Sundaymail Editor
Persistence Gwanyanya
There is an old adage that says the Stone Age did not end because of shortage of stones. This era was overtaken by events as the world evolved. Clearly, this saying is quite relevant to Zimbabwe, which is currently revered for its bullion endowments.
The country is currently sitting on trillions of dollars worth of unexploited gold reserves, whose future value she cannot easily boast of as there are numerous external forces beyond her control, which would shape the bullion market.
It is therefore worrying that some powerful countries like America, Russia and China, which have incomparable endowments of gold, are accumulating the mineral at an alarming pace and would wield significant influence on the dynamics in the bullion market.
The fear is, like what happened with oil, these countries would influence down the value of the bullion, much to the detriment of richly endowed nations such as Zimbabwe. This underscores the need for the country to increase the exploration and mining of the mineral, and use the proceeds therefrom to develop the nation before these negative forces start to shift the dynamics in the bullion market.
It is estimated that Zimbabwe has 13 million tonnes of unexploited gold worth trillions of dollars. Surprisingly, the country has remained lowly developed, despite these rich endowments. This could be traced to low exploration and mining activities, occasioned by limited flows of capital due to discouraging investment policies.
Out of this estimated quantity of the yellow metal, only about 700 tonnes have been mined since independence. There are only five notable gold mines – Freda Rebecca, Falcon Gold, Dawn Mine, Mwana Africa and How Mine – left after a number of them closed in the last two decades due to economic challenges that the country went through. These mining houses make up about 58 percent of the country’s gold production, with the balance of 42 percent contributed by small-scale miners.
Given the sheer size of the mineral endowments, there is clearly need to increase investment in large-scale gold mining, through implementation of policies to attract both local and foreign capital. Equally, there is potential to unlock value from the small-scale gold miners through improvement in their business models, revision of fees structures as well as the respective regulatory regime.
The growing demand for the yellow metal all over