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Anglo American Platinum earnings double

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Anglo American Platinum earnings double

The world’s leading primary producer of platinum group metals, and parent company for Unki Mine- Anglo American Platinum, expects its earnings to more than double for the financial year to December 31, 2019 on steady operational performance.

Financials for the year under review will be released on February 17. The group is listed on the Johannesburg Stock Exchange (JSE).

Anglo issued a profit warning as it anticipates headline earnings and headline earnings per share for the period are to increase by between 131 percent and 151 percent respectively compared to the prior year.

According to the platinum giant, headline earnings are likely to be between R17,545 billion and R19,055 billion  from prior year’s R7,588 billion.

Headline earnings per share are seen increasing to between 6,689 cents and 7,265 cents per share compared to 2,893 cents in 2018.

For the period under, basic earnings and earnings per share for the period are likely to increase by between 157 percent and 177 percent respectively compared to the prior year.

Anglo indicated that basic earnings are likely to be between R17,545bn and R18,900bn from R6,817bn in 2018 last year while earnings per share should be between 6,689 cents and 7,205 cents per share compared to prior year’s 2,599 cents.

“The expected increase in headline earnings and basic earnings is primarily driven by a 38 percent increase in the rand basket price and continued steady operational performance, notwithstanding the loss in production (38 000 PGM ounces) and deferred refined production (89 000 PGM ounces to be refined in 2020) due to Eskom power outages,” said Anglo in a notice to its shareholders.

Production wise, Anglo’s metal in concentrate platinum and palladium production both increased by 10 percent, to 531 700 ounces and 360 400 ounces, respectively.

Own mined platinum production increased by 18 percent to 361 900 ounces and palladium production increased by 17 percent to 275 000 ounces.

Refined platinum production decreased by 18 percent to 629 700 ounces and refined palladium production decreased by 20 percent to 396 600 ounces.

“Excluding the impact of the tolled volumes that were previously purchased as concentrate, refined platinum production was flat and palladium decreased by 6 percent as improved operational performance at the processing facilities was offset by the impact of Eskom power outages.

“These power outages in Q4 resulted in an inventory build-up of circa 45,000 platinum ounces and circa 27,000 palladium ounces. Platinum sales volumes decreased by 14 percent to 668,300 ounces and palladium sales volumes decreased by 4 percent to 435,800 ounces due to lower refined production in the period.

The local unit, Unki Mine’s 2019 platinum output rose 4 percent to 89 400 ounces from 85 900 ounces in 2018.

For the fourth quarter of 2019 production declined 2 percent to 23,300 ounces from 23,700 in the previous quarter.

But in terms of a year-on-year quarterly comparison, the local unit’s fourth quarter output was up 6 percent compared to the 22 000 produced in the prior comparable period in 2018.

Unki’s palladium output also jumped last year from 2018, rising 5 percent to 79 200 ounces from 75 500 ounces.

However, the mine’s palladium output declined by 6 percent in the fourth quarter to 20 000oz from 21 300 ounces in the previous quarter.

On a year-on-year (quarterly basis) comparison, the local platinum producer’s palladium production rose 2 percent from 19,6 percent in the fourth quarter of 2018_Business Weekly

China coal imports to rebound

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China coal imports to rebound

LAUNCESTON, Australia. — China’s coal imports are likely to show an impressive bounce in January after customs delays crimped December clearances, but questions remain as to the outlook for 2020 as a whole.

December imports were just 2,27 million tonnes, according to customs data released on January 14, taking the full year figure to 299,7 million tonnes, up 6,3 percent from 2018.

It’s clear that most cargoes that arrived in December weren’t cleared by customs, most likely as part of efforts to limit growth in annual coal imports.

Without setting a formal target, the message from officials in Beijing to the coal industry had been that they wanted 2019 imports to be much the same as the 2018’s 281,2 million tonnes. While 2019’s imports were 18,5 million tonnes higher, the slowing of clearances in December did mean the total for the year stayed below the big round figure of 300 million tonnes.

Nonetheless, coal imports were the highest since a record 327,2 million tonnes in 2013.

With cargoes being held up in December, it’s likely that January’s imports will see a surge, assuming much of the backlog is cleared.

About 20,2 million tonnes of coal arrived at Chinese ports in December, according to vessel-tracking and port data compiled by Refinitiv. Given that only 2,27 million tonnes were cleared by customs, around 18 million tonnes from December still likely need to be processed this month.

