RENOWNED economist Eddie Cross estimates that Zimbabwe’s total economy, including the massive informal and “grey” sectors, could be worth over US$100 billion.
Speaking to Group Editor-In-Chief Guthrie Munyuki on his widely followed news and current affairs programme, Vantage, on leading national independent commercial television station, 3Ktv, on Thursday, Cross warned that the decision to keep the benchmark interest rate at 35 percent and the continued absence of a genuine market-determined exchange rate for the ZiG could constrain growth.
Below are excerpts from the gripping interview.
Q: Mr. Cross, a lot of good things have been said about the Monetary Policy Statement. Before I get into that, I wanted to say congratulations on this project that you, the miners, and other investors are spearheading which would see Zimbabwe actually improving power in the country.
That is the 1 000-megawatt solar project in Kariba. I understand you have secured US$400 million from Afreximbank.
How critical is this project, particularly at this time when the economy is very much booming and there is demand for power in the country?
A: Power is the bloodstream of the economy. If you don’t have electricity, you can’t have growth. So, it feeds into every part of our economy.
The fact is that we have been short; you saw the Mimosa statement yesterday, noting they had a reduction in production because of power interruptions. So, it is critically important, especially now.
The new economy is very much electricity-centred and our consumption of power is growing rapidly — probably 20 percent per annum because of changes in the economy.
Modernising industry requires power. New electric motor vehicles require power. Data centres require power. So, this particular project is significant for many reasons.
One, it will improve the overall output of the dam by about 30 percent. This is a small investment, but it has a big impact on the operational efficiency of the dam. For example, at the moment we run the dam 24/7.
What we need to do is use the dam to meet our peak demand because we can turn Kariba off and on; you can’t do that with a coal-fired plant, which you have to run all the time.
So, what we can do is supply solar energy to the system when it’s available, and when it’s not, we can power up Kariba and supply the peak demand in the evening. It increases the overall output of the plant without changing the consumption of water, which is the big issue. What we are doing in Zimbabwe is being emulated by Zambia.
Zambia is doing the same thing on their side of the river. They are following our lead. They are also going to put solar power plants on Kafue 1 and 2.
I think it is low-cost electricity. Solar energy is the cheapest form of electricity, but it is also non-carbon.
That is very important for certain components of the mining industry. The platinum industry, for example: Europe imposes a 30 percent tax on platinum produced by companies using carbon-based power.
The majority of our power here is carbon-based — it’s coal-based — and as soon as possible, we want to get our whole platinum industry onto green energy.
So, it has many implications, but it will make a substantial contribution to improving the availability of power in Zimbabwe, and for the mining industry, it is relatively cheap.
Q: So, things are really looking up?
A: Yes. This is not the only project; we have many others, but this is the first time the private sector has done something significant.
This is the biggest solar plant in Africa. It is a million panels. We have a site and a team there today looking at the location.
Q: A lot of “flowers” have been sent to the RBZ governor (John Mushayavanhu) — his appreciation, figuratively speaking, by a number of people because of the way the Monetary Policy Statement speaks to what the country is doing and its alignment with what Finance minister Mthuli Ncube has been doing.
Many have said this is a step in the right direction and they expect more consistency. But like everything, what are the things you would have wanted to see which the governor did not do, but which you expect him to do going forward?
A: I think first we have to compliment the team at the Reserve Bank because, for the first time in my experience, the Reserve Bank and the Treasury are in agreement. They are working together.
We had a time when the Reserve Bank was virtually operating like a shadow government; it was behaving in a manner that involved quasi-fiscal activities and was certainly not taking instructions from the Ministry of Finance. Now we have the two teams working together, and this is a major step forward.
The second thing is there’s no doubt that in the last two years, they have, through their tight monetary policies, stabilised the monetary system. We haven’t had any substantial changes for the last year.
The fact that inflation in January came down to 4 percent is an enormous achievement in a country used to hyperinflation. So, compliments for the achievements, but they maintained the basic interest rate at 35 percent.
Now, you know that is the rate at which banks, if they want to borrow from the Reserve Bank to cover a short-term shortage of cash, have to pay.
It dictates interest rates in the rest of the economy. This, without any doubt, is a major constraint on the economy. Every businessman I know complains about liquidity. They are unable to borrow money to finance their operations.
We have had an excellent rainy season, but our farmers could not borrow the money they needed for fertiliser, diesel, seeds, and everything else required to plant a crop. So, the crop is smaller than it could have been.
Q: Cross, you were bemoaning the fact that the RBZ maintains the bank credit at 35 percent interest rates?
A: I think the second major thing — and the IMF would support me in this — is that we are now on an IMF SMP programme and are being monitored very closely for the next year.
The second thing that I really think is a problem is that there still is not a real market for the ZiG.
We still have a situation where the rate of exchange for the ZiG is fixed by the Reserve Bank; and much as they might argue that there is a market for it and it is being traded daily, the rates are definitely dictated by the bank.
The bank has certainly dealt with the most dangerous part of this scenario, which was affecting the private sector back in 2024 when people were unable to trade in ZiG in the retail sector.
However, the absence of a real market for ZiG is a serious issue. Nobody would object to using the ZiG if we knew it was convertible at a rate determined by the market.
In this Monetary Policy Statement, there is an effort by the Reserve Bank to force the private sector to take the ZiG instead of holding US dollars.
You see this with the extension of the 70-30 principle which now applies to all major gold producers. So, a gold producer, when he sells his gold to Fidelity, gets 70 percent in US dollars and 30 percent in ZiG.
