Address currency volatility as a matter of urgency

IN August this year, a curious report appeared in a Uganda newspaper that Zimbabwe had become a leading source of unrefined gold for the East African country. Citing central bank data, the report showed that in June this year, unrefined gold from Zimbabwe had become Uganda’s leading single source of imports, beating China and India.

In that one month, imports from Zimbabwe surged to US$170,8 million, which was higher than the US$122m and US$100m spent on Chinese and Indian imports.

Remarkably, June 2021 gold deliveries to the central bank were 2 924kg compared to 1 410kg delivered in the same month last year. Similarly, gold deliveries for July 2021 stood at 2 825kg compared to July 2020 deliveries of 1 406kg.

The surge in deliveries was in response to incentives introduced by authorities after an alarming drop in official output. In the first five months of this year, bullion output plunged to seven tonnes from 9,2 tonnes for the same period last year.

In May alone, deliveries dropped by 1,66 tonnes, from two tonnes registered in the same period in the prior year.

Reports suggest that Zimbabwe has been losing about US$1,5 billion a year through unofficial gold exports.

For context, Zimbabwe’s 2021 national budget was about US$421 million, at the current official exchange rate, while the 2022 figure is expected at US$900 million.

This gets us to the fact that the value of minerals being smuggled out of Zimbabwe far outstrips the royalties that government earns annually from mineral resources.

A position paper by the Zimbabwe Environmental Law Association on the 2022 budget noted that the country was receiving only US$90 million in royalties from minerals annually.

The southern African country has become a haven of plunder for the connected, and the administration of President Emmerson Mnangagwa has simply failed to deal with the problem.

It is a country blessed with enough natural resources to earn its way out of poverty, but decades of economic mismanagement and a dysfunctional currency that is easily manipulated to benefit a few individuals means that it remains a basket case, with little appetite for reform.

The scale of the plunder means that even if the 2022 national budget puts more resources towards government departments that monitor smuggling of minerals such as diamonds and gold, it is unlikely to make a dent on the problem.

Resolving the problem must become a priority for this administration. The first port of call must be calming the volatile currency, whose instability has become the biggest source of economic headwinds against any kind of plan it has so far come up with.

This feat has for now proved beyond the learned Finance minister Mthuli Ncube. Speculative activities continue to drive decision-making in business, including pricing, leaving Zimbabweans facing the 2008 hyperinflation conundrum of daily price changes and salaries failing to keep up.

Our humble opinion is that until authorities resolve the question of currency stability, Zimbabwe will continue to lose out on its mineral riches.