HomeEconomyEconomyGold output and the US$4bn target

Gold output and the US$4bn target

The contribution of gold to the Zimbabwe’s export earnings and economy can never be over-emphasised. The yellow metal has been a consistent performer on the country’s export commodity charts for the past 10 years. This year, gold prices have risen to a seven-year high of US$1 742 per ounce (as of June 1) on the world market as investors flock to gold which is traditionally deemed a safe haven, and this may work to Zimbabwe’s advantage.


Gold has been bullish as a result of increased tensions between the United States and China, geopolitical strains for oil-producing countries, decline in business productivity and currency depreciations due to the coronavirus pandemic. Zimbabwe raked in US$1,3 billion in export earnings from 27,6 tonnes of gold in 2019, up from US$1,1 billion recorded from an all-time high output of 33,2 tonnes in 2018. This year’s output is expected to increase to 30 tonnes on the back of upward reviews of retention thresholds by Fidelity Printers and Refiners (FPR), the gold-buying arm of the Reserve Bank of Zimbabwe (RBZ).

On May 26, the RBZ reviewed gold retention thresholds in a move which will see large-scale producers getting 70% of their export proceeds in foreign currency through their nostro accounts, while the remaining 30% will be paid in Zimbabwean dollars using the ruling interbank rate (currently fixed at ZW$25 to the US dollar).

Gold-buying agents and artisanal miners will be paid 100% in foreign currency at a flat price of US$45 per gram for fine gold. However, small-scale miners feel they deserve the same arrangement offered to large-scale producers since they now contribute 63% of the gold in the country. Currently, one gram of gold is fetching US$56 on the world market and prices are expected to remain bullish.

Side marketing and smuggling

The unfavourable export retention scheme of 55% to the miner and 45% to the central bank had seen a massive decline in gold deliveries to FPR and rampant smuggling of the yellow metal. Last year, the Zimbabwean government admitted that only a third of gold produced in the country is delivered to FPR. The bulk of the gold, worth over US$1,5 billion (over 35 tonnes), is lost through smuggling cartels that have influence in the entire value chain from artisanal miners on the ground to international buyers that export the mineral to South Africa and Middle East.

Parallel market gold buyers have been paying cash to small-scale miners, taking advantage of the uncompetitive retention scheme and delays by FPR to pay for delivered gold. It has been alleged that large-scale producers have also been under-declaring their output while selling their gold via small-scale producers and side marketing produce to parallel market buyers. This means that the country loses billions of dollars in foreign currency and millions in potential tax revenues every year.

Challenges for large-scale producers

Zimbabwe has seen a shift in Gold production in the last five years with operational challenges for yester year primary producers such as Freda Rebecca Mine (Bindura), RioZim (Renco and Cam & Motor Mines), Metallon Gold (How, Mazowe, Shamva & Redwing Mines), Falcon Gold (Dalny, Venice & Golden Quarry Mines), Bilboes Gold (Isabella, Bubi, When & McCays Mines), Sabi Gold Mine and Duration Gold Mine.

Power cuts, foreign currency constraints and fuel shortages have significantly affected large-scale producers. Blanket Mine (owned by Caledonia Mining) has, however, bucked the trend with consistent production in the last 10 years. It is expected that a favourable export retention threshold of 70% will allow some of these yester year giants to invest in machinery and technology that will see them coming back to the fore. It will also make various old mines on the shelf attractive to potential buyers on the market.

The RBZ will, however, need to fine-tune its policies on repatriation of dividends and capital gains in order to allow foreign investors to freely invest their capital and retool most of these mining assets. RioZim’s Biological Oxidation (Biox) project which has been shelved as a result of foreign currency shortages, is expected to come back to life.

A number of large-scale producers are also investing heavily into solar in order to guarantee production with RioZim and Caledonia having tendered for projects to build solar plants at their all their mines.

Central bank dilemma

The RBZ is faced with a huge dilemma where it has to manage inflation through controlling electronic money supply, while giving producers incentives to reduce side-marketing of gold, especially small-scale and artisanal miners.

The central bank has been giving gold producers incentives ranging from 10% for 2,5kg to 26% for 25kg delivered so as to increase the tonnage of gold sold via formal channels. It desperately needs retained foreign currency earnings from gold in order to pay for collateralised foreign debts contracted from AfreximBank, among other demanding needs.

Deliveries from small-scale producers has declined partly due to the disparity between the fixed interbank rate of 1:25 and the prevailing parallel market rates of over 1:70. A managed floating rate is, however, the most sustainable policy to managing the exchange rate volatility (increasing interbank efficiency) while maintaining gold deliveries from miners at all levels.

The US$4 billion target

Zimbabwe has massive export potential when it comes to gold production. Current production puts Zimbabwe on the 8th spot on Africa’s largest gold producers’ list.

However, any increase in output to 100 tonnes per year will see Zimbabwe competing with the likes of Ghana and Sudan on production level. The revelations that the country could be producing in excess of 90 tonnes of gold per year add weight to the possibility of attaining the target of US$4 billion export value set by the government.

The target, however, can only be achieved if there is an efficient interbank market, 100% retention of foreign earnings and a stable currency that guarantees value for miners. All of these conditions are non-existent at the moment.

Currently, FPR sells the delivered gold to South Africa’s Rand Refinery which then sells it to the London Bullion Market Association (LBMA). This means that export value for Zimbabwe’s gold can be enhanced if all the smelting and refining is done locally before exporting.

The US$4 billion export target for gold by 2023 is ambitious yet is still achievable provided the distortions in the market with regards to payment delays, currency stability and exchange rate are addressed by the central bank. It is, however, mission impossible for the central bank to stabilise the Zimdollar while offering monetary incentives to the miners in a market where inflation has eclipsed 766% and it’s still going.

Other production constraints that need attention include power and fuel shortages which have been negatively impacting production from miners across the board. The RBZ’s export retention review has provided a ray of hope for producers and will definitely improve formal deliveries but more is still needed to close other leakages, improve competitiveness and ensure sustainability for the mineral whose glitter is key to the country’s economic growth.

Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or Twitter: @VictorBhoroma1.

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