There may even be more given that the Refinitiv data is for seaborne arrivals only, and excludes overland imports from neighbouring countries such as Mongolia.

Seaborne arrivals for the first 19 days of January were around 13,5 million tonnes, according to Refinitiv, meaning there is potential for January to show a significant surge in official imports.

It’s likely the backlog will be cleared over the first quarter, rather than all at once, but the risk is that China’s official coal imports show strength in the first three months of the year.

Imports to slow?

This doesn’t mean China’s coal imports will inevitably show growth for 2020 as a whole, and there are several factors that suggest they may not.

The first is that official guidance is likely to be for utilities and traders to show restraint, especially for thermal coal imports used for power generation.

The authorities generally prefer utilities to use domestic coal, and local production has been trending higher. Output reached 331,7 million tonnes in December, up 2,4 percent on the same month of 2018, while full-year production in 2019 was 3,75 billion tonnes, up 4,2 percent from 2018.

It’s likely China will also try to increase the use of cleaner fuels and renewable energy to limit pollution and be seen to be doing more to combat climate change. This should result in more natural gas being used in boilers for residential heating, as well as for industrial uses such as making cement, ceramics and fertilisers. Then there is the role of seaborne prices versus domestic prices, with imports tending to grow when they are cheaper relative to domestic costs.

The main seaborne prices in Asia, however, have had a strong start to the year. The Argus weekly Newcastle index , benchmark for Australian thermal coal, rose to $69,59 a tonne in the week to January 17, a third consecutive gain and the highest since late July 2019. — Reuters.

The Argus index for Indonesian 4,200 kilocalorie per kg coal , a benchmark for lower-quality fuel, rose to $35.08 a tonne in the week to Jan. 17, the highest since Nov. 1.

Rising seaborne prices may serve to erode competitiveness, although Chinese domestic prices have been gaining recently as well. SteelHome reported coal at the port of Qinhuangdao SH-QHA-TRMCOAL at 559 yuan ($81.60) a tonne on Jan. 17, up from a recent low of 547 yuan on Dec. 24.

At current seaborne prices, low-rank Indonesian coal will still find buyers in China, especially for blending with higher sulphur domestic coal, but Australian thermal supplies may be struggling to compete, once shipping and import taxes are taken into consideration.

Ultimately, the main determinant of China’s coal imports this year will be policy, and the question is just how seriously Beijing will try to enforce a cap on imports. This should become clearer by the second quarter.

De Beers diamond sales jump

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De Beers diamond sales jump

De Beers sold the most diamonds since April in a sign the industry is starting to recover from a slump in demand last year, though the market will require more evidence of a sustained rebound.

The Anglo American unit sold $545 million of diamonds in its first sale of the year, traditionally one of the strongest buying periods as the industry restocks after the crucial holiday selling period.

There was little good news for the diamond industry last year. An oversupply of rough stones, a surfeit of polished gems and falling prices piled pressure on the companies that mine diamonds, as well as the lower-profile businesses that cut, polish and trade them. The results from the sale last week will encourage some in the industry that things are improving.

“Continuation of De Beers’s sales recovery is a positive sign for the rough diamond market, which we expect to recover in 2020 supported by reduced diamond supply and midstream destocking,” said Kirill Chuyko, chief strategist at BCS Global Markets.

There were other positive signs from the sale. De Beers slightly raised prices in some categories, especially larger stones, according to people familiar with the situation. Margins also recovered in the so-called secondary market — where buyers sell to gem manufacturers who don’t have direct access to De Beers.

That meant buyers were able to make a profit on boxes they sold on, the people said, asking not to be named as the process is private.

A lack of profit for the diamond midstream, the industry’s link between African mines and jewelry stores in New York, London and Hong Kong, forced De Beers to make major concessions last year as buyers balked at the prices being asked.

While the improved demand at the latest sale is a positive sign, industry participants will want to see a more prolonged recovery.

After rough diamond sales slumped in the second half of last year, manufacturers are low on inventory and were compelled to restock or face having to shutter factories.

Polished diamond prices have edged higher since bottoming in December, but there is still little sign of a sustained recovery.

“Rough price increases in the market are likely a combination of better polished sell-through and the need for more manufacturing stocks,” said Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax.

“It’s too early to tell the weighting of these factors.”

