Miners’ royalties headache
Zimbabwe’s mining industry wants to wholly pay royalties, taxes and other levies in local currency to improve the viability of the sector amid revelations they are struggling to find takers for the local currency.
Currently, the miners are paying half of their royalties in Zimbabwe dollars, a situation which has sparked a major headache for the sector.
“It is our hope that the exporters will be given the option to pay royalties and taxes100% in local currency to enable companies to have sufficient foreign currency to meet operational and expansion needs,” the Chamber of Mines of Zimbabwe CEO, Isaac Kwesu said.
The miners are also allowed to retain 60% of their export earnings and surrender 40% to the Reserve Bank of Zimbabwe at official exchange rate, a situation the miners said was piling viability pressures on the sector expected to spur the economy. Miners say they are losing about 20% of their export revenue through exchange losses.
Miners said the amount of foreign currency they retain is no longer enough to fund working capital and want an upward review of the retention threshold.
Government is hoping that the mining sector will help revive the economy.
President Emmerson Mnangagwa’s administration has set an ambitious target to grow revenue from the sector to US$12bn by the end of next year.
Kwesu said the Chamber will continue to push for the decrease of the surrender requirements to ramp up production and capitalise on firming commodity prices.
The mining companies are now allowed to participate on the forex auction system to cater for the shortfall needed to fund operations.
But since that permission has been granted miners are yet to access the forex from the auction system to cater for their requirements.
At the CZI outlook symposium for 2022 held last week, the Chamber said miners are facing a plethora of challenges that include forex shortages and a volatile environment.
“Inadequate foreign exchange allocations (to fund operational requirements and expansion projects), loss of value on the surrender portion of export proceeds due to exchange rate disparities, capital shortages, erratic and inadequate power supply, high-cost structure and infrastructure bottlenecks are some of the major challenges that the sector continues to face,” the Chamber said.
Miners’ engagements with the monetary authorities on the matter are ongoing but the Chamber said the RBZ governor John Mangudya still sticks with his Monetary Policy Statement stance.
But the need to fund the forex auction system has pushed the monetary authorities to increase the export surrender requirement to 40% from 30% and the move has left miners short of requirements.
RBZ said maintaining the exchange auction system remains paramount in anchoring inflation and ensuring price and financial system stability.
The apex bank said it will continue refining the foreign exchange auction system taking into account fundamentals as well as closely monitoring the utilisation of funds.
The RBZ’s bid to stabilise the auction system has negatively affected the mining sector as the capital for production will be used to sustain the market.
Zimbabwe is in a serious fix over how best the authorities can deal with forex backlog, stabilise the exchange rate and address the forex challenges.
In the past weeks, the industry players have been involved in a tussle with the RBZ over the haemorrhage of local currency.
“These are the issues we have been talking about over the past five years and they remain unresolved,” Kwesu said.
The capital intensive sector requires over US$3bn to increase production but the monetary authorities are reducing the funding by increasing the surrender requirements thereby affecting the miner’s production cycle due to lack of capital.
The sector generated a record US$5.2bn in export earnings (83% of aggregate exports), compared to US$3.2bn in 2020, on the back of firming commodity prices.
Many commodity prices rose sharply reaching all-time high levels between 2020 and 2021.
In the outlook for 2022, anticipated global economic recovery is expected to be accompanied by favourable commodity prices.