That applies to large-scale miners, but they also pay a 10 percent royalty. There is no country in the world that has a royalty on that kind of scale. These two measures taken together, I want to assure you, are going to reduce the amount of gold sold to Fidelity.
People will smuggle because everyone wants the gold and they are prepared to pay cash for it in US dollars. So, I think that is a very serious problem. The Reserve Bank has to understand they cannot force people to use the ZiG.
The adoption of the ZiG must be voluntary. If they operated a market for the ZiG like in Zambia with the Kwacha, or in Mozambique with the Metical, or South Africa with the Rand — if you knew you could change it at a certain rate and then buy US dollars back at a similar rate with a small charge — people wouldn’t object. If you take the 30 percent liquidation of the major export earnings of the big mining houses, that gives them ZiG.
It’s not small. I understand one of the big mining houses gets a billion ZiG every quarter. They can’t use that. So, what do they do with it? That is the problem.
The other problem is the outer market. If I sell my foreign exchange for ZiG there, I’d be paid cash immediately.
If I go to a trader in Mbare and say I want to buy US dollars with my ZiG, he will quote me a rate and I will pay him probably 35 or 40 to one, but the transaction would be cash instantly.
Whereas with the Reserve Bank, they don’t pay the mining houses immediately; they delay payment because they are afraid that if they paid all the ZiG to the mining houses, it would result in a devaluation of the currency. This is a major problem.
Q: So, excuse me and the viewers — US16 billion in terms of export receipts. That’s massive for Zimbabwe. The gold reserves are shooting through the roof, but people are asking: why do we have to put this invisible tax on the exporters?
The 10 percent on the small-scale miners, the 30 percent on the large-scale miners, and the 30 percent on other traditional exporters outside the mineral sector. Why do that if we are doing very well in terms of US dollars?
A: They are trying to force the economy to accept the ZiG. There is no need for that. I get part of my pension in ZiG. My wife has no difficulty spending it. She gets about ZiG 32 to US$1 when she takes it to the big supermarkets.
That is a 5-cent discount on the official rate at which I am paid my pension.
That’s fine. We can accommodate that. But when you do this with major exporters, it is a huge disincentive. Our gold industry — I don’t know exactly how much we produce, maybe 120-150 tonnes a year. We have 600 formal small-scale gold mines, 100 big gold mines, and 700 000 makorokoza.
You mean to tell me they are only producing 20 tonnes a year? They are producing a lot more, and it is all being exported under the counter. It is being smuggled and the money is not coming back to Zimbabwe. When they sell that gold outside, the money stays outside. There are certain traders here with big cash flows who buy gold domestically and export it to keep the money abroad. That is very bad.
What the government has done in the MPS, along with the taxes announced in January, is discouraging the development of a proper market for gold. That is not in our interest. If we weren’t doing that, I think we would experience a massive inflow of US dollars to the official market.
Q: You have come on stream with your group’s US$400 million solar programme in Kariba which will commence later this year. So, are we likely to see the country increasing its foreign receipts and the economy continuing to tick?
A: We are doing incredibly well. Everybody who comes here remarks on the evidence of a growing economy — the traffic levels and the building that is going on. There is no shortage of foreign exchange. We are able to finance our imports without difficulty.
We have no shortages; you can buy literally anything you want in Zimbabwe. That has not been the case in the past.
The IMF’s decision to allow us back into an SMP programme is very important because they will monitor us closely. I understand they are demanding weekly reports and they monitor all aspects of the economy, particularly monetary policy and fiscal discipline.
I think for the first time since independence, we have those two things under control. Additionally, the world market has moved in our favour because platinum prices have increased dramatically.
Lithium — we must not ignore the lithium industry. My estimate is that within 18 months, our lithium exports will grow from two million tonnes per annum to 14 million tonnes.
That represents 25 percent of world production. We are not a “small boy” in this game, but a big boy. Now, regarding lithium concentrate, they have just banned that because they want us to move to lithium sulphate.
We can’t do that overnight, and it’s a crazy decision by the minister involved. I am quite sure it will be reversed to give the industry a chance to move to sulphate, which incidentally requires power.
We are doing very well. Gold is at US$5 400 an ounce — that’s US$175 a gramme. These makorokoza are making money; they are buying cars.
There is no sign of poverty anymore in the rural areas mainly because of the gold industry.
Believe me, they are selling their gold for US dollars. I won’t call it the black market because many of the people involved are white; it’s the grey market. This is all contributing to the evident growth.
Also, the diaspora is sending lots of money home. The real key is formalisation. At the moment, we have three economies. We have the formal economy, which is about US$50 billion and growing reasonably well.
The minister says six percent, and I don’t argue with that. We have the informal economy, which is massive and bigger than the formal economy. Anyone who doubts that just needs to walk around Mbare. I reckon that could be 60-70 percent of the economy.
Then you have the grey economy, the oligarchs. Vice President Constantino Chiwenga gave them a name the other day: zvigananda. He is absolutely spot on. That’s not as big as the informal economy, but it is still very large.
These are guys taking money out of the economy illegally. It is semi-criminal activity. If you add these three together, I reckon our economy could easily be US$120-130 billion a year.
These foreign exchange earnings of US$16,1 billion have never been achieved in the past, but it doesn’t represent the real situation because most money is not recorded or banked.
We have very big businessmen who don’t have a bank account. They work in cash. I want to ask: where does all the cash in the market come from? Because everybody has money. The answer is that we are a money laundering centre for the world.
This means we have a measure of prosperity, but our formal sector is not growing and our banking sector does not get the money, so they can’t lend. The cash is out there. I’m told there are informal banks and money lenders operating in the informal sector. These are not small boys; they are big boys.