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Best of BizNews #1 – Andrew Donaldson: Asking RW Johnson why SA hasn’t much time left – BizNews

BizNews is celebrating its ninth birthday this Friday and we’re looking back at the nine best-performing articles that appeared on the site. This interview with RW Johnson was particularly well read and attracted many comments, both positive and negative. But he has reached a stage in his life – at 71 – when he couldn’t care less what cages he rattles. A Rhodes Scholar, historian and journalist, he acts as a canary in the South African coal mine, stabbing his cultured pen at uncomfortable realities. There were no holds barred in Weekend Argus columnist Andrew Donaldson’s superb piece that followed his interview about Johnson’s latest book. Warning – this is not for the politically correct.

RW Johnson with fellow author and historian, Irina Filatova

South Africa’s looming crisis

By Andrew Donaldson

THE short answer to the question that is the title of RW Johnson’s new book, How Long will South Africa Survive?, is roughly two years.

That is when, he suggests, given the increasingly dire state of the economy, the country, cap-in-hand, will approach the International Monetary Fund for a bail-out which, in turn, will result in a regime change of some kind.

It’s a scenario he unpacked at the Cape Town Press Club recently as part of the hurly burly of public engagements to promote the book. It will more or less be like this:

Unemployment will continue to soar. The budget and trade deficits will continue to rise. Foreign investment along with domestic capital will continue to leave the country. Downgrading by the ratings agencies will continue, resulting in the inevitable junk bond status. With that, the cost of our debt will sharply rise to a point where it may become impossible to service the debt at all.

Should these trends continue –– “and currently they are continuing” –– it was only a matter of time before government realised the headlong pitch into a debt trap could not be avoided without IMF assistance.

This, Johnson believes, would signal the final failure of ANC governance –– kissing off their economic sovereignty. As he explains in the book, “For the IMF would, of course, demand conditions for its support, the government would lose control of economic policy and inevitably part of the deal would be huge spending cuts, certainly in the public service pay bill and perhaps also in social grants. In addition there would, inevitably, have to be a liberalisation of the labour market which would give the coup de grâce to Cosatu and thus the SACP. And much more besides.”

“And I think that this is not more than about two years away,” he told his press club audience. “We are clearly heading in that direction. I don’t think that government has grasped this. . . Well, [Minister of Finance Nhlanhla] Nene has grasped this, but I don’t think anyone else has. I’m not pessimistic or depressed about this because I think it will be actually quite good for us. But I think we are in a situation where things have got to get a bit worse before they get better.”

Two years? That’s it?

“Well,” Johnson said in our interview later that afternoon, “I’m guessing. Everything takes a bit longer than you think. But if you look at our current situation . . . It’s obviously possible that the ANC can pull themselves together and just miss the fate that I’ve said they were heading for, but I doubt it. Equally, I don’t think that’s the very worst by a long way. I think if they were to refuse that deal then, sure, you would see chaos.”

* * *

THE last time Johnson stuck his neck out like with prattle of regime change was in 1977 with a book he called, oddly enough, How Long Will South Africa Survive? (The title was retained for the new work, he explained, partly for nostalgic reasons.) That earlier book provided an analysis on the survival prospects of the apartheid regime. At the time, he said, white South Africa was in a state of crisis –– this was just after the Soweto riots –– and the possibility of a regime change was on the agenda, but Johnson argued that it would take longer than most commentators suggested, and probably only in the mid-1990s.

Although the new work is completely different, he argues that the country was facing a crisis once more and, again, the possibility of regime change was in the air.

“I reach this conclusion on a number of grounds,” he told the press club. “But I start off with the fact that there is a sort of iron law about South African history that, ever since the discovery of deep level gold, this country has worked on the basis of a steady inflow of foreign capital. It’s been fundamental for our development for over a century. And if that is ever threatened, it stops, and you do get a regime change.”

The last time this happened, Johnson said, was in 1985 when the rand collapsed in the immediate aftermath of then-president PW Botha’s Rubicon speech. “I would argue that the change that took place in 1990 when [FW] De Klerk took over was simply ringing up what was in the till already from 1985 and then you had a prolonged period of no investment and stagnation, I remember that period very well. It was a really awful time.”

Much like the period we’re in now, he added.

The “very clear sign of this” was how the market just kept moving “up and up” because, although they were making “good money” and generating profits, companies were piling up cash reserves rather than reinvesting into the economy. The effect, Johnson said, was “an investment strike”.

