according to responsible mining standards needs to be supported by fast-tracking the ease of doing business policy measures that include the reduction of the cost of doing business.
The RBZ chief proposed a reduction in custom milling fees from the current US$8 000 on the basis that when the fee was US$2 000 there were 485 millers which were registered but now at US$8 000 the registered millers are now around 51.
“The challenge is that there are many millers who cannot afford to pay the required fee of US$8 000 but are still operating and selling their gold on the black market and/or smuggling gold out of the country,” he said.