De Beers sells its gems through 10 sales each year in Botswana’s capital, Gaborone, and the buyers — known as sight-holders — generally have to accept the price and the quantities offered.

The sight-holders are given a black and yellow box containing plastic bags filled with stones, with the number of boxes and quality of diamonds depending on what the buyer and De Beers agreed to in an annual allocation.

“Demand for rough diamonds increased during the first sight of 2020 following the end of year selling season and subsequent inventory restocking,” De Beers Chief Executive Officer Bruce Cleaver said in a statement Wednesday.  — Bloomberg.

How hard is it to quit coal?

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How hard is it to quit coal?

Germany announced two weeks ago that it would spend $44,5 billion to quit coal — but not for another 18 years, by 2038.

The move shows how expensive it is to stop burning the world’s dirtiest fossil fuel, despite a broad consensus that keeping coal in the ground is vital to averting a climate crisis, and how politically complicated it is.

Coal, when burned, produces huge amounts of the greenhouse gas emissions that are responsible for global warming.

Germany doesn’t have shale gas, as the United States does, which has led to the rapid decline of coal use in America, despite President Trump’s support for coal. Germany also faces intense opposition to nuclear power.

After the Fukushima disaster in 2011, that opposition prompted the government to start shutting down the country’s nuclear plants, a transition that should be complete by 2022.

The money announced is to be spent on compensating workers, companies and the four coal producing states — three in the country’s east and one in the west. It followed months of negotiations between regional officials and Chancellor Angela Merkel’s government.

“Germany, one of the strongest and most successful industry nations in the world, is taking huge steps toward leaving the fossil fuel era,” finance minister Olaf Scholz said at a news conference in Berlin.

Germany’s timetable, though, could present challenges to the European Union’s efforts to swiftly cut its greenhouse gas emissions, as the bloc’s new leadership has announced.

Countries around the world are watching how quickly the 28-country union, which, taken together is currently the third-largest emitter of planet-warming gases, can reduce its carbon footprint. Germany is the largest economy in the European Union.

Environmental organizations criticised the government plan for being too slow and for not expanding renewable energy sources quickly enough.

“The majority of the necessary reductions are being pushed to the end of the 2020s,” said Christoph Bals, policy director for the environmental group Germanwatch.

Coal is at a turning point globally. Renewable energy is getting cheaper. Private investors are shying away from new projects.

There is far greater awareness of the deadly particulate matter pollution that comes out of coal-fired power plants.

Yet coal remains ascendant in some parts of the world, in part because it has been the go-to fuel for so long, it employs millions of people globally, and because the industry often enjoys robust political backing.

Eastern European countries, particularly Poland and the Czech Republic, still rely heavily on coal. The European Union this week created a €100 billion fund to aid their transition to cleaner fuels.

The Asia-Pacific is where coal continues to grow. China, which consumes half of the world’s coal, continues to build more coal plants at home and abroad.

According to the International Energy Agency, China’s domestic coal demand is projected to keep growing for at least the next two years, before it levels off.

China’s coal expansion puts its own climate targets at risk, though, according to a recent study partly written by the government-backed Energy Research Institute.

Not least, China’s ambitious global infrastructure building drive knows as the Belt and Road Initiative includes at least 63 coal-fired power plants.

India also continues to rely on coal. It has recently relaxed rules to encourage foreign investment in the Indian coal mining sector, and has been in talks to import metallurgical coal, used to make steel, from Russia.

And even as it reels from wildfires made more intense by climate change, Australia, one of the world’s biggest coal exporters, is digging for more, encouraged in part by the growing Asian market. Among the most contentious projects is a new $2 billion coal mine in the country’s northeast.

The German plan says lignite, also known as brown coal — which is abundant, cheap and dirty — could be phased out by 2035, depending on the progress made in the coming years.

Germany shuttered its last hard-coal mine in December, but has continued to burn lignite. In the third quarter of 2019, about 42 percent of the country’s energy came from renewables, 28 percent from coal and 14 percent from nuclear.

Some of the country’s richest coal regions are in states in the former Communist East, where the industry is a key provider of jobs.

Leaders in the region had been reluctant to shut down coal production without pledges of economic investment to compensate for the loss of income.

As part of the plan, energy providers in all of Germany will receive $4,8 billion over the course of the next 15 years in compensation for shuttering their coal-burning plants, some of which will be replaced by natural gas-burning generators. The plan foresees taking 19 coal-burning power plants offline in the coming decade, beginning with the dirtiest plants later this year.

