President Emmerson Mnangagwa yesterday launched the mining sector road map aimed at earning US$ 12 billion annually by year 2023 amid funfair and pleasantries at a local hotel with captains from the extractive industry.
Now the honey moon is over and a herculean task waits.
The road map projects that by year 2023, gold sector should be earning US$ 4 billion annually, platinum US$ 3 billion, diamonds over US$ 1 billion, Chrome US$ 1 billion and the rest of the minerals receipting the remaining US$ 3 billion.
Currently Zimbabwe is realizing US$ 3.4 billion annually from the extractives sector.
The mining sector is tipped to revive the country’s economic fortunes but institutional and policy bottlenecks presents challenges.
The macro-economic environment isn’t any better.
While the strategy envisions riding on quick-wins and low hanging fruits in bolstering the sector, a lot of sector issues remain unsolved and red flags have already began flashing.
Foreign currency challenges remain the biggest hindrance for most producers and in the strategy, there isn’t much government proffers in addressing the currency impasse.
During first quarter of 2019, the mining sector plunged 15 percent in terms of production volumes with gold production declining 10.95 percent to produce 6.5 tonnes from the 7.3 tonnes realized same period prior year on account of delays in foreign currency allocations to producers.
Most minerals recorded negative growth during the period with the exception of the Chrome sub-sector.
But for Zimbabwe’s mining industry, whatever happens in the gold sub-sector has a huge bearing on the overall performance of the sector.
Foreign currency shortages in the economy has seen the Central Bank assume the role of allocating the greenback and delays in allocations have and will continue hampering most mining operators.
A global economic research firm, the Economist Intelligence Unit (EIC) in its 2019 country report suggests Zimbabwe’s foreign currency woes will start to see an improvement in 2021, that’s about 24 months before 2023.
In 2018, the country’s second largest gold miner, Rio Zim voluntarily suspended some of its mining concerns after failing to acquire foreign currency on time from the Central Bank.
In second quarter 2019, another gold producer, Metallon Gold shut its Shamva, Redwing and Howmine divisions citing foreign currency shortages.
Ironically, both Rio Zim and Metallon Gold on both occasions sued the Reserve Bank of Zimbabwe (RBZ) for unpaid deliveries dating to 2016.
One contentious policy is the RBZ foreign currency retention scheme that has seen producers in the sector ceding between 45-50 percent of foreign earnings to the RBZ.
“I don’t think in terms of policy government have done any better. Foreign currency retention is a dis-incentive and currently many producers particularly the small scale miners are resorting to the gold parallel market,” economic expert, Victor Bhoroma said.
Zimbabwe is losing on an average of US$ 800 million every year in smuggled minerals with more feared to be unaccounted for.
Despite boasting of over 40 minerals, capital constraints continue to hinder utilization of these resources, exploration, metallurgical processing and value addition initiatives.
Worsening power cuts, fuel shortages, hyper-inflation and difficulties in repatriation of dividend are amongst major setbacks in attracting investment.
In 2018, there were more than US$27 billion worth of planned investment ranging from new platinum mines, steel mills and hydro-power dams yet during the same year just US$ 745 million in actual FDI was received.
“What investors really look for is the ability to repatriate profits. So currently the policies do not address that. The cost component to the miner is also huge. We are in a hyper inflationary environment, as you know miners are paying their electricity in foreign currency, they are paying upwards of 0.09 cents per kilowatt/hour,” said Bhoroma.
“With policy inconsistencies and monetary policy changes the market remains volatile for financiers appetite,” Bhoroma added.
“Local finance institutions are having their own challenges emanating from exchange rate losses so they might not be best placed to fund the sector. The expectation is for government to guarantee financial packages for the sector so that they are able to capitalize,” he said.
While there is consensus that Zimbabwe’s rich mineral deposits have the capacity to catapult the economy beyond the US$ 12 billion envisioned, more needs to be done on policy and regulations to attract investments and prop up production in this capital intensive sector.