His chief point here was that the ANC government –– “although not wishing to do this” –– had repressed economic activity in various key sectors, including manufacturing, mining and agriculture. Manufacturing, as a proportion of GDP, had fallen by half since 1994. Mining had been “hobbled by all sorts of crazy laws” with the result that production was under considerable downward pressure.

Farming was under the same pressure. “What should be happening is huge investment in commercial agriculture and, of course, it’s not happening and you know the reasons why not. Farms are under threat of being taken away.” On top of this, were other difficulties farmers faced –– electricity and water shortages, “difficult labour laws” and so on.

“The net result of which,” Johnson said, “has repressed economic activity and the growth rate has fallen to 2%. The fact is that it is even that high is simply due to the fact that we have the highest concentration of mineral resources in the world. And that’s still what’s really driving things.”

Enter then the IMF. A greatly alarmed IMF. . .

* * *

In terms of Article IV of the IMF’s Terms of Agreement, member states are subjected to regular inspections and appraisals concerning their obligations and duties regarding fiscal policy. In 2012, the fund’s delegation to South Africa, according to Johnson, had “expressed considerable shock at Pretoria’s priorities”. It is one of the more startling chapters in Johnson’s book, the summary of which was delivered to his press club audience as follows:

“They say, ‘There’s this extraordinary thing. We’ve never seen anything like this anywhere else in the world. We’ve seen this huge [global] financial crisis, the downward dip in the economy, and here [South Africa] correctly increased its expenditure, that was quite right, like you should have done, that was good, but what did you spend it on? You gave your civil servants a 40% [pay] rise. I mean, people who are already in employment, quite well paid, suddenly get this enormous bonanza? This was absolutely crazy. We’ve never seen any other government in the world ignore its unemployed to the extent that you have just done. That money should have gone on infrastructure, it would have created new jobs. It would have been good for the economy. Yet you gave it away to people who are already at work. What on earth did you think you were doing?’

“And the result, is that unemployment in South Africa has gone up more than any other middle-income developing country. I think it’s quite a point when you get the fact that the ANC government is being reprimanded so solidly by the IMF for not being sufficiently sensitive to the needs of the unemployed. I mean, this is really quite a situation.”

This “downward drift” was unlikely to be stopped anytime soon. “Government,” Johnson continued, “will be the last people in the country to understand the nature of the economic crisis as well. Their minds are on other things. Like getting rich, staying in power, whatever. Various ANC priorities.”

And so the steady march to a situation where the only way the country could pay its debt was by further borrowing.

“I think there are many pressures for this. The energy crisis is obviously one. That’s cutting our rate of growth. Slow growth is another. The fact that social grants are predicated on the assumption of at least 3% growth, which we’re not getting, so what happens? Politically it’s impossible to cut the things. But at this rate they won’t be able to put them up either.

“Another thing is the public sector workers who are again demanding large increases and I notice [government] has upped its pay offer from 4.8% to 7%. Now there’s no way they can afford that –– 4.8% where economic growth is 2% is quite nice, really. But they’ve upped it to 7%.

“Now Nene quite rightly said, ‘We can’t give you more than 4.8% because the only we can pay that is to borrow money in the financial markets abroad to pay your salaries. And if we don’t do that, then we’ve got to cut somewhere else to pay them. So that’s why we can’t go more than 4.8%.’

“But, as I say, they’ve just abandoned [Nene’s thinking]. Now all these things will exert pressure towards a further downgrading, along with such crazy projects as the National Health Insurance Fund, which means enormous portions of the GDP suddenly going on a new and almost certain-to-fail project.

“The new scheme for creating black industrialists is another such thing. I mean, in a situation where your manufacturing sector has fallen by half, hanging on to the industrialists you’ve got is quite a struggle, let alone creating new ones.”

* * *

THERE would, Johnson suggested, be great resistance from certain quarters to any deal with the IMF. Their bail-out conditions would likely signal an end to Cosatu and the SACP’s hold over the economy.

“That means, of course, that they must resist,” he said. “It’s a survival of the fittest. So you can be absolutely sure that those segments of the ruling alliance will fight back tooth and nail. And of course there will be other people in the ANC who will feel the same.