Further investment includes setting up research institutes in the east for medicine and hydrogen power and retraining for miners and other workers in the industry. — New York Times.

Zim misses out on gold price boom

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Zim misses out on gold price boom

Last year, gold had its best price performance since 2010, rising by 18,4 percent in US dollar terms.

It outperformed major global bonds and emerging market stock benchmarks over that period.

It also reached record highs in most major currencies except the US dollar and the Swiss franc.

Gold rose mostly between early June and early September last year as uncertainty increased and interest rates fell.

Investors’ appetite for gold was apparent throughout the year, as seen by strong Exchange Traded Fund flows, and robust central bank demand.

However, Zimbabwe is likely to have missed this boom after gold deliveries slumped 16,8 percent in 2019 to 27,7 tonnes due to a number of reasons including smuggling and subdued performance by big producers.

Once again, small scale miners produced the bulk of the metal, accounting for about 63 percent of output or 17,4 tonnes against big producers, which delivered 10,1 tonnes.

While the value of gold delivered to Fidelity Printers and Refiners is about US$1,3 billion, a significant amount was sold through the black market depriving the country of the much-needed forex.

“There is need to re-organise the sector from the production and marketing perspective,” said Noah Remba, a mining consultant based in Harare.

“Given that the country is losing a lot through smuggling, there is need to plug the loopholes.”

Disturbances happening in the small scale gold mining sector, where armed and organised crime gangs are wreaking havoc, invading mines and robbing people of gold could also further contribute to decline of deliveries from the sector already affected by smuggling.

Gold mining and deliveries in Zimbabwe have also suffered due to concerns among the miners, who cite it as the motivation to smuggle, due to the 55 percent forex retention threshold.

The miners get 55 percent of their deliveries to Fidelity Printers and Refineries in hard currency and the balance is paid out in local currency, with the forex going to meet critical national requirements.

With Zimbabwe becoming increasingly import-dependent, dealing with issues that are weighing down production and deliveries becomes paramount for the country not to miss out on the price boom.

Positive outlook

In its latest report, the World Gold Council (WGC) believes global dynamics seeded over the past few years will generally be supportive for gold this year.

“In particular, we believe that financial and geopolitical uncertainty combined with flow interest rates will likely bolster gold investment demand,” said World Gold Council.

“Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters.

“Momentum and speculative positioning may keep gold price volatility elevated. And that gold price volatility, as well as expectations of weaker economic growth, may result in softer consumer demand near term but structural economic reforms in India and China will support demand.”

One of the key drivers of gold, especially in the short and medium term, is the opportunity cost of holding it relative to other assets, such as short-dated bonds, the report said.

Unlike bonds, gold does not pay interest or dividends because it does not have credit risk.

This perceived lack of yield can deter some investors. But in an environment where a whopping 90 percent of developed market sovereign debt is trading with negative real rates, World Gold Council believes the opportunity cost of gold almost goes away.

“It may even provide what can be seen as a positive “cost of carry” relative to bonds.”

Smuggling syndicates

Zimbabwe earns much of its foreign currency from mining, with gold being the major contributor, but the sector is facing a myriad of challenges including power cuts, which have seen large scale producers struggling. The prevailing foreign currency shortages have also hobbled imports of spare parts and consumables.

On the other hand, a significant amount of gold is being sold through the informal channels to illegal buyers who them smuggle the mineral outside the country.

Gold worth billions of dollars is being smuggled out of Zimbabwe every year through neighbouring countries used as a gateway to overseas markets. Illegal gold trading is being run by a smuggling ring controlled by foreign criminal syndicates, mainly from Asia and the Middle East who are disposing of their US dollar for gold.

They are understood to be working with influential individuals.

Authorities estimate gold being sold through shadowy channels could be around 100 tonnes.

The black-market trade in gold is being largely driven by informal miners — commonly known as artisanal miners who prefer to sell their metal to illegal buyers who then fly the gold out directly or take it out it through Zimbabwe’s porous borders.

 

Business Weekly

Palladium stockpiles fading

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Palladium stockpiles fading

As palladium’s record-breaking rally makes guessing the size of stockpiles more important than ever, one thing at least is clear — they’re getting a lot smaller.

