Miners being squeezed out

Zimbabwe’s top miners complained that they were being squeezed out and were not benefitting at all from central bank governor Gideon Gono’s new measures for exporters.

They complained that they were still being asked to surrender 25 percent of their export earnings at one-sixth of the market rate. The auction rate itself was too low.

Besides, the government demanded a 15 percent royalty on minerals extracted, regardless whether the firms were making a profit or not.

Furthermore, the government had raised the rate of duty on imports by a whopping 73-fold since December 1.

To make matters worse the power company, the Zimbabwe Electricity Supply Authority was charging exporters in foreign currency.

Heavy-energy consuming mining companies paid an average of US 4.5 cents/KW hr, versus 1.7 in South Africa, 1.8 in Namibia, 2.1 in Mozambique, 2.2 in Zambia and 2.6 in Botswana.

Full cable:

Viewing cable 04HARARE361, Miners Still Glum

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010835Z Mar 04

UNCLAS HARARE 000361

SIPDIS

STATE FOR AF/S AND AF/EX

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR AMANDA HILLIGAS

TREASURY FOR OREN WYCHE-SHAW

PASS USTR FLORIZELLE LISER

STATE PASS USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ECON EMIN EINV ETRD PGOV ZI

SUBJECT: Miners Still Glum

¶1. Summary: Mining industry representatives told us the

Reserve Bank of Zimbabwe (RBZ)’s new monetary policy has

menaced their tattered businesses. Between an overvalued

zimdollar and overpriced electricity, they are barely

staying afloat. The GOZ still does not appreciate that

its 6-year recession will end only when miners and other

exporters enjoy a more hospitable business environment.

End summary.

¶2. Ambassador Sullivan held a roundtable on Feb 26 with

the chiefs of eight of the country’s large mining groups.

The mining sector has been in rapid retreat since 1997,

with gold production falling from $268 to 150 million,

ferroalloys from $178 to 67 million and nickel from 71 to

39 million. Only platinum appears on the increase.

Roundtable participants represented African Associated,

Casmyn, Independence Gold, Rio Tinto, Zimasco, Zimplats

as well as the Chamber of Mines. Miners were keenly

interested in the U.S. take on Zimbabwe’s political

stalemate and debated energetically among themselves

whether the sector should adopt a more overtly political

stance.

No room for profit

——————

¶3. Miners, possibly Zimbabwe’s purest exporters, complain

they still must surrender 25 percent of earnings for

exchange at the official exchange, just one-sixth of the

market rate. They convert the rest of earnings at the

artificially low auction rate. But before any of this

takes place, the GOZ demands a 15 percent royalty on

minerals extracted, regardless whether the firms net a

profit. Furthermore, the GOZ has raised the rate of duty

on imports by a whopping 73-fold since December 1. (It

used to peg import duties for miners to the former

official rate of Z$56:US$.)

¶4. Worse still, parastatal ZESA now compels exporters to

pay more for electricity than counterparts elsewhere in

the region. Heavy-energy consuming mining companies pay

an average of US 4.5 cents/KW hr, versus 1.7 in South

Africa, 1.8 in Namibia, 2.1 in Mozambique, 2.2 in Zambia

and 2.6 in Botswana. It appears the GOZ is trying to

subsidized retail customers by overcharging exporters.

Comment

——-

¶5. As we have pointed out before, only Zimbabwe’s

exporters can lead a recovery. Until the GOZ allows

exporters to retain more of earnings, they will not

produce more. But even under RBZ Governor Gideon Gono’s

more innovative monetary policy, the GOZ has not come to

terms with this. The Zimplats rep joked that a high GOZ

official recently expressed bemusement that platinum

output is rising while production of all other minerals

is plummeting. The Zimplats chief retorted, of course,

that only his company was exempted from the draconian

exchange requirements that affect the rest of the sector.

Invariably, the GOZ’s shoots itself in the foot through a

stalwart habit of pretending the zimdollar is worth more

than the market determines. In mining, the stakes are

high. Given that post-land reform agriculture is still

in chaos, it is probably mining that will lead a

recovery, perhaps eventually displacing agriculture as

the country’s main forex earner.

Sullivan

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