“This was exactly the point that was reached in Zimbabwe in the late 1990s, which ended up with [President Robert] Mugabe saying to the IMF, ‘You must go to hell.’ Now, all Zimbabwe’s crises that have unfolded since then have basically come as a result of that one big decision.”

While there may be strong political resistance to accepting an IMF bailout –– and possibly adopting a similar position to Mugabe’s –– our position, Johnson claimed, was not the same as that of Zimbabwe’s.

“And we are not the same for two reasons. Firstly, [Zimbabwe] was a largely rural country, with two large towns, Harare and Bulawayo. If push came to shove, people could move back into the rural areas and scratch out a living on the land. It’s not great, semi-starvation. But they could do it.

“Secondly, they could move in their millions down here. Or, to a lesser extent, to Britain and Australia and other countries. Botswana and so forth. Now if we face anything like the same situation there’s nowhere south of us to go. We don’t have that safety valve. And our fundamentally urban population is not going back to the countryside. So we are much more locked in and the things that allowed Mugabe to get away with that refusal do not exist here.”

And so the overwhelming pressure, Johnson maintained, to accept the IMF bailout. When that happens, he added, a coalition government would be ushered in. There are three possible coalitions. One is an uneasy DA-ANC partnership which would have to meet its obligations regarding any arrangement with the IMF.

Another is a coalition between Julius Malema’s Economic Freedom Fighters and the ANC . “But this is based upon a refusal [of an IMF bailout]. But if you refuse, what do you do then? I mean, you still need the money, you still need to get out of the hole you’re in. There isn’t actually an alternative. Now, I think if you did pursue that route, you’d end up with the dissolution of [a unitary] South African state.

“The state would be progressively less able to carry out its functions and in that sort of situation I don’t think that you can bet upon South Africa remaining the one country. This country was put together artificially by a lot of blood and suffering a hundred years ago. It wasn’t a natural union and if the central state runs into the sort of chaos you’d get then I think all bets are off, we don’t know what would happen.”

The third possible coalition would be between the DA and EFF. This, Johnson suggested, would be a pragmatic way for the former to get a majority control of the large metros. “[The DA] would have to accept that,” he told me, “with one or two portfolios, the EFF would make a nuisance of themselves, and so forth. You’d have to allow them to do that, appoint their little buddies here and there and so on. But if it were like Cape Town, the election after that would result in an overall majority for the DA and they’d say, thank you very much, and goodbye. So it would be five-year experiment.”

* * *

AS our interview wound up, Johnson spoke at some length on the present administration’s ills. His book opens with an astute analysis of Jacob Zuma’s rule and his world. It is an era of “family corporate behaviour”, he writes, that “has brought about the sweeping criminalisation of the South African state”; under Zuma, the party has become “directionless” and, in the words of ANC Gauteng spokesman Dumisa Ntuli, “a complete mess”.

Comments on RW Johnson

Asked if Jacob Zuma could be seen as the real legacy of Nelson Mandela’s presidency, Johnson replied, “Yes, I think it’s all one thing. I don’t agree with the DA view that Mandela was wonderful, [Thabo] Mbeki was alright, and Zuma’s terrible. I think it’s all a continuous slide from the beginning.

“At the moment the big truth is that since 1994 the ANC has relied upon the inherited infrastructure from white rule. Roads, airports, electricity supply, water. The whole thing. They’ve gradually been running it down by failing to do maintenance and so forth. No wonder the Mandela period did better because the running down had only just begun. And Zuma is getting it in the neck because now we’ve had 21 years of running it down and it’s becoming very threadbare and worn and obvious.

“Look, the ultimate truth is that, if you look at our cabinet, there probably isn’t enough proper talent there to run a medium-sized town in Europe or North America.”

How Long Will South Africa Survive?: The Looming Crisis by RW Johnson is published by Jonathan Ball Publishers. The Kindle edition can be found here

  • This article has been republished with permission from Politicsweb.

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Senditoo Partners With Money Transfer Business Access Forex – 263chat.com

International remittance company Senditoo has partnered with Access Forex to implement an infrastructure that will enable it to process cross-border transactions.

Senditoo, which has a presence in several countries, has plans to expand services into the US and Canada in the coming months, having established its international headquarters in the UK, Guinea, Zambia, South Africa, and Zimbabwe.

Senditoo’s money transfer service will allow for £2 flat-fee remittances with complimentary exchange rates and real-time transaction monitoring.