Inventories held by producers, investors and users have been key to feeding a market that’s faced supply deficits for the past eight years. While their size is largely a mystery, researcher Metals Focus estimates that stockpiles have almost halved in the past decade to equal about 14 months of demand.

Palladium outperformed all major commodities in recent years as carmakers boosted usage in autocatalysts to meet stricter emissions rules. The speed at which prices surged to records this year prompted the market’s trade association to warn that low stockpiles and the unlikelihood of a quick supply response means that the tightness will probably last a while yet.

“The level of stock in the market has been a recurring theme for some time and in all likelihood will continue to be an issue for a while,” John Metcalf, chairman of the London Platinum & Palladium Market, wrote in a letter to members.

“It is unclear whether there can be a swift solution to resolve the current tightness we are witnessing and indeed it seems possible it may be prolonged.”

Metcalf said the latest rally is reminiscent of palladium’s charge from the late 1990s toward a then-record in 2001 amid concerns about slowing sales from key supplier Russia. What’s different this time round is that stockpiles are likely much lower now and there’s currently no delay in Russian exports.

Palladium has jumped almost 30 percent so far in January to about $2 500 an ounce, extending a four-year rally.

Exchange-traded fund holdings are the most visible number for stockpiled metal, but are just a fraction of total inventories that Metals Focus estimates at about 13 million ounces. ETF holdings have slumped about 80percent since mid-2015, partly as investors lent out metal at lucrative rates.

ETFs also wouldn’t be able to cover shortages in the long term. Holdings have fallen to about 613 000 ounces, not much more than the roughly 500 000-ounce supply deficit that top miner MMC Norilsk Nickel PJSC has projected for this year.

The Russian producer has a palladium fund it uses to help meet customers’ demand and sold more than 1 million ounces from it between 2017 and 2018. In November, it said it would release 300 000 to 500 000 ounces from the fund in the mid term, but didn’t elaborate further on timing or the size of the hoard.

While the possibility of renewed Russian stockpile sales and a pause in Chinese buying could cap the upside to prices in the very near term, any substantive pull-back over the coming month could be a buying opportunity, according to Citigroup.

No one really knows the exact size of stockpiles, said Philip Newman, a founder of London-based Metals Focus.

“The other problem is how much of that is being tightly held and not freely available to the market.” — Bloomberg.

RioZim seeks solar plant licences

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RioZim seeks solar plant licences

RIOZIM Limited has applied to the Zimbabwe Energy Regulatory Authority (ZERA) for licences to build four solar power plants with a combined output of 178 megawatts (MW) to avoid costly and frequent disruptions to operations from power cuts.

The Zimbabwe Stock Exchange (ZSE) listed diversified mining company said it wants to build, own and operate solar photovoltaic (PV) power plants for its mining operations namely Cam and Motor (gold), Renco (gold), Murowa (diamond) and Dalny (gold).

Early last year, RioZim signed a US$200 million agreement with Chinese firm, China Gezhouba Group International Engineering Corporation (CGGC) for the construction of three solar power plants at Cam and Motor, Renco and Dalny mines.

Term sheets have also reportedly been signed already with the Industrial and Commercial Bank (ICB) of China to provide 85 percent of the funding while Standard Bank will also make 15 percent contribution to the requisite project finance.

This comes as Zimbabwe is battling a debilitating power crisis, resulting in power cuts that last hours on end disrupting smooth flow of production and forces firms like RioZim to use expensive alternatives.

Gold and diamond are some of the key and strategic minerals expected to anchor the country’s vision of growing the mining sector into a US$12 billion industry by 2023.

Zimbabwe needs about 1 800 megawatts at peak periods of demand for electricity, but is currently only able to generate up to about 600MW, at best, and the balance is covered either by imports or hours of load shedding.

Once RioZim has built the power stations, it will have adequate electricity for its mines and also earn revenue from feeding excess power to the national grid where there is a huge demand supply mismatch.

In an application to ZERA RioZim said it requires a licence to construct a 54MW solar power station at its Cam and Motor gold mine near Kadoma.

“Cam & Motor Solar (Private) Limited intends to utilise part of the power generated for own consumption by the mine while the balance will be sold to Zimbabwe Electricity Transmission and Distribution Company (ZETDC),” RioZim said.

The project will also include the construction of approximately 1,5 kilometres of a single panther 132 kilo-Volt transmission line from the proposed Cam and Motor Solar Plant to existing Eiffel Flats T–Eiffel Flats–Maranatha 88kV 132/33kV Substation.

