• Gold regained top export position accounting for 42.5% of total exports in May 2024
• This was  up from 20.8% in April and 23.6% in March
• Gold's resurgence comes after briefly losing its premier export status to nickel mattes, a rare occurrence in the country's trade landscape
• Gold's return to dominance follows challenges like high taxes, power outages, and foreign currency shortages

Harare- In a remarkable turn of events, the precious mineral, gold, has reclaimed its coveted position as Zimbabwe's primary export commodity, accounting for 42.5% of the nation's overall exports as of May 2024 from a lower of 20.8% in April and 23.6% in March 2024. This development marks a significant shift from the previous month, when gold experienced a shocking downfall, ceding its number one spot to nickel mattes, a rare occurrence in the country's export landscape.

Historically, gold has often exchanged its premier position with other key commodities, such as tobacco and platinum group metals (PGMs), but the recent loss to nickel mattes was unprecedented. This setback, however, appears to have been short-lived, as the resilient gold sector has once again asserted its dominance.

The past few months have presented numerous challenges for the gold industry, stemming from a myriad of factors. Exorbitant tax positions, excessive power blackouts, and acute foreign currency shortages, exacerbated by a 25% surrender requirement, have all contributed to the sector's woes. Additionally, there were reports of the government introducing a 15% value-added tax (VAT) on gold deliveries, as well as a 5% ZIMRA (Zimbabwe Revenue Authority) tax, which purportedly narrowed gold deliveries at the beginning of the year. However, the major gold producer, Freda Rebecca, has since refuted these claims, stating that the proposed taxes were abolished before implementation.

The industry's reaction to these proposed tax measures however, may have led to a temporary reduction in gold deliveries to the monopolized sole buyer, Fidelity Printers and Refineries. Nonetheless, the recent trade data aligns with the predictions made in our previous publication, The Axis, which anticipated gold's resurgence in May.

According to the latest trade report, gold has once again emerged as the dominant export, accounting for 42.8% of Zimbabwe's total exports. At its peak, gold contributed almost 40% to the nation’s foreign currency receipts. Trailing behind gold are nickel mattes and nickel ore and concentrates, which garnered 12.6% and 7% of the export market, respectively.

The decline in tobacco yields due to El Nino-induced droughts has relegated the golden leaf to the sixth position, with a 4% share. Additionally, platinum, in its unwrought or powder form, a leading member of the PGM group, has fallen to the second-to-last position, comprising only 2% of exports, likely due to poor global platinum prices. Year-to-date, platinum has plunged by 11.2%, following a more substantial decline of over 40% in 2023, which has had a significant impact on the country's foreign currency reserves.

As a result of a surge in gold deliveries, Zimbabwe's top exported products in May 2024 paint a compelling picture. Semi-manufactured gold, nickel mattes, and nickel ores and concentrates accounted for 62.1% of the total export value of $583.0 million. This remarkable performance has led to a narrowing of the trade deficit, which decreased by 23.8% to $151.1 million from the April 2024 deficit of $198.2 million.

Zimbabwe's total exports for May 2024 amounted to $583.0 million, representing a 13.5% ($69.5 million) increase from the April 2024 figure of $513.5 million. Imports for the month totaled $734.1 million, a 3.2% ($22.5 million) rise from the April 2024 imports of $711.7 million.

The resurgence of gold as a dominant export commodity has had a significant impact on the country's trade dynamics. Among Zimbabwe's major export destinations, the United Arab Emirates has reclaimed its position as the top recipient, accounting for 43.9% of the total export value of $583.0 million. South Africa came in second at 28.1%, followed by Mozambique at 9.2%. Together, these three countries accounted for approximately 81% of Zimbabwe's total export value.

The importance of gold as a foreign currency earner has become increasingly evident, particularly in the face of recurring droughts that have hampered the performance of the golden leaf, traditionally a key export commodity. Currently, gold remains the largest foreign currency earner, with minerals accounting for over 60% of the country's total exports.

The precious metal gold has emerged as a preeminent strategic mineral asset within the national economic framework, following the pivotal introduction of gold coins initiatives in 2023 and the subsequent launch of the ZiG currency in April 2024, which is backed by the country's gold reserves.

The gold mining sector has witnessed a flurry of operational expansions and recapitalization efforts. Caledonia Mining Corporation, a prominent player, has commenced a substantial US$309 million rejuvenation project at its Bilboes Mine, which is poised to enhance the asset's production capacity beyond 200,000 ounces per annum. Upon completion, Caledonia's gold output is anticipated to reach approximately 7 metric tons on average between 2026-2030.

