.png)
As Zimbabwe’s mining sector adjusts to the latest foreign currency retention policy changes, many miners are left questioning how they will manage to stay afloat under the new rules, Mining Zimbabwe can report.
By Rudairo Mapuranga
The Reserve Bank of Zimbabwe (RBZ) yesterday announced a reduction in the foreign currency retention threshold from 75% to 70%, a decision that has sparked concerns across the industry. Miners had already argued that the 75% threshold was unsustainable. With the new policy now in place, the sector faces an even greater uphill battle.
Last year, the issue of miners’ compensation under the then 75/25 retention policy was raised, which left miners with only 75% of their forex earnings. Many in the industry felt this was not enough, especially considering Zimbabwe’s heavy reliance on USD transactions. Now, with the new 70% threshold, miners are forced to give up 30% of their hard-earned forex—a move that could significantly impact their ability to cover essential costs like electricity, equipment, and operational financing.
In a report last year, Caledonia Mining Corporation reported a substantial foreign exchange loss of US$4.1 million in the first quarter of 2024, compared to a US$1.5 million gain in the same period in 2023. This loss was largely driven by the volatile exchange rate and the gap between the official rate at which miners were required to convert their earnings and the black-market rate used to purchase goods and services.
Zimbabwe’s economy is overwhelmingly forex-dependent, with more than 80% of transactions conducted in USD. Miners argue they need a larger share of their foreign currency earnings to keep their operations running smoothly. As one mining executive put it last year: “We expected the central bank to raise the retention threshold to 80% or at least drop it entirely, given the situation we’re facing.”
Gladys Mutsopotsi-Shumbambiri, an economist with deep experience in monetary policy, explained that “lower forex retentions mean reduced inflows of foreign currency into the economy. This places the burden on the RBZ to source ZWL to fulfil its obligations, potentially leading to increased money supply and inflationary pressures.” Her insights highlight the delicate balance the RBZ must maintain between building reserves and sustaining industries like mining, which rely heavily on foreign currency for operational costs.
The Gold Miners Association of Zimbabwe (GMAZ) has been vocal about the potential risks of reducing forex retention. Last year, Irvine Chinyenze, CEO of GMAZ, warned that “there was a danger that smuggling would become rampant as miners would look for more lucrative markets where they could get value for money, rather than lose value in the process.”
Chinyenze was clear: “If this policy direction isn’t reversed, the country could lose over US$2 billion in revenues due to externalised forex.” His concerns are not unfounded. If miners cannot retain enough forex to cover their costs, some may be tempted to smuggle their gold to international markets where they can get better returns, depriving Zimbabwe of much-needed foreign currency.
Additionally, smuggling opens the door to criminal enterprises. Chinyenze noted that the lowered retention threshold could “create an influx of gold mafia gangs, as the authorities would be creating a thriving environment for them to smuggle and externalise United States dollars through illicit deals.”
The mining sector is facing significant pressure. The Chamber of Mines, which represents major mining firms in Zimbabwe, had proposed that the forex retention rate be increased to 80% to ensure miners could meet rising operational costs.
“Mining companies now require at least 80% of their foreign currency earnings to meet the increased demand for forex and fund their operational requirements and expansion projects,” the Chamber said in a proposal to the Ministry of Finance.
The concerns of the mining sector go beyond day-to-day operations. A lower retention threshold means less foreign currency available for the entire economy, potentially leading to supply shortages, price hikes, and inflation. Mutsopotsi-Shumbambiri pointed out that “the demand for forex can lead to inflation, resulting in miners losing their local currency portion to inflation.”
The government now faces a crucial decision. The mining sector has been a cornerstone of Zimbabwe’s economy, and without adequate support, the industry’s growth could stall. In 2022, mining growth slowed to 7%, and mining costs rose by 15%, driven largely by energy prices. The increased cost of doing business, coupled with limited access to forex, could push the industry to a breaking point.
The RBZ’s decision to reduce the foreign currency retention threshold to 70% is a significant blow to the mining sector, which had already been struggling to survive under the 75% retention policy. Without a fair system in place, miners risk losing out on the forex they need to stay in business, potentially driving them toward illegal markets and reducing production across the board.
The government must take these concerns seriously and consider revising the forex retention policy before it’s too late. Zimbabwe’s miners deserve fair compensation for their hard work—compensation that reflects the realities of operating in a forex-dependent economy. The consequences of failing to do so could be catastrophic, not only for the mining sector but for the entire economy.