At Murowa Diamond Mine, Zvishavane District, in the Midlands Province, RioZim wants to construct, own, operate and maintain a 68,4 MW solar power plant. It will also construct approximately 45 kilometres of a single Lynx 88(132) kV transmission line from the proposed solar plant to Zvishavane’s 132/33kV Substation.

For Dalny Mine, in Mashonaland West Province, RioZim said it was looking to build a 54 MW solar PV power plant.

“The project will also include the construction of approximately 60 kilometres of a single Lynx 132 kV transmission line from the proposed Dalny Solar Plant to Selous 330/132kV Substation,” RioZim said.

The mining company will build the smallest of all its solar power plants, 38,04 MW, at Renco Mine, in the Nyajena communal lands, Masvingo Province.

As with all other projects, Riozim will also construct a new electricity transmission line, 55 kilometres of a single Wolf 132 kV, from the proposed Renco plant to Triangle’s 132/33kV substation.

Measures by independent producers to generate their own power comes as Zimbabwe is battling generation constraints that include effects of drought on Kariba Hydro Power Station and antiquated equipment at Hwange Power Station, the country’s second biggest plant after Kariba_Business Weekly

Is dollarisation creeping back?

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Is dollarisation creeping back?

When Zimbabwe dollarised in early 2009, it was a case of the Government formalising what was already in play.

It effectively “dollarised” the economy by allowing the United States (US) dollar and other foreign currencies to be used as legal tender in the country after hyperinflation had devastated the value of the local currency.

Recent developments are showing similar trends to events just before the economy dollarised; including extensive use of the US dollar in the informal sector, and for huge transactions outside the formal system. It is arguable that the single biggest reason that formal businesses are not using the US dollar is Statutory Instrument 142 of 2019.

SI-142 of 2019, which was promulgated last June effectively ended the long-standing multi currency system (or dollarisation) and determined the “Zimbabwe dollar” as the sole legal trading currency in the country. Last week, the Zimbabwe Revenue Authority (Zimra), having noted the continued use of the US dollar, said firms charging for goods and services and paying their employees in foreign currency, should remit taxes in similar currency.

“It has come to the attention of the commissioner general of the Zimbabwe Revenue Authority that some businesses are trading in both RTGS dollars and foreign currencies. Following this observation, Zimra has found it necessary to clarify that in accordance with section 4A of the Finance Act (Chapter,23:04) and section 38 of the Value Added Tax Act (Chapter, 23:12) these businesses should remit taxes in foreign currencies,” said Zimra in a notice.

“All employers who are paying remuneration in foreign currency should remit the employee’s tax in foreign currency.

If part of the remuneration is paid partly in foreign currency and partly in RTGS dollar, the employers shall apportion the employee’s tax accordingly and remit both the foreign currency and RTGS dollar to the commissioner on or before the due date.

“All specific assets sold in foreign currency shall pay CGT in foreign currency.

“With effect from January 1, 2020 all specified assets purported to have been disposed of in Zimbabwean dollars shall be deemed to have been sold in US dollar at the market value unless the seller provides documentary proof that the asset in question has been sold in Zimbabweans dollars.”

Effectively, this means that Zimra is now demanding as Pay As You Earn, Value Added Tax (VAT), Income Tax, Capital Gains Tax (CGT) and mining royalties in foreign currency from firms trading in such. It seems like an indictment of the de-dollarisation efforts that Government has been seeking to implement, which began with the removal of the 1:1 peg between the RTGS dollar and the US dollar last February.

Experts say a successful de-dollarisation strategy should comprise a comprehensive mix of structural reforms that address the macroeconomic environment to ensure a positive fiscal balance, positive current account balance and improvement on the global debt position.

In a research note dated October 2019, Imara Asset Management ‘predicted’ a relapse to use of the US dollar.

“We have been researching the whole concept of de-dollarisation. Fortunately, there is an IMF Working Paper authored by Kokenye, Ley and Veyrune dated August 2010 on the subject.

“For de-dollarisation to work they argue that a number of economic ingredients are essential and most are market-based as legislation on its own tends to fail. There should be a credible macroeconomic stabilisation policy that leads to low inflation, two-way exchange rate flexibility and a functioning foreign exchange market (Zimbabwe does not have these).

Second there should be Efficient Liquidity Management which leads to market-based interest rates (Zimbabwe does not allow this).

