Amid reduced foreign currency retention thresholds, small scale gold miners are unhappy and gold deliveries after the Monetary Policy Statement (MPS) tell a story. This has obviously raised red flags as suspicions are rife that the miners are avoiding normal channels of selling their gold. In all fairness, this is not surprising because small scale miners have not been happy for a long time feeling that they were getting a raw deal from government.
In 2018, gold deliveries to Fidelity Printers and Refineries reached a record 33.2 tonnes. Of that, 21.7 tonnes came from small scale miners. This translates to 65.3% of total gold deliveries with the remainder coming from large mining companies. It is worrisome that five days after announcement of the MPS, only 20kgs of gold have been delivered. Normally, 60kgs is delivered to Fidelity Printers and Refineries daily. This is enough to prove that something is wrong. At a meeting with small scale miners on 26th February 2019, Deputy Minister of Mines Polite Kambamura said, “What is being channelled to Fidelity is only a third. I believe we are already producing 100 tonnes of gold as a country, but I am convinced that we are losing out to smuggling and under declaration… the bad news is that we have been only receiving 20kgs.”
Effects of low retention
In prior years, small scale miners were getting 30% of their money in foreign currency. This was not ideal for them as they sought to have it increased to 80% or above. Last year it was significantly increased it to 50%, the MPS then increased it to 55% in line with large scale producers. According to the miners, 55% is not enough to cover production costs. The lower gold deliveries point to the possibility of under declaration and side marketing.
This means if a miner produces 5kgs per day, they will declare only 1kg. They then sell the other 4kgs to private gold buyers. Private gold buyers always have the cash to pay for gold in full, on the spot. You actually decide whether you want to be paid in US Dollars or RTGS Dollars. In light of that, small scale miners are tempted to go for the better deal so as to remain viable. While it is reasonable for government to cater for essential commodities like fuel and medicines, obtaining forex from exporters in such an arrangement is not sustainable. It tends to kill business.
Government should actually be rewarding exporters so that they are motivated to produce more. The current situation only leads to arbitrage. To add insult to injury the MPS also introduced a 30-day “use it or lose it rule” which gives the holder 30 days to use their banked foreign currency or be forced to sell it on the market for RTGS dollars at the prevailing rate.
Or something else?
There’s also the element of the RTGS dollar to consider here. The delay of the MPS left a lot of room for speculation. First it was dollarisation, then it was the return of the Zimbabwean dollar and eventually rumours about a new currency which at the time the Reserve bank of Zimbabwe vehemently denied. The policy inconsistency may have taken it’s toll. After the announcement there is much confusion hanging around the RTGS dollar with many questions asked about it. Perhaps they are waiting to make sense of the new policy which was poorly articulated before the Governor opened his mouth to further confuse people.
It is clear that government badly needs foreign currency to take care of its other obligations. However, the above scenario paints a picture of a government which is failing to protect the very providers of forex. This is not sustainable and has to be remedied at all costs. There must be incentives meant to encourage and support small scale gold miners because previous gold deliveries show that this is where most of the gold to keep Zimbabwe going is coming from.