Zimbabwe is reportedly losing more than US$100 million a month through gold smuggling, according to Home Affairs Minister Kazembe Kazembe.
The government has been, for eons, trying to fight gold leakages but with little success. This article will look at why gold is being smuggled out of the country and possible solutions.
Why gold is being smuggled
Fidelity Printers & Refiners (FPR) monopoly
Gold export in Zimbabwe is only done by Fidelity Printers and Refiners, an arm of the Reserve Bank of Zimbabwe (RBZ). Gold producers sell their bullion to Fidelity who in turn pay an amount below the international market price. One can only surrender their gold to Fidelity even if they have a better market outside the country. The monopoly enjoyed by Fidelity Printers and Refiners has allowed it to dictate everything, including foreign currency surrender thresholds for bullion deliveries to the RBZ unit.
Gold fetches a better price outside Zimbabwe
The price of gold being offered by FPR is lower compared to the one obtaining in the international market. For instance, a gram of gold in Zimbabwe hovers around US$53 while on the international market it is US$63 with beneficiation buyers known to pay even more.
Laxity on the issuance of mining titles
The Mines Ministry is creating illegal mining activities by its delays in issuing out mining titles. The lack of seriousness on the issuance of mining titles is creating a fertile opportunity for unscupulous buyers. Unregistered miners constitute the majority of ASM. Tens of thousands have submitted all required paperwork to the Mines Ministry which in turn sit in the provincial offices for years and at times getting lost. This, in turn, forces miners to operate without Mining Titles. These miners are reluctant to take their gold to Fidelity for fear of prosecution so they sell the little they get to the nearest cash buyer. The buyers go to miners directly and usually buy for less than what Fidelity is offering. It is usually these buyers that smuggle the gold of the country for a wider profit margin.
Lack of Fidelity branches
Fidelity has eleven branches country-wide. In areas where they do not have branches, the country’s sole buyer has licensed buyers and millers who buy on their behalf. There are many areas that have no Fidelity branch and or registered buyers. Deputy Minister of Mines and Mining Development Hon Polite Kambamura in an interview with Mining Zimbabwe last year said, the Makaha, area near Mutoko, for example, has small-scale mining activity taking place but there is no Fidelity Agent near the area or nearby Mutoko centre. The miners are therefore expected to board a bus to Marondera the capital of Mashonaland East province which is 148km away. Can we expect a miner to go that far to sell only a gram of gold?
A rich gold area like Chegutu that houses successful mines like Pickstone Peerless bizarrely does not have a Fidelity branch but has licensed buyers who are also suspected to be major contributors to gold smuggling.
Untrusted banking system
Last year without warning, the government ordered all forex accounts to converted to be RTGS. Companies who wanted to purchase machinery from outside of Zimbabwe had to approach (and still do) the RBZ for their transaction to be approved and processed. This to a certain degree takes away the freedom to use one’s money as one wishes without having to fill out forms or speak to someone on why you are buying from outside.
It is a well-known fact that keeping funds in USD is much safer as it maintains value than the local currency. In Zimbabwe forex is liquidated in 30 days to local RTGS. Just like in South Africa. However, unlike Rand, the downside of the local currency is that it is still yet to gain trust due to its tried and tested instability. It is also much more expensive to purchase in local currency than in USD, therefore, the US$ is currently the most preferred currency of transaction.
Inconsistency with Fidelity payment
Complacency by Fidelity Printers in pricing, payment method and period, encourages stiff competition from black or parallel markets. Fidelity Printers and Refiners, especially during the lockdown period, regularly ran out of cash, paying miners after weeks. This disrupted some mining operations with some ASM opting to sell their gold to any buyer they see as long as a fair price is on offer.
Recently RioZim stated that the Reserve Bank of Zimbabwe (RBZ) owed it US$2.4 million while Fidelity Printers and Refiners (FPR) owed it US$ 65.5 million.
Metallon gold in 2019 sued the government saying it had been forced to put its mines on care and maintenance because of the unsustainable costs of running them without proper compensation for its proceeds from the Government of Zimbabwe. Where payments were received, they would only amount to a third of the total owed, the company said. Between 2016 and 2019, Metallon lost US$82m and Metallon was claiming US$132m for the lack of profit and procurement, including interest. One of the key issues raised by Metallon in its notice to the Governor of the RBZ and the Fidelity is that while the Company issued its invoices in USD, the Foreign Currency Retention Scheme saw Metallon being paid in RTGS. The disparity in the purchasing power resulted in the corporation being unable to procure machinery, equipment and operational goods at competitive prices. This seriously affected the production capacity of its various mines, leading to huge losses.
What the government should do
Liberalise gold trading
The major reason why there is gold leakage/smuggling is restrictions on gold trade. The monopoly enjoyed by Fidelity Printers and Refiners has allowed it to dictate everything, including foreign currency surrender thresholds for bullion deliveries to the RBZ unit.
The government should consider allowing free trade of gold within the borders of the country. The government can allow the setting up of free trade markets whereby foreign nationals can walk into gold trade markets that can be located at the country’s international airports to purchase their gold and take-off. Liberalising the market will likely end the cat and mouse game between law enforcement officials and miners.
Liberalising the gold market will “help improve the competitiveness of financial markets” and “help expand investment channels to meet domestic investor needs,” the People’s Bank of China once said in a statement. So can we as Zimbabwe.
Dubai has built itself as a major gold trading centre by sourcing its raw materials from Africa and selling the finished products to buyers in the expanding economies of India and China. Dubai owns 29% of the gold trade market in the world, with almost 1,200 tons of the metals traded in the city’s gold souks. Instead of gold leaving Zimbabwe unofficially, the government can turn this around and let those who want to buy do so freely, openly and those who can source buyers from outside Zimbabwe trade at designated well secure points with revenue collection officials present.
Considering the internet age we are in, the world is now a global village. Outsiders are approaching locals for gold. Trading openly is much more advantageous to the economy than continuing with security operations that have failed and continue to fail, costing the country over a billion annually (100million monthly) enriching corrupt officials in the process.
Fidelity should always pay on the spot
It’s simple really. Pay the miner on the spot when they deliver. Delayed payment has dire consequences on mining operations.
Gold Trade in other Western countries
From 1933 to 1974 it was illegal for U.S. citizens to own gold in the form of gold bullion, without a special license. On January 1, 1975, these restrictions were lifted and gold can now be freely held in the U. S. without any licensing or restrictions of any kind.
Gold coins, medals, and bullion may be brought into the U.S. However, under regulations administered by the Office of Foreign Assets Control, such items originating in or brought from, Cuba, Iran, and Sudan* are prohibited entry.
The United Kingdom
There is no limit on the amount of gold a tourist can bring into the UK. There are, however, customs fees and taxes that apply for items with a value of over £390. Tourists bringing gold into the UK from Dubai are limited by a 10-kilogram cap.