19 June 2018

Zimbabwe: 8 Tonnes of Gold Deals in Informal Market

An estimated eight tonnes of gold deals worth close to $300 million are conducted in the informal market with the precious mineral being smuggled to mainly neighbouring South Africa, a senior Government official has said.

Addressing business executives at the CEO Africa Roundtable meeting held at a local hotel in Bulawayo last Friday Deputy Minister of Finance and Economic Planning, Terrence Mukupe, said gold was being smuggled because Government was not giving full value of the yellow metal delivered by small-scale miners to the country's sole gold buyer, Fidelity Printers and Refiners.

"The price of gold is hovering around $44 000 and $45 000 per kilogramme and its clear we have got a lot of makorokozas (artisanal miners) and I can bet you my last dollar that none of those makorokozas have got bank accounts," he said.

"And it appears that there is about eight tonnes of gold that's traded in the informal market and that's close to $300 million worth of gold. And why do we have that situation? The reason why we have that situation is the way things are structured in our country.

"If you were to bring your gold to us as Government, we are not giving you full value, we are not giving you 100 percent dollars."

Deputy Minister Mukupe said artisanal miners were being paid a certain percentage of the delivered gold through bank transfer and this was creating an opportunity for people with bond notes to buy the yellow metal directly from the artisanal miners before trading it to South Africa for hard currency.

He said when the illegal gold buyers return from South Africa with hard currency they trade it for RTGS (Real Time Gross Settlements) dollars to buy the bond notes.

"And again they go back to the field to mop up the gold creating a vicious cycle.

"If you look at that, it probably points to a situation where despite whatever policy measures or interventions the Government will come up with, if we don't close that loophole in terms of on the forex side when you are not given full value for a commodity that someone has produced, it will create these middlemen and traders that are running around with hordes of cash and also creating a grey market," said Deputy Minister Mukupe.

"And it then makes sense as to why we are not seeing the bond notes circulating in the economy."

He said Zimbabwe needs to do away with the bond notes and re-introduce its own currency to address a host of challenges in the financial markets.

"We have to adopt a national currency to address our current problems and there has to be a cap on the maximum release of how much of the new currency you are going to introduce," he said.

The Reserve Bank of Zimbabwe (RBZ) introduced the bond notes on November 28 in 2016 as an export incentive meant to boost foreign currency generation.

The Afreximbank has a $200 million facility backing bond notes in circulation, while bond coins were backed by a $50 million facility, again from the financial institution. Last year RBZ Governor Dr John Mangudya announced that Afreximbank would extend another $300 million facility to back bond notes of the same value.

The Central Bank has reiterated that the surrogate currency was pegged at 1:1 with the United States dollar.

However, some unscrupulous businesses and individuals have introduced a three-tier pricing model taking advantage of the prevailing economic morass.

Deputy Minister Mukupe said the multi-currency regime that Zimbabwe introduced in February 2009 was a short-term stabilisation measure adopted to tackle broader macro-economic challenges triggered by the hyperinflation environment the country experienced in 2008.

"Dollarisation for us was a short-term stabilisation measure and it's not a long-term economic solution. There is no country that has ever dollarised successfully for a long period of time has continued to do well unless and until you have got a special relationship with the US banking system," he said, adding that for Zimbabwe, dollarisation has led to foreign currency shortage.

In the past few years, the country has been experiencing foreign currency shortage, a situation that has seen local industries failing to import critical raw materials that were not locally available as their Nostro account balances depleted.

As a result, this has rendered the local manufacturing sector uncompetitive as it was failing to raise its capacity utilisation to competitive levels.

According to the Confederation of Zimbabwe Industries (CZI), capacity utilisation in the manufacturing sector last year declined to 45,1 percent from 47,4 percent.

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