The Zimbabwean government is aggressively pushing to rebuild reserves of precious minerals such as gold and diamonds and leverage them for foreign currency resources, businessdigest has learnt.
The reserves will be housed at the Reserve Bank of Zimbabwe (RBZ) and are expected to run into hundreds of millions in the medium term in order to unlock fresh funding into the economy, according to information at hand.
After securing about US$1,1 billion from foreign funders to clear its huge arrears to international financial institutions (IFIs) under the Lima Plan, the Zimbabwean government acknowledges the need for foreign currency inflows in different forms, including debt, hence the need to build reserves, according to mining industry sources that have been consulted at different levels on the projects.
Closely tied to the country’s Lima Plan — designed to clear US$1,8 billion owed to IFIs and become eligible for cheap funding with a view to securing US$2 billion in fresh support — the building of reserves has been discussed at top government level in the first quarter of the year and is now said to be shaping up, according to highly placed sources.
This follows earlier reports by the Zimbabwe Independent that government had mortgaged the country’s gold reserves and production to guarantee a syndicated long-term loan arranged by the African Export and Import Bank (Afreximbank) and American financial institution Lazard Ltd to clear its US$1,16 billion arrears to the World Bank.
Mines ministry officials are, however, understood to be strongly opposed to the strategy amid fears it could change the country’s flawed diamond marketing system, which has cost the economy billions through leakages and corruption, by way of transferring the marketing element to the central bank.
“The fear is really that maybe the RBZ will be buying the diamonds from ZCDC directly. If they get the funding then they give a portion for local value addition, they keep a portion for reserves and then sell a portion slowly to the international market,” said an industry source who requested not to be named.
The building of mineral reserves at the central bank has been viewed with scepticism by some who see it as part of a broader strategy to bring back the now defunct Zimbabwe dollar.
The local currency was in 2009 replaced by a multiple currency regime largely dominated by the United States dollar in 2009, bringing stability to an economy that had suffered stagnation and erosion of value due to hyperinflation.
A top official in the Finance ministry confirmed government was moving towards the building of reserves to leverage on foreign currency resources, but would not be drawn into sharing more details.
“Yes, gold and diamonds are being used to leverage on foreign currency resources. You have a bank account and when you borrow money people will ask you what security you have and in our case it is the gold and diamonds.
We need foreign currency and everyone knows it. It is on such conditions we will be able to make use of facilities from Afreximbank and so on, because we need money in advance,” said the official who requested not to be named.
Asked about the progress on the plan to build mineral reserves and bring back the local currency, the Treasury official said progress had been made with agreements reached in government and with the central bank around modalities of the strategy.
He, however, said the Zimbabwe dollar was far from being re-introduced in the absence of far-reaching structural reforms and their results in the form of increased productivity and growing of exports to build foreign currency reserves and, at the same time, plugging the balance of payments which is currently unsustainable.
“Why do you allow yourselves to be sold a dummy on the local currency return? Leveraging on gold and diamonds or another product in Zimbabwe does not mean that local currency is coming in. It’s like the nonsense people write about a dying economy, when is it dying?” added the official.
A senior official working closely with Treasury on the project confirmed the strategy existed and was soon to be implemented although they laughed off the reintroduction of a local currency as an alarmist agenda driven by baseless falsehoods.
A source in the mining industry said there was, however, divisions in government over implementation of the project, as it meant diamonds, like gold will be sold through the central bank.
The central bank buys all of Zimbabwe’s gold through its Fidelity Printers and Refiners.
“There has been a clique of corrupt officials manipulating the diamond marketing system for personal gain and this change may mean the RBZ buys all diamonds for resale and building reserves and some Ministry of Mines officials are very much against it,” said the mining industry source who also refused to be named.
The resource-driven Zimbabwean economy has raked in close to US$11 billion in gold exports between 1980 and 2015.
Diamonds have, however, been at the centre of controversy with a lot of value being lost to smuggling and other murky deals at Chiadzwa.