Ashly DhaniTapiwanashe Mangwiro
The Government’s efforts to stabilise its newly introduced Zimbabwean Gold (ZiG) currency, crucial to bolstering economic fortunes and stability, are under threat due to widespread gold smuggling.
The 2024 half-year economic report by Morgan & Co, a leading investment firm, highlights this issue, emphasising that the stability of ZiG hinges on the nation’s ability to curb illegal gold exports.
According to Morgan & Co; “The stability of the new local currency depends on the ability of the country in reducing gold smuggling out of the country.”
The report underscores the importance of integrating international demand for the local currency by encouraging gold deliveries through official channels and selling it in ZiG.
“If successfully implemented, Zimbabwe could see growing demand for ZiG equivalent to an estimated 80 tonnes of gold that is produced annually while improving the country’s USD supply in formal channels,” said Morgan & Co in their report.
The implications of this statement are profound as gold smuggling not only deprives Zimbabwe of vital foreign exchange but also undermines the Government’s efforts to build currency reserves through royalties.
The country’s gold sector has long been plagued by inefficiencies and smuggling has exacerbated the problem. The root cause, according to industry experts, was the lack of incentives for gold producers to sell their output through formal channels.
Economist Tinashe Chaitezvi, believes that the Government must always prioritise subsidising gold producers to curb smuggling.
“The cost of production in Zimbabwe is significantly higher compared to other gold-producing nations,” says Chaitezvi.
“Without consistent subsidies or incentives such as lower energy costs, producers are more inclined to seek better prices on the black market, fuelling smuggling activities. A well-structured subsidy programme could encourage formal gold sales, thereby boosting the country’s foreign reserves.”
However, subsidies alone are not enough as Chaitezvi and other economists stress the importance of policy consistency, particularly in light of recent challenges in the gold sector.
The Government’s sudden implementation of Value Added Tax (VAT) on gold sales at the beginning of 2024 raised concerns among producers, who argued that the tax adds an additional burden on an already strained industry until the policy was reversed.
Adelaide Makotore, another economist, points out that policy consistency is crucial for long-term stability in the gold sector.
“The recent VAT flip flopping sent mixed signals to investors and gold producers alike. For a sector as vital as gold production, it is imperative that the Government maintains a consistent policy framework.
Unpredictable changes can drive producers to informal markets, undermining efforts to stabilise the currency.”
Investment analyst, Shaun Makovere, added that reducing bureaucracy is essential to creating an environment conducive to formal gold sales.
“Zimbabwe’s gold sector is known for its red tape. The process of obtaining permits, licenses, and approvals is cumbersome and time-consuming. Streamlining these procedures would not only improve efficiency but also make it more attractive for producers to operate within the formal sector.”
Makovere also stressed the need for the Government to engage with international stakeholders to ensure that Zimbabwe’s gold is sold at competitive prices on the global market.
“Zimbabwe has the potential to become a significant player in the global gold market, but this requires a concerted effort to improve the business environment and reduce barriers to formal gold trade,” he said.
The challenge of curbing gold smuggling in Zimbabwe is not just an economic issue; it is also a matter of national security. The illicit trade in gold fuels corruption and undermines the rule of law, making it harder for the Government to enforce regulations and collect royalties.
The impact on currency reserves is significant, as the Government relies on royalties from gold production to build its foreign exchange reserves.
Without a steady flow of revenue from the gold sector, the stability of ZiG is at risk and the Government’s efforts to curb smuggling are already underway, with increased surveillance and enforcement at border points.
However, these measures must be complemented by a broader strategy that addresses the underlying issues in the gold sector.
This includes providing incentives for formal gold sales, ensuring policy consistency, reducing bureaucracy, and engaging with international markets.
The success of ZiG and the country’s broader economic stability depend on the ability to harness the full potential of its gold sector.
Through addressing the challenges of smuggling and improving the business environment, Zimbabwe can position itself as a major player in the global gold market, while also ensuring the long-term stability of its currency and economy.
Online Reporter