The Zimbabwe mining sector, the country’s largest export earner, suffered a significant setback when the Reserve Bank of Zimbabwe (RBZ) decided to devalue the ZIG currency by 40% in September 2024, Mining Zimbabwe can report.
By Ryan Chigoche
This decision led to a staggering loss of US$800 million for the sector, further highlighting the fragility of Zimbabwe’s economic situation.
The impact of the devaluation was keenly felt across the industry, which already faced numerous challenges, including inflation and exchange rate instability.
At the recently concluded CEO Roundtable event, renowned economist Eddie Cross took the opportunity to address the economic damage caused by the RBZ’s monetary policies.
He criticized the central bank’s lack of foresight and its failure to support business and production, highlighting the disastrous consequences for key sectors, particularly mining.
In September 2024, Zimbabwe’s central bank made the controversial decision to allow the newly launched, gold-backed currency to fall over 40% against the US dollar.
This came after weeks of sustained pressure on the ZIG, which had only been introduced in April. Despite the promise of stabilizing the economy through this currency, the reality was quite different—currency depreciation continued to worsen, adding to the financial strain on businesses and individuals alike.
Speaking at the event, Cross said, “To be honest, the RBZ is not serious at all. They are at the root of many of the problems the economy faces today. The mining sector alone lost a staggering $800 million during the Zim-dollar devaluation—a massive blow to the sector. This not only undermined productivity but also severely damaged investor confidence, contributing to the ongoing economic crisis.”
The devaluation of the ZIG is not just an isolated issue for the mining sector—it represents a larger, systemic problem that has shaken Zimbabwe’s economy. According to analysts, the devaluation exacerbated Zimbabwe’s economic instability, affecting every sector that depends on foreign currency, including agriculture, manufacturing, and services.
The Reserve Bank justified the devaluation as a necessary step to address “resurgence in exchange rate pressures,” which had been reflected in the widening gap between the official exchange rate and the parallel market exchange rate. Inflationary pressures also rose significantly during this period, further eroding purchasing power for businesses and households.
During the September devaluation, miners were only allowed to retain 75% of their foreign currency earnings, with the remaining portion being converted into the ZIG.
However, this move proved disastrous as the currency was devalued, leading to massive exchange rate losses. Miners, already grappling with inflation and rising costs, found themselves in an even more precarious financial position, significantly harming their ability to reinvest and expand operations.
In a recent development, the RBZ has further reduced the foreign currency retention threshold for exporters, including miners, from 75% to 70%. This new policy diverges from the expectations of businesses, which had anticipated being able to retain at least 85% of their foreign currency earnings to weather the ongoing economic challenges.
Since its introduction in April 2024, the ZIG currency has faced numerous hurdles. The Reserve Bank has been forced to intervene multiple times by injecting USD into the market, trying to stabilize the situation.
However, these interventions have had limited success, as inflation continues to rise and the value of the ZIG continues to fluctuate erratically, hurting miners severely.
Meanwhile, over the years, Zimbabweans—both citizens and businesses—have become accustomed to the volatility of the country’s currency. Over the past two decades, the value of savings, pensions, and insurance policies has been effectively wiped out, leaving individuals with diminished purchasing power.
The constant devaluation of the currency has led to a cycle of reduced confidence in the economy, with many citizens choosing to move their assets into foreign currency or gold, further straining the local currency.
In the mining sector, a critical part of Zimbabwe’s export-driven economy, the challenges are even more pronounced. Foreign investors have been wary of Zimbabwe’s economic volatility, leading to decreased investment in mining projects.