The company has grown in the last four years, starting with airtime transfers before extending its service offer to include money remittances and enabling customers to pay their bills. They have also introduced an online grocery delivery service.

EcoSure

Access Forex, meanwhile, established in 2016, is an investment banking business set up to bridge the gap in the market for international money transfers for Zimbabweans living in South Africa and the United Kingdom.

Today, the company’s portfolio of services supports over five million Zimbabweans to manage their money transfers.

Takwana Tyaranini, Senditoo Co-founder, said: “This partnership cements our commitment to being the remittance service provider of choice for Zimbabweans living abroad and locally.

“Senditoo was set up to connect the African diaspora to loved ones at home. In line with our strategic priorities, we have partnered with some of the most reputable businesses and organisations across Zimbabwe, South Africa, Guinea, and the UK to create a strong presence – ensuring our customers have fast, simple, and hassle-free international transfers”.

“We are continually working on our product and service delivery to provide customers across Zimbabwe with accessible payout points that are convenient and cost effective.

“We have ambitious growth targets and teaming up with Access Forex means we will not only be able to scale up but give our customers a premium and quality service.”

Raymond Chigogwana, Chief Executive Officer of Access Forex, said: “We are delighted to be able to lend our valuable distribution network and secure payout portal to more customers.

We have enjoyed working closely with Senditoo to switch their full portfolio of services back on and ultimately, ensure that Zimbabweans locally and abroad get cash to where it is needed most. By the time we roll-out fully, everywhere you see an Access Forex, you can now also access Senditoo.”

The partnership means that Senditoo’s services will be available at approximately 200 payout points across the country.

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Policy flaws chasing Forex from the formal market – Bulawayo24 News

It is estimated that US$2.5 billion is circulating outside the formal banking system in Zimbabwe with households, businesses and foreign investors preferring to store their hard-earned foreign currency close to their pockets. Given a conducive policy environment, the millions that exchange hands outside formal banking channels would help oil the local credit market, curb foreign currency challenges in the economy, contribute to banking sector income, tax revenues, and bring economic stability. However, sustained policy missteps continue to chase away foreign currency from formal economy. The sustained reluctance by the Zimbabwean government to institute a market-based foreign exchange system means that the US Dollar remains a priced commodity for storing value, hedging against inflation in the domestic currency and conducting trade in the economy. The disparity between the market exchange rate for foreign currency and the manipulated auction or interbank rate tells a story of denialism and the consequences of such to ordinary citizens and businesses. Currently, there are varied prices for foreign exchange with the auction rate pegged at US$1: ZW$416.3 while the interbank rate is soft pegged at ZW$429.3. On the open market, the rate has accelerated to over ZW$820 for electronic money and ZW$600 for cash (Zimbabwean Dollar). Mobile money and Foreign Currency Accounts (FCA) payments also attract different exchange rates on quotations.

Export Retention
The current export retention scheme allows exporters to retain 60% of the export proceeds and surrender 40% to the central bank. If the 60% is not utilized within 4 months, the central bank will confiscate another 25% to take the total surrender requirement to 65%. On local foreign currency sales, the bank retains 20% of all sales deposited with local banks. Ordinarily, these measures would not be a challenge if the foreign exchange rate was market determined.

With the above discrepancy between the formal exchange rate and the market rate, exporters are losing 35% of their real earnings due to the surrendered earnings. In other words, for every US$1 of exports, at least $0.35 is lost due to exchange rate disparities.  With key exporters (miners) paying taxes and electricity in foreign currency, foreign exchange regulations are a punitive tax to business viability. Considering the above, miners are calling for the review of the retention threshold to 80%.  

A closer look at Zimbabwe’s neighboring shows in South Africa and Namibia, export proceeds must be repatriated within 6 months and exporters must sell 100% of their foreign currency proceeds to a bank or authorized dealer within 30 days of receiving the earnings or keep the export proceeds indefinitely in a foreign currency account. In Mozambique, export revenues must be repatriated within 90 days from the date of shipment and 30% of those export proceeds must be converted to Metical. However, exporters can keep 100% of their earnings in a local foreign currency account. In Zambia and Botswana, there are no foreign exchange controls. The common feature amongst all these countries is that the foreign exchange rate is market determined (not manipulated by their central banks) and they do not face acute foreign currency shortages on the formal market.

