Miners worried about skewed exchange rate

Chamber of Mines chief executive officer David Murangari said mining companies could only stay in operation if they were allowed to retain more foreign exchange earnings.

Murangari, who had several meetings with then Finance Minister Herbert Murerwa, hoped miners could secure a Z$750-$800 exchange rate to the greenback as opposed to the official Z$55 that they were getting.

The miners had been lobbying for Z$1 300 which was still slightly below the parallel market rate of Z$1 500 to the United States dollar.

The skewed exchange rate had seen the production of gold decline by almost half from 28 tonnes in 1999 to 15 in 2002.

Full cable:

Viewing cable 03HARARE179, A new official exchange rate?

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UNCLAS HARARE 000179

SIPDIS

SENSITIVE

STATE FOR AF/S AND AF/EX

NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

USDOC FOR 2037 DIEMOND

PASS USTR ROSA WHITAKER

TREASURY FOR ED BARBER AND C WILKINSON

USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: ETRD EFIN ECON ZI

SUBJECT: A new official exchange rate?

¶1. (U) Summary: Several industry contacts tell us they

believe the Government might adopt a Z$750-800:US$1

exchange rate for exporters and perhaps others. Such a

move would slow but not arrest Zimbabwe’s economic

decline. End Summary.

¶2. (SBU) The most authoritative word comes from Chamber

of Mines CEO David Murangari, who has led several mining

negotiations with Finance Minister Herbert Murerwa. The

Finance Minister has apparently assured besieged miners

that their message has gotten through to President

Mugabe. Mining companies say they can only stay in

operation if allowed to retain more foreign exchange

earnings. Under current regulations, they turn over most

export revenue to the GOZ for exchange at the official

rate of Z$ 55:US$1, netting only about 3 percent in

market terms. Murangari believes the GOZ will grant

exporters a new Z$750-800:US$1 exchange rate (they’ve

been lobbying for Z$1300:US$1), enough for them to

continue producing. This is a blend rate that

approximates the GOZ’s policy of exchanging half of

revenue at the official rate and half at the parallel

rate, currently about Z$1500:US$1. The GOZ has made it

difficult for companies to access the second 50 percent,

so the new arrangement would afford a more predictable

process.

Comment

——-

¶3. (SBU) This is potentially welcome news, especially if

the devaluation also applies to importers, since it may

signal that the GOZ is getting over its ideological

squeamishness over devaluation. However, we fear that

Finance Minister Murerwa speaks with little real

authority on these matters; other advisers, distrustful

of private sector motives or profiting from their own

rent-seeking schemes, will vet the proposal as well.

Second, it will only slow the decline of Zimbabwe’s

mining sector if the parallel rate remains out of sync

with the official rate. Consider the country’s gold

production:

1999 –   28 tons

2000 –   22

2001 –   18

2002 –   15

In that period, Zimbabwe slipped from third to sixth in

Sub-Saharan rankings, behind even Burkina Faso. This is

especially unfortunate for a country in a forex crunch,

with a highly developed infrastructure and easily capable

of 40 tons/year. If the parallel rate remains

Z$1500:US$1 and Zimbabwean miners operate at ZS750:$1,

they earn less than their counterparts in other

countries, a huge production disincentive. If the

exchange rate worsens to Z$2000-2500:US$1, the artificial

rate of Z$750:US$1 provides scant relief. Only by

recognizing and exploiting the market rate of Z$1500:US$1

can the GOZ guarantee a boost in exports and forex

inflows.

Sullivan

(34 VIEWS)