Zim loses millions to gold smuggling

By John Kachembere

ZIMBABWE is losing millions of dollars in potential revenue to gold smuggling due to government’s policy inconsistencies, industry players have said.

Minister of Mines Winston Chitando

At the same time, market experts said continued gold smuggling is negatively affecting the southern African country’s economy, which is facing a recession this year emanating from foreign currency, fuel, electricity and food shortages.

Gold is one of Zimbabwe’s top foreign currency earners, with the precious metal fetching over US$1.6 billion in 2018 alone for the export of 33 tonnes – the country’s all-time peak. However, production has been plummeting since October last year due to monetary reforms and unfavourable prices offered by government.

Small scale miners, who contributed significantly to last year’s record production, are not happy with the central bank’s recent decision to pay gold producers 55 percent of their earnings in United States (US) dollars and 45 percent in local currency.

Previously, they received all their earnings in foreign currency. Then government reduced the foreign currency component to 70 percent last year, and further lowered it to 55 percent early this year. The central bank justified the reduced foreign currency retention thresholds by the need to preserve foreign currency.

“What the government is failing to appreciate is that smuggling was already rampant when they were paying us 70 percent in US dollars and the rest in RTGS dollars,” said Denford Katanda, a small scale miner in Mutoko.

“The latest decision will only make things worse because we don’t want to be paid in a domestic currency that is losing value due to rising inflation.”

In June, Finance minister Mthuli Ncube abolished the use of Zimbabwe’s decade-long multiple currency regime — which had permitted the use of the US dollar and South African rand in daily trading — as part of a raft of austerity measures aimed at reviving the economy.

However, the domestic currency that was first introduced in February 20, 2019 depreciated quickly against major currencies, resulting in inflation soaring as high as 176 percent in June – the highest since the Zimbabwe dollar collapsed in 2008.  Government’s unpredictable and ever-changing policies, coupled with currency movements, have resulted in a loss of earnings to gold miners.

Katanda, the miner, said most retailers and service providers in gold mining areas do not accept the volatile domestic currency, a situation that has seen small scale miners turning to private buyers who offer greenbacks on the spot.

“Most of the equipment and raw material suppliers around here demand foreign currency and there are private buyers who are willing to pay for our gold in hard currency. We are then forced to sell to them so that we remain in business,” he added.

Official government figures show that gold deliveries in the first six months of 2019 went down by 30 percent to 12,3 tonnes from more than 17,3 tonnes delivered during the same period last year. Gold exports plummeted 31 percent to US$490 million from US$715 million earned in the 2018 comparable period, according to figures from the central bank.

This has given life to speculation that small scale miners, in connivance with private buyers and politicians – some of whom own the mines and control illegal mining syndicates – are smuggling gold to neighbouring countries such as Botswana, Mozambique and South Africa where there’s a ready market.

“We spend most of our time underground and have very little time to visit banks to collect our money. If there is someone who is willing to give us ‘real’ money, which is crucial to cover our operational expenses, we would rather sell to them, even if they are offering lower prices,” said Titus Mhonya, a gold miner in Kadoma.

Although no study has yet been conducted to quantify how much Zimbabwe is losing to gold smuggling, sources say the country could be being stripped of an estimated US$200 million per month in potential revenues.

Dosman Mangisi, the Zimbabwe Miners Federation spokesperson, said the country could be losing as much as US$2 billion per year to smuggling.

“Unaccounted figures say we are losing more than what we are earning,” Mangisi told The Financial Gazette, adding that policy consistency is key in stabilising the mining sector.

“Policy inconsistencies result in poor planning. Mining is a long term business, therefore it needs long and conducive policies,” he said.

Reserve Bank of Zimbabwe governor, John Mangudya

Experts believe that the money which is being spirited away could instead be used to pay civil servants, import life-prolonging drugs and fuel and electricity. Zimbabwe is experiencing one of its worst economic crisis in a decade and the situation has been exacerbated by a devastating drought and effects of cyclone Idai, which have left at least more than 5,5 million people in need of food aid.

“One way of increasing gold returns to the fiscus and limiting leakages is through improved oversight of milling or processing points,” said Selina Zhuwarara, a mining consultant.

“The proliferation of mills or processing points that operate outside the parameters of adequate oversight creates ‘blind spots’ which are detrimental because government cannot ascertain or verify production statistics or submitted reports. This leaves room for significant amounts of gold to find its way to the black market,” she said.

Zhuwarara noted that an ideal environment for small scale miners to increase production requires the local financial sector to provide diverse financial products that enable miners access to capital at a reasonable and sustainable cost.

“Without affordable capital it is very difficult for mining entities to improve the rate and efficiency of production,” she added.

RBZ governor John Mangudya said government has injected an additional $50 million to a gold fund for miners as a way of encouraging them to deliver gold to Fidelity Printers and Refiners (FPR) – the country’s sole gold buyer.

“The Reserve Bank has planned to fully finance FPR in order to capacitate the miners to increase gold production in the country,” he said.

“We have, thereby, increased the Gold Development Initiative Fund to $200 million from $150 million last year as part of efforts to encourage miners, especially small-scale, to deliver the yellow metal through the formal channels,” added Mangudya.

Mines minister Winston Chitando said government also plans to establish four gold centres across the country, in a move aimed at guarding against gold leakages and retaining control of artisanal miners.

“The gold centres will provide financial and technical expertise to small scale miners to guarantee increased gold production,” he said. “This should result in the application of better mining methods and increased recoveries.”

This story was produced by The Financial Gazette. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation…More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.