“Third there should be fiscal consolidation to stabilise inflation (Zimbabwe fails again). Fourth there should be Biased Taxation that allows the Zimbabwe dollar to be treated favourably vs foreign currencies (Zimbabwe fails this test too). Fifth the market needs instruments to hedge foreign exchange risk and inflation risk such as inflation linked bonds (Zimbabwe has none). Six, there should be Financial Liberalisation whereby banks can set their own interest rates to achieve real returns (Fails again),” explained Imara Asset Management CEO John Legat.

“Seven, all Government operations should be in local currency such as tax collection (Zimbabwe taxes in US dollar in certain sectors so fail). Eight the local payments system must be biased to the local currency but in Zimbabwe the lack of cash makes it easier to use US dollar cash. Nine, foreign exchange regulations should favour domestic users of foreign exchange but in Zimbabwe foreign medical expenses and foreign school fees are allowable for example.

“Bottom line, Zimbabwe fails on most requirements to de-dollarise and if anything continues to bias policy that favours dollarisation. Even then, we can find few cases in economic history where de-dollarisation has worked. In the few cases where it has, it has done so thanks to an internationally backed economic reform programme that prompted large capital inflows. Zimbabwe has no capital inflows and is unlikely to get them anytime soon. Our base case scenario, that determines our strategy going forwards, therefore remains the same; de-dollarisation will fail and dollarisation in some form is inevitable.”

In an earlier interview with Business Weekly, University of Zimbabwe (UZ) economics professor Dr Clever Mumbengegwi, hinted that the de-dollarisation effort was not complete as Zimbabweans were still ‘psychologically connected’ to the US dollar.

“The disconnect is where you have the US dollar being the store of value for most people, as well as being the anchor for prices yet on the consumption side wages and transactions being based on the Zimbabwe dollar.

“So there is a disconnect there, and the issue is the exchange rate, and as long as we have shortages of foreign currency it will be very difficult to connect the two,” he said.

When Zimbabwe “dollarised” around 2009, some experts claimed that the country’s monetary authorities missed a beat on full dollarisation — whose preconditions include permission from US monetary authorities as well as commitment by Zimbabwean authorities to non-reversal; in effect a forfeiture of monetary sovereignty — that is why the dollarisation phase was a struggle.

Is the country again struggling to cope with the consequences of half-baked monetary solutions?

 

Business Weekly

Gvt set aside $8,5 billion to support electricity generation

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Gvt set aside $8,5 billion to support electricity generation

GOVERNMENT has set aside $8,5 billion to support electricity generation and imports this year as part of efforts to improve power supply and ease load shedding.

A further $500 million will be injected into the economy in the first six months of this year to reduce demand for cash, which has seen some citizens turning to illegal cash traders where they are charged premiums of up to 40 percent.

This was said by Finance and Economic Development Minister Professor Mthuli Ncube, yesterday as he unveiled Government’s key plans for the year.

Prof Ncube said it was the Government’s desire this year to ensure the stability of the local currency, maintain low prices on basic goods and services, create jobs for young people and improve household food security.

He conceded that 2019 was difficult and characterised by price increases in fuel, basic commodities, and electricity.

However, the price increases did not match salary increments, leaving many employees, both in the public and private sectors, living below the poverty datum line.

Said Prof Ncube: “An additional $500 million in notes and coins will be put into the economy in the first six months of 2020. We expect this to ease the demand for physical cash and you won’t be ripped off by money dealers who sell cash at various percentage mark up prices.”

Mobile money agents and those connected to people who have access to money, sell physical cash at premiums of between 30 percent and 40 percent, robbing citizens of their hard-earned money.

The Reserve Bank of Zimbabwe (RBZ) introduced new $5 and $2 notes and $2 coins in a bid to alleviate shortages of physical cash, but access to the money in banks remains a challenge amid reports that some bank employees were diverting it to street dealers who sell at premiums.

But as more cash is pumped into circulation, Prof Ncube said maintaining the value of the Zimbabwe dollar’s exchange rate is important to ensure prices of basic commodities remain stable. 

He said the central Government was living within its means and has put in place deliverables to stimulate production and exports. 

Increased production is one of the Government’s primary targets this year, to generate more foreign currency, product availability, and job creation.

Prof Ncube said youth employment also tops Government priorities, and the establishment of the $500 Youth Employment Tax Incentive to support employers who generate jobs for youths.