Local FCA deposits
For businesses that deposit their sales proceeds in local Foreign Currency Accounts (FCA), the central bank converts 20% of the deposit to local currency and an Intermediated Money Transfer (IMT) Tax of 4% applies to any payments made from that FCA account. This means that for every US$1 deposited, US$0.10 is lost due to the flawed exchange rate policy. Due to the above, large businesses are finding ways to transact in cash and avoid punitive taxes by not banking all sales proceeds while most small businesses and informal traders do not bank their proceeds. Despite this, US Dollar deposits with local banking institutions have grown from US$570 million in December 2017 to over US$2.2 billion as of June 2021 due to the growth in export revenues and the need to preserve value.

Endless Money Printing
The growth in money supply largely emanates from the central bank quasi-fiscal operations, export retention credits (virtual money creation) and other off budget financing programs which have an effect of creating artificial demand for foreign currency. As export revenues continue to soar, the central bank must print more money to credit exporters for the 65% in retained export earnings. According to latest figures released by the Zimbabwe National Statistical Agency (Zimstat), between January-April 2022 export earnings stood at US$2.13 billion, representing a 39% increase from US$1.53 billion recorded same period in 2021. This means that from the average retained export proceeds of US$265 million per month, the central bank must print Zimbabwean Dollars (electronic money) worth at least US$150 million every month. The Auction allotments (Averaging US$110 million per month and in over 3 months backlog) can be settled from the balance and the 20% retained on FCA deposits.

These rough estimates partly explain why the local currency has been on a tailspin and demand for foreign currency remains astronomic. The increase in domestic money stock is not matched with economic output growth. Every economic agent quickly converts their excess local currency to foreign currency to curb losses and say clear of overnight policy changes. The central bank is highly in debt with key lenders such as Afreximbank owed billions that need repayments in each month. To add to the high demand for foreign currency, government obligations abroad also need foreign currency, hence the central bank needs more cheap foreign currency than ever before.

Surging Forex earnings
In 2021, Zimbabwe earned a total of US$9.7 billion (Up from US$6.3 billion in 2021) in foreign currency with export proceeds growing by 66.6% to US$6.2 billion and Diaspora Remittances increasing 42.7% to US$1.430 billion. The major contributors to export earnings growth being the surge in gold production (from 19 tonnes in 2020 to 29.6 tonnes in 2021), the rally in mining commodity prices on the world market and the added value of exporting beneficiated PGM metals. Gold production in 2022 is expected to reach 40 tonnes. Despite the year-on-year growth in foreign currency earnings from as far back as 2009, the country is stuck in man-made foreign currency shortages. Thus, Zimbabwe does not have a foreign currency problem, but it has a foreign currency allocation problem which rests solely on the central bank (government’s) foreign exchange regulations and policies. Pressure on foreign currency is caused by unprecedented depreciation of the local currency (which emanates from money printing), a manipulated foreign exchange system and dollarization of the economy.

Need for reforms
To ensure currency stability, the central bank must end all quasi-fiscal operations which will enable it to freeze money printing and institute a market determined exchange rate through either allowing commercial banks to manage the Auction system. Alternatively, commercial banks should be allowed to adjust exchange rate according to demand and supply mechanisms. On constitutionalism, the central bank must not be allowed to contract any foreign debt without parliamentary approval as this brings conflict on how to settle the debt while allowing the exchange rate to be market determined. However, sustained stability can only be guaranteed by giving the central bank independence from government in terms of money printing. History has proved that the government has no hesitation to print money to fund its expenditure and meet political objectives at the expense of the economy or the taxpayer (citizens and business).

Zimbabwe has not had a consistent currency or consistent foreign exchange policy for several decades. The country’s central bank quasi-fiscal operations and deficit financing of the fiscus have necessitated astronomic levels of money printing at whatever cost to the nation. The economy collapsed in 1999-2000, 2006-2008 and 2019-2020 due to hyperinflation. The country has entered yet another phase of hyperinflation with month-on-month inflation now suspected to be over 50% by market analysts.

At the core of the problem is the government’s desire to control the central bank monetary policy and print money whenever tax revenues fall short of targeted government expenditure. Between 2015 and 2021, the country promulgated hundreds of statutory instruments (temporary measures) aligned to monetary policy and produced a plethora of exchange control regulations or statements. Some statutory instruments contradicted each other while some just fizzled out before parliamentary ratification. Monetary policy consistency is a fundamental piece to the economic stability puzzle, without which the country will not develop regardless of how colorful economic blueprints can be. The preference to trade in hard currency and in cash points to lack of trust in the central bank’s unsound policies over the years.  

Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.

All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24’s community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.

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Assessing the US$12 billion mining industry target – Bulawayo24 News

The Zimbabwean government launched an ambitious plan to transform the mining sector into a US$12 billion export industry by end of 2023. The plan was launched in October 2019 as a key pillar to sustainable economic growth. Achieving that target would represent a 275% jump from the US$3.2 billion realized through exporting mining commodities in 2018. The blueprint targeted Gold output of US$4 billion per year with Platinum coming in second at US$3 billion. Diamond mining and polishing was set at US$1 billion, equal to the combined target of Chrome, Nickel, and Steel. Coal, Hydrocarbons, Lithium, and other minerals were projected to contribute the remaining US$3 billion. Key to the above ambition is the beneficiation of minerals at source as opposed to exporting raw mining commodities. The Chamber of Mines in Zimbabwe (CoMZ) predicted that production from mining could reach $18 billion by 2030, provided the key challenges in the sector are ironed out through policy and legislative reforms.

Mining in Zimbabwe
Zimbabwe is endowed with two prominent geological features namely the rich Great Dyke and the ancient Greenstone Belts (also known as Gold Belts) which are home to billions worth of reserves in Chrome, Gold, Nickel, Diamond, Iron Ore and Platinum. The country has a massive competitive advantage in the mining sector with a highly diversified mineral resource base of over 40 commercially exploitable minerals. Foreign Direct Investment (FDI) figures and enquiries are heavily biased towards mining, highlighting the importance of the sector to the country’s growth prospects in the medium to long term. The mining sector has an estimated 850 operating mines across the country and these range from international mining houses to small scale mines.

In terms of employment, over 100,000 workers are employed directly and indirectly in downstream businesses. The sector is also home to over 600,000 Small Scale and Artisanal Miners who are mainly engaged in gold and chrome mining. Economic instability and lack of viability in Agriculture has contributed to the surge in the number of artisanal miners in the past 4 years in mining towns such as Gwanda, Zvishavane, Shurugwi, Kwekwe, Kadoma, Mazowe, Chinhoyi, Bindura and Chegutu among others.

Indigenization Law Amendments
The changes made in March 2018 with regards to the enforcement of the Indigenization and Empowerment law (Through the Finance Act) to allow for over 51% foreign ownership of mining assets has improved foreign appetite for investment into the country. This has resulted in notable investment in Platinum Group of Metals (PGMs) smelting, acquisition of dormant or ailing Gold mines and investment in Lithium exploration.

PGMs Rally
There has been significant growth in the production of Platinum Group of Metals (PGMs) over the past 3 years due to policy incentives (tax holidays) from the previous government and investment in smelting by the miners. Globally, Zimbabwe is now the third largest producer of Platinum after South Africa and Russia. The major mining companies in the subsector are Impala Platinum which owns Zimplats, Anglo American which owns Unki Mine, and Sibanye Stillwater which jointly owns Mimosa Mine with Impala Platinum. The 3 firms have invested in excess of US$1 billion into new mines and smelters, and that investment has catapulted PGMs output. Platinum is likely to be Zimbabwe’s mainstay in the foreseeable future.

Managing Gold Smuggling
To curb rampant smuggling of Gold, the central bank has been giving gold producers incentives to increase the tonnage of Gold sold via formal channels. The incentives have acted as a silver bullet as deliveries and production jumped from 19 tonnes in 2020 to 29.6 tonnes in 2021. Gold production in 2022 is expected to reach 40 tonnes. The rally in Gold price on the world market also makes the country’s redundant gold mines very appealing.

Lithium Rally & Rare Earth Discoveries
As the demand for electric cars drives up demand for Lithium, Zimbabwe has seen notable investment into exploration and investment with deals worth over US$700 million. Notable deals include the US$422 million Huayou purchase of Arcadia Mine, Sinomine’s $180 million purchase of Bikita Minerals and Chengxin’s US$76.5 million buy of Sabi Star Mine. United Kingdom’s Red Rock Resources, Galileo Resources and Premier African Resources have acquired claims to prospect and mine Lithium locally, joining Six Sigma from Australia and Arkle Resources from Ireland. Rainbow Rare Earths and Premier African Resources are also currently undertaking Rare Earth minerals exploration to commercially exploit the resource.



