Why gold smuggling is rife in Zimbabwe
The mining industry in Zimbabwe plays a significant role in the development of the country as it brings in foreign currency, contributes to government revenue and provides for infrastructure development.
Dumisani Nyoni
Since 2009, the mining sector has become the fastest growing with both small-scale mining companies, artisanal miners and multinational companies taking part in the gold rush.
However, due to illicit financial flows, the southern African nation has been losing billions of dollars through gold smuggling into neighbouring South Africa, the United Arab Emirates among other countries.
For instance, just recently, a 33-year-old Zimbabwean man was arrested at O.R. Tambo International Airport in Johannesburg on May 8 2021 with smuggled gold worth R11 million (about US$730,000).
Tashinga Masinire flew into one of Africa’s busiest airports with 23 pieces of gold which he did not declare, and when challenged “he did not have any permit or licence to be in possession to transport gold.”
Gold smuggling is estimated to cost Zimbabwe US$100million each month, according to Home Affairs minister Kazembe Kazembe.
Cumulative gold output for the first quarter of 2021 stood at 4 311kg, about 13% of the annual target and lower than the comparable period in 2020, largely weighed down by low deliveries from the Artisanal and Small-scale Gold sector (ASGM), according to Finance minister Mthuli Ncube.
Large scale producers delivered about 2 291kg during the period under review, about 11.2% above the same period in 2020, while ASGM delivered 1 586kg, about 55.6% below the same period in 2020.
“This points to possible incidences of side marketing and smuggling (leakages) of our minerals,” Ncube said in his mid-term budget review.
Why gold smuggling
There are several reasons why gold smuggling is rife in Zimbabwe. Kleptocracy, a broken gold pricing system, payment delays are among other main reasons.
FPR an arm of the central bank with a monopoly on buying, refining and exporting Zimbabwe’s gold has a history of struggling to pay gold miners on time, citing foreign currency shortages.
Payments sometimes take weeks yet miners would want to buy consumables like fuel, explosives, detonators, drill steels, capped fuses, among others.
This, therefore, encourages miners to sell unscrupulous buyers who pay instantly.
FPR has tried to offer export incentives to miners, encouraging them to deliver as much gold as possible through the official channels with little success.
Gold miners are paid in US dollars, a much more stable currency than the ever depreciating Zimbabwean dollar.
Miners were legally obliged to sell 40% of their earnings to the central bank at the official exchange rate but that obligation has been removed to lure miners to bring gold to FPR.
The Centre for Natural Resource Governance says poor gold prices offered by FPR were fueling smuggling. Hence, to curb smuggling, the issue of gold prices should be addressed.
The poor price is the result of FPR using a mix of United States dollars and Zimbabwean dollars to pay for precious metals.
“The main problem is that FPR underpays and sometimes pays late for gold. The body pays producers partially in U.S. dollars and partially in amounts of Zimbabwe dollars determined by the official exchange rate,” says Crisis Group Africa Report titled: All That Glitters is Not Gold: Turmoil in Zimbabwe’s Mining Sector.
“But in the open market, the Zimbabwe dollar is worth less than half its official value. The discrepancy creates a gap between the price FPR pays and the world gold price, which is denominated solely in U.S. dollars.”
A report titled: Illicit gold markets in east and southern Africa by the Global Initiative Against Transnational Organized Crime (Global Initiative) reveals that gold buyers were selling between 10% and 30% of their gold to the FPR only to maintain their gold licences, with the rest being sold on the illicit market.
Major foreign buyers, often from South Africa, partner with Zimbabwean dealers to buy large quantities of gold on the illicit market, the report says.
Government officials have been also accused of having a hand in the illicit trade and smuggling gold out of the country.
The other issue fueling gold smuggling is the delay by the government to issue out mining licenses. When someone is not licensed, he/she would not risk selling gold to FPR, for fear of being arrested.
A limited number of gold centres across the country also fuels gold smuggling. Chegutu a well-known hub of gold activity does not have an FPR buying centre relying mainly on gold buying agents who are also known to be proponents of gold leakages.
Miners would rather sell their gold on the illicit market rather than travel long distances searching for FPR gold centres. FPR should establish more gold centres across the country especially where gold activities are concentrated.
The Ministry of Mines and Mining Development last year revealed plans to establish gold centres across the country to curb illegal leakages of bullion and promote the official sale to the state buyer FPR.
