High foreign currency demand chokes miners

RISING demand for foreign currency has significantly eroded the value of hard currency Zimbabwean miners are allowed to keep from export earnings by as much as 30 percent, piling viability pressures on the sector expected to spur economic growth.

Zimbabwe hopes that the mining industry will help revive the economy and has set an ambitious target to grow revenue from the sector to US$12 billion by 2023.

Exporters, including mining firms, which accounts for about 85 percent of the country’s foreign receipts, are allowed to retain 60 percent of their export earnings and surrender 40 percent to the Reserve Bank of Zimbabwe at official exchange rate.

However, the mining firms say the amount of foreign currency earnings they retain is no longer enough to fund working capital. Some analysts warm this could derail the Government’s US$12 billion ambitious mining target and dent the prospects for a sustained economic growth to achieve upper middle income status by 2030.

In separate interviews, some executives of mining companies, who spoke on condition of anonymity citing protocol issues, said the 60 percent they were allowed to keep was now “heavily squeezed” as demand for hard currency has ballooned.

The miners are suffering huge exchange losses due to huge disparity between the official exchange rate at $98,9:US$1 and the black market rate at around $190.

The Chamber of Mines Zimbabwe (CoMZ), an organisation that represents local mining firms is finalising its submissions to the Government outlining miner’s concerns.

“From the suppliers to statutory bodies, they are effectively demanding foreign currency because they are charging the Zimbabwe dollar at high exchange rates, sometimes higher than parallel market rates. So their message is clear; give us the United States dollars,” said a mining executive with a platinum mining company.

Miners are charged royalties, corporate tax and value added tax in foreign currency.

In addition, they are paying electricity in foreign currency.

“We also have ZINWA ( Zimbabwe

National Water Authority), Rural District Councils and Environmental Management Agency demanding payments in foreign currency,” another executive said.

ZERA is now demanding 100 percent tax on importation of bulk fuel. They are not applying the official exchange rate and sometimes using the rate that is well above black market as a way of forcing us to pay in foreign currency.”

“Our” appeal to Government, another executive said “is an upward review of retention threshold in line with growing foreign currency demand so that we maintain viability.”

CoMZ chief executive Isaac Kwesu told Business Weekly in an interview on Thursday that it was premature to comment as the matter was still under discussion.

RBZ governor Dr John Mangudya said the central bank was seized with the matter.

“What they are asking for is a not a privilege, but their right,” said Dr Mangudya. “We need to promote the use of local currency for domestic transactions,” he added.

He said the central bank was working on stabilising the currency to boost confidence.

In the latest mining survey published last week, the miners said access to forex was expected to continue to be a factor in light of the reduced foreign currency retention levels for exports, loss of value from RBZ exports surrendered portion, disqualification of mines from the auction market and delays in payments for gold deliveries.

“Almost all respondents indicated that the foreign exchange retention at 60 percent was inadequate to meet their requirements.

“They indicated that the retentions were under pressure from requirements to pay royalty, electricity bills, taxes and some statutory obligations in foreign currency as well as widespread preference for US dollar by suppliers,” the survey, commissioned by the CoMZ said.

The survey, citing views from mining executives appealed to authorities to allow them to pay royalties and taxes in local currency.

“The Government should support the local currency by accepting statutory payments in local currency,” said the survey.