Notably, the Fred Rebecca gold mine, the largest in the country, has launched a US$2 million exploration program to extend its operational lifespan beyond the current 5-year horizon. At present, the mine processes 2.5 million metric tons of ore per year, yielding an annual gold production averaging 75,000 to 80,000 ounces.

Furthermore, the government has announced plans to introduce a comprehensive gold supply chain traceability system, set to commence on September 30, 2024. This initiative aims to monitor the gold value chain and curtail illicit trade and smuggling. However, the success of this program will hinge on the implementation of robust, independent auditing mechanisms and effective enforcement protocols to mitigate the historical vulnerabilities to corruption and elite capture that have plagued similar endeavours in the past.

The efficacy of the gold traceability framework is contingent upon the implementation of robust anti-corruption safeguards. Without comprehensive oversight and control mechanisms, the system risks devolving into a mere perfunctory exercise, failing to serve as an effective deterrent against illicit gold flows.

In terms of government targets, the authorities had set a goal of 40 tonnes of gold deliveries for the current year, following a shortfall in 2023 when only 30 tonnes were observed, a modest increase from the 35 tonnes recorded in 2022. To bolster gold deliveries, a multifaceted approach encompassing key interventions is required.

Final Thoughts

The playing field remains uneven for gold producers. To address this, the government should consider liberalizing the gold buying process and issuing free permits to all registered gold buyers in the country. This would help create a more equitable and accessible marketplace for miners.

Furthermore, the persistent complaints from small-scale miners regarding the high costs of mining licenses, suboptimal pricing modalities, licensing bureaucracy, delayed payments, and marketing challenges continue to undermine gold deliveries to the state-owned Fidelity. It is projected that only a quarter of the national gold output is being channeled through Fidelity, with the remainder potentially being lost to illicit smuggling, which may range from 200 million to as high as 400-500 million dollars.

The issue of late payments is a particularly retrograde concern, as small-scale miners who are often the primary breadwinners require immediate cash flow. This dynamic creates an exploitative environment that can be leveraged by gold smugglers.

To address these challenges, the government should consider implementing incentives to encourage gold deliveries to Fidelity, while also providing direct support to large-scale miners through machinery, mining loans, and other facilitative measures.

Additionally, there is a need for enhanced clarity and accountability in the sector. Clearly defined targets and transparent progress monitoring mechanisms would enable authorities to swiftly identify and address any shortfalls in gold deliveries.

Drawing inspiration from the experiences of other African nations, such as Tanzania, Burkina Faso, and the Democratic Republic of Congo, the Zimbabwean government could consider introducing free, renewable gold mining permits for artisanal and small-scale miners. This could help formalize the sector, increase gold production and exports, and integrate a greater number of miners into the formal economy.

Thus, addressing the multifaceted challenges facing the Zimbabwean gold mining industry will require a comprehensive and strategic approach, encompassing regulatory reforms, financial incentives, and targeted support for both small-scale and large-scale producers. Establishing a robust and transparent gold traceability system, underpinned by robust anti-corruption safeguards, is crucial to ensuring the sector's long-term sustainability and contribution to the national economy.

There is also a need to review electrical charges and tax positions of mining firms, especially with regards to the 25% surrender portions. Leaving them with a significant amount of foreign currency will be prudent even to invest in solar systems and ease pressure on the national grid.

The combination of the above are major challenges facing gold miners in Zimbabwe, offsetting the benefits of firmer global gold prices.

It needs to be understood that due to aggressive policies channelled towards gold miners, the large scale miners which are largely haunted by the policies lost their status as leading gold producers to small scale miners since 2017 and this needs to be restored through effective policing. The government should strike a policy of equilibrium between tax collections and promoting productivity. A one sided approach will be deadly. To date, small scale miners continue leading the race.

These cost pressures are hindering investments and dampening the sector's growth potential, despite the country's plans to boost annual production to 40 tonnes.

Due to these recurring unsolved challenges, the mining industry's growth has declined from 10.5% in 2022 to just 4.8% in 2023 with an even lower growth rate is expected in 2024 where earnings are expected to plunge to US$5 billion. Mineral export earnings fell from $5.6 billion in 2022 to $5.2 billion in 2023.

Equity Axis