But presenting his mid-term budget review, Ncube said so far only five sites for service centres have been established.
The Zimbabwe Miners Federation (ZMF) has been calling on the government to expedite the setting up of gold service centres across the country to boost the production of the yellow metal.
How gold leaves the country
Global Initiative says smugglers are hiding smaller quantities of gold in clothing and headdresses, while larger amounts are stowed away in car glove compartments, spare wheels and any other parts of a vehicle that can be modified for smuggling purposes.
“Similarly, in Southern Africa, gold is easily smuggled from Zimbabwe into South Africa. Porous land borders make it easy for criminal groups to cross into South Africa where laundering opportunities and transport services are more readily available,” the report reads in part.
“While there are informal border crossings, the official Beitbridge border post remains a preferred route for gold smugglers. Smaller quantities of gold are hidden in clothing and headdresses, while larger amounts are stowed away in car glove compartments, spare wheels and any other parts of a vehicle that can be modified for smuggling purposes.”
On the Zimbabwe-South Africa border, both bus drivers and truckers are reported to smuggle gold.
Bars weighing between five and 20 kilograms are stuffed underneath truck cabins, inside battery compartments and emptied gasoline tankers.
“As a result, some major buyers have invested in both gold and trucking. For example, certain major gold dealers in Harare have invested in the gas business, enabling the use of gas haulage trucks with secret compartments to smuggle gold into South Africa,” it said.
On the borders, there appears to be a lack of capacity and will to stop gold smuggling.
For example, in Zimbabwe, only luggage is subject to scans by customs officials so travellers without luggage are unlikely to be searched, the report says.
The report also reveals that larger smuggling operations will also involve collusion between criminal actors and border officials.
Nearly 40% of gold mined in Matabeleland is believed to be smuggled directly to South Africa, it said.
In 2015, the Reserve Bank of Zimbabwe (RBZ) reported that the border was contributing to “… the most [gold] leakages that the country has ever experienced.”
The ease in which gold can be moved over the border makes it difficult to catch smugglers, Global Initiative says.
“It is reported that a smuggler will only be caught if the police have received a tip-off but they can easily pay a bribe to allow them to continue across the border.”
In other instances, the report revealed that gold is moved to South Africa through Botswana to avoid the heavily congested Beitbridge crossing.
A significant and growing amount of gold is also believed to be flown out of Harare airport to international transit and destination hubs, particularly the UAE, China and India and, to a lesser extent, Russia.
This route is suspected to be used by more powerful gold dealers and political elites.
“Indian buyers are allegedly the most likely to smuggle gold in this manner. There are also small gold flows between Zimbabwe and Mozambique in border regions, but the direction of the flows is unclear,” the report says.
What can be done to curb gold smuggling
As part of the recommendations to curb smuggling, the government must establish more gold centres across the country to curb illegal leakages of bullion and promote the official sale to FPR.
RBZ governor John Mangudya recently revealed that Zimbabwe was drafting legislation that will compel small-scale gold miners to register their operations as the southern African nation seeks to curb gold smuggling.
Hopefully, this would help.
FPR should also offer competitive prices.
Global Initiative suggests that criminal investigations should target the activities of key actors in the illicit gold trade, including senior government officials.
This could include increased support for financial intelligence units and financial investigations. By providing information and support, foreign governments and international law enforcement bodies can support efforts to identify and prosecute key individuals, companies and financial institutions linked to or involved in the illicit gold trade.
It also said law enforcement, including customs officials, can also target enforcement activity at major transit points.
Because international airports are key bottleneck points in supply chains, effective policing there will have a significant impact on illicit gold flows, it said.
“In addition, smugglers tend to favour major border crossings when moving large amounts of gold. Targeting key road border crossings may therefore also reduce the ease with which gold is smuggled out of source countries.”
“Private sector actors, in particular refinery and smelter-level programmes, should strive to responsibly source gold from source countries, as opposed to refusing to source product from high-risk areas or disengaging from artisanal and small-scale gold mining (ASGM) entirely,” the report says.
It said increasing the number of ASGM sourcing options will help to grow and regularize responsible ASGM gold supply.
Global Initiative also recommended that enforcement should also focus on transit and trade hubs, particularly the strengthening of enforcement controls at airports.
Mines and Mining Development Ministry’s slow pace of issuing mining titles is also a major contributory factor as it forces many to mine illegally which inturn diverts their gold to buyers who are most likely to push the commodity out of the country.