Despite the notable progress on amending the indigenization and empowerment laws, granting national project status to mining projects, issuing more Exclusive Prospecting Orders (EPOs), incentivizing Gold production and setting policies to encourage diamond polishing; There are some persistent hurdles hat have not been resolved. These include:

Foreign Exchange Regulations
The current export retention scheme permits miners to retain 60% of the export proceeds and surrender 40% to the central bank. If the 60% is not utilized within 4 months, the central bank will confiscate another 25% to take the total surrender requirement to 65%. As a result of the wide discrepancy between the pegged formal exchange rate and the market rate, exporters are losing 35% of their earnings due to the surrender requirements. With miners paying for taxes, fuel, electricity and almost all consumables in foreign currency, foreign exchange regulations are a punitive tax to business viability and deterrent to further investment into mine development or beneficiation. Miners are currently calling for the review of the retention threshold to over 80%.  

Power Cuts
After a period of relative stability, Zimbabwe has rolled back 6-to-12-hour power cuts to manage domestic demand. However, guaranteed power supply is critical to optimal production in the mining sector with demand expected to rise to 2100MW by 2025. Currently Zimbabwe is producing 1120MW, with a peak shortfall of at least 500MW. Part of the shortfall is being augmented through imports from Mozambique, Zambia, and from the Southern Africa Power Pool (SAPP).

Transparency & Corruption
The biggest impediment to the US$12 billion mining target is lack of transparency and systemic corruption in the mining value chain. There is massive red tape and bureaucracy in the processing of mining certificates, verification of applications and awarding of EPOs. Added to it, there is disregard for rule of law by connected miners and deliberate delays in the settlement of legal disputes. For a long time, Diamond mining has remained a murky affair due to the involvement of several controversial foreign investors and the army. The impact of corruption is that the country loses millions in potential tax proceeds while billions are externalized out of the country through illicit financial flows (IFFs). To address this, Zimbabwe needs to join the Extractive Industries Transparency Initiative (EITI) and implement its global standards on mining transparency. These standards can be customized to Zimbabwe’s context. Joining EITI ensures that the government commits to full disclosure of information on beneficial owners of mining claims, claims size and number of minerals assets, minerals output, revenues, tax contributions and other information pertaining to minerals marketing.

Mining legislation
The government has approved the Mines and Minerals Amendment bill with several changes to it. The Bill was first tabled 2015 and some of its provisions were implemented individually. The bill amends and reinforces the archaic Mines and Minerals Act of 1963 which is currently being used. The current mining law lacks on provisions that plug mineral revenue leakages and tax evasion and consolidates tax payments by miners. The government has failed to close revenue leakages especially in Diamond, Gold and Granite mining where smuggling and illicit trade is rife. Most importantly the current law promotes opaqueness in licensing, corruption by state institutions that oversee mining and secretive side marketing of precious minerals. The new bill should also decriminalize and formalize Small Scale and Artisanal mining to ensure proper reporting, private sector financing, improve taxation, minimum safety standards, inspections, and environmental management. The bill should be expedited as it is key in ramping up production and increasing transparency in the industry.

Untapped reserves
Zimbabwe remains under-explored when it comes to mining. Investment and tax incentives to boost exploration capacity should play a crucial role in quantifying the amount of mineral reserves. On paper, the country has over 4,000 recorded Gold deposits in the Greenstone Belts, an estimated reserve of 2.8 billion tonnes PGMs ore and over 30 deposits of Nickel in the Great Dyke, over 12 billion tonnes of coal in the mid Zambezi Basin and the Save-Limpopo basin and several kimberlites of Diamonds in Manicaland and Masvingo.

The surge in commodity prices on the world market has seen Zimbabwe increase its export value while of late export incentives to Gold producers have done magic to improve formal Gold production. It is fair to point that most of the targeted international investors have adopted a wait and see attitude on the political and economic landscape in the country. Risk takers (mostly Chinese investors) have taken the lead to secure local assets while established miners have ploughed back their profits in a measured manner. Despite this, the target to create a US$12 billion export industry from mining now seems unattainable as exports from the sector were US$5 billion in 2021. The actual will likely be at most 60% of the overall target. Even though there has been investment and billion dollar promises, the anticipated FDI inflows have not quite materialized in the last 3 years.

Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.

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