There’s been a lot of talk about privatisation of state-owned entities over the last 2 years in earnest in Zimbabwe but it has counted for nought until now. The Reserve Bank of Zimbabwe published a circular to inform the public of its disposal of Tull Coal limited and the privatisation of gold refinery division of Fidelity printers. The move brings to light many rumours that have been topical in business circles. Will the move address the ultimate problems in the gold market that have seen large amounts of gold being smuggled outside the country?
As is the norm the RBZ is not completely forthcoming with details on the deal. One could argue that not all the details are for public consumption nor would they fit in a one-page circular. However, knowing where are coming from Zimbabwe has announced many deals that flattered to deceive and as always the devil was in the details.
Fidelity printers is an established organisation that was responsible for the purchase of gold and the minting and printing of Zimbabwean coins and notes among other documents. The gold refinery arm was established in 1987 and offers gold refinery and marketing services for both local and international holders of gold. The most recent batch of Zimbabwean notes has not been printed by fidelity as they were imported. The company has had challenges in maintaining equipment.
Zimbabwe has had challenges that emanated from currency issues and pricing that have severely affected gold output. Well, not so much output but rather the amount of gold that has flowed through official channels in Zimbabwe. The most recent changed moved away from paying gold traders in a then extremely volatile Zimbabwean dollar and pay them exclusively in US dollars. However, Fidelity was offering US$45 per gram while the world price sat at US$55 per gram. This gave parallel market operators lot of room to manoeuvre. High profile cases of alleged gold smuggling came to light in the last quarter of the year.
All that glitters is not gold
Discussions of privatisation of many state-owned entities have been on the cards for a while. I was mildly interested when Finance Minister Professor Mthuli Ncube spoke about commercialisation which I still believe is a more viable option. Firstly, making these entities functional is what matters, not their ownership. Secondly, if you are going to sell a horse, you’re likely to get a better deal if the horse is alive and healthy. This disposal of Fidelity Refinery does have a catch to it. If the statement is using the plain meaning of the words contained in it then we know that stake in the 60% of Fidelity refinery that is up for grabs will be awarded based on deliveries over the last 3 years. While rewarding compliance in a space where there is rampant smuggling is fair many will question the ownership of those who happen to have been compliant. All this as gold pushed to US$1855 per ounce (US$65.43 per gram). There is clearly a benefit to be reaped from this deal but will the government and therefore the people of Zimbabwe be the true beneficiaries?
Eventually, time has a way of revealing all that we need to know. The details of who eventually gets what stake will come to light. What we know for now is that it will include gold buyers and small scale miners as well as large scale miners.