Given the presumptive foreign currency-denominated underlying value of produce, the sector is always swift to react to changes in currency.

Gold is a revered mineral in Zimbabwe due to its contribution to the nation’s export receipts as well as the country’s gross domestic product.

Over the dollarization period, the mineral contributed about 25% to national export receipts and its production rose from a low of 3 tonnes at the height of hyperinflation in 2008, to a high of 33 tonnes in 2018, a growth of 1000% in 10 years.

Net earnings from gold exports grew from under US$300 million in 2009 to about just over a billion in 2018, again a staggering growth. The growth in gold earnings helped drive the aggregate income from exports to over US$4 billion, with the most significant contribution coming from gold.

2020 however, bucked the trend as gold exports lagged exports of PGMs, and these are a set of the platinum group of minerals, including palladium, platinum, rhodium, and lithium among others. The most significant being the first two (2).

For the first time, PGMs surpassed gold in terms of contribution to export income, which was even quite unusual in a year over which international gold prices went up by the most significant margin in history.

The relatively poor showing in gold export receipts was largely a result of weak production numbers. In 2020, a total of 19 tonnes of gold were produced by the southern African country. This was a sharp 31% contraction year on year.

Had Zimbabwe produced a similar tonnage to the prior year, 2020 would have seen net earnings swell to over US$2 billion for the first time in the history of the country. Gold prices began the year at US$1600 per ounce and topped US$2000, in July, before partially retreating to about US$1850 at year-end.

Zimbabwe had a chance to ride the price wave and net out positively in terms of trade position, which has historically remained in a net negative position. Also notable is the fact that the country had underperformed both targets and prior year record since 2019.

The country produced 27.6 tonnes against a target of 35 tonnes, which was later revised to 33 tonnes. The decline came against a prior year's performance of 33 tonnes in 2018 noted earlier as a historical high.

Data provided by the RBZ shows that production numbers grew in each respective year from 2009, until the fall in 2019. Over the period small-scale miners emerged as the anchor contributors, contributing about 62% as of 2018.

The liberalization of gold mining was seen as catalysing economic growth and equity, at this point. However, the dance could not be sustained and we look at what could have possibly gone wrong.

A key observation is that a shift in the country’s currency regime rattled the market and the gold sector was hit the most. Given the presumptive foreign currency-denominated underlying value of produce, the sector is always swift to react to changes in currency.

Producers seeking to retain full value, either curtail production and avert value loss emanating from inflation or engage inside marketing. The small-scale sector is more prone to side marketing than the mainstream producers.

The mainstreamers, however, would preserve value through reducing production and leverage their balance sheet for short-term operational funding.

The value preservation highlighted above emanated from the fact that the change in currency ushered in price volatility as the new currency weakened sharply against the US dollar. The Zim dollar lost almost 87% over the course of 2019 before losing 78% in 2020, on the official market in respective years.

Naturally rational people would prefer holding on to an asset that preserves value to one which is quickly eroded. The real challenge in Zimbabwe was the policy restricting the sale of gold only to the government agency, Fidelity Printers.

The agency procures and settles partially in local currency and at the times in question, the prevailing official price used to settle purchases was widely discounted to the parallel rate, which was used in costing by most companies.

These challenges discouraged the sale of gold to Fidelity and hence contributing to the lower output. Producers especially the mainstream, also tactically held on to reserves. In 2008, when hyperinflation was at its worst a similar trend was noted as shown below. It would follow that if Zimbabwe is to fully unlock its mining sector potential, currency stability is a prerequisite.

The country boasts of a variety of mineral ore bodies and could potentially become a global mining powerhouse if stability is achieved.

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