Any additional job created will attract a percentage tax credit to the employer. 

YETI is designed to reduce the employers’ cost of hiring young people through a cost-sharing mechanism with the government.

To increase economic opportunities and participation by youths in national development, the National Venture Capital Fund has been created and will be capitalised in both local and foreign currency, to incorporate financing start-up projects of youth with preference being given to targeted areas in the context of the Local Content Strategy.

Turning to electricity security, Prof Ncube said $8,5 billion had been set aside to improve Zesa’s output.

Some of the money would be channelled towards electricity imports mainly from South Africa and Mozambique.

“Availability of power is expected to increase as more independent power producers (IPPs) come on line,” said Prof Ncube.

The government also plans to give incentives to companies that decide to go off-grid and install solar.

Many companies are now deploying solar power for their operations on the back of erratic supplies from Zesa.

Yesterday, the Zimbabwe Energy Regulatory Authority (Zera) announced it had received applications from RioZim Limited to construct, own, operate and maintain a 68,4MW solar plant at Murowa Diamond Mine in Mazvihwa Communal Lands in Zvishavane District.

RioZim also wants to set up another 38,04MW solar plant at Renco Mine in Nyajena Communal Lands, Masvingo Province, and two 54MW solar plants at Cam & Motor Mine; and Dalny Mine, both in Kadoma, Mashonaland West Province.

The Standards Association of Zimbabwe (SAZ)’s head offices are already powered by solar after it invested in a 194kW solar car park.

Declining water levels in Lake Kariba and failure to refurbish thermal power stations when they fall due, has seen power generation declining, resulting in massive load shedding.

The mining and manufacturing sectors have been negatively affected by load shedding. 

Turning to food security, Prof Ncube said no Zimbabwean should go hungry, as imports of maize, wheat and soya beans will be stepped up this year.

This year, the Second Republic wants to embark on massive infrastructure projects targeting schools, roads, and schools, among others, in the drive to achieving Vision 2030, of an upper-middle-income economy.

Prof Ncube said Zimbabwe was destined for prosperity in line with President Mnangagwa’s aspirations.

 

The Chronicle

Fired diamond boss eyes RBZ post

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Fired diamond boss eyes RBZ post

Former Zimbabwe Consolidated Diamond Company (ZCDC) chief executive Moris Mpofu is reportedly eyeing a comeback at the Reserve Bank of Zimbabwe following the termination of his contract after unsuccessful secondment tenure at the diamond miner.

Mpofu, who was seconded to the diamond miner in 2015, saw his contract with ZCDC terminated following his arrest on allegations of abuse of office.

He was accused of approving diamond sales to a blacklisted dealer, Hussein Robai.

But Mpofu has since been acquitted over the charges.

According to a communication seen by Business Times, Mpofu’s legal team is proposing his reinstatement at the apex bank considering that his contract there was still in existence.

Mpofu has a five-year contract with ZCDC lapsing in 2020.

“The client’s contract of employment with RBZ was not terminated. He was merely seconded to ZCDC. Secondment refers to the temporary transfer of an employee from one entity to another.

Secondment does not terminate the contract of employment between the seconded employee and the seconding employer,” read part of the legal documents seen by Business Times.

“Where the employer to whom the employee has been seconded terminates the relationship with the seconded employee, the relationship between the seconding employer and the seconded employee is not thereby terminated.

This position has been affirmed in several judgments of our courts.”

Mpofu’s legal team noted that secondment of their client to ZCDC did not terminate the employment relationship between the client and the RBZ.

Information at hand also suggests the RBZ paid part of Mpofu’s legal fees for his battle with ZCDC.

In terms of the secondment letter, Mpofu was to resume his duties at the RBZ upon his return to the RBZ and it was envisaged at the time that he would serve ZCDC for five years.

With the termination of his contract with ZCDC, it was no longer possible for Mpofu to serve ZCDC for five years and in other words, the secondment ended earlier than envisaged by the parties.

The issue that has now arisen is whether Mpofu can resume his duties at the RBZ following his acquittal.

“It is our view that what the RBZ and Mpofu envisaged was that he would be away from the RBZ for as long as his relationship with ZCDC existed.

With the termination of the relationship between the employee and ZCDC, the employee should approach the RBZ and indicate his availability to resume duties immediately or subject to terms to be agreed on by the parties,” reads part of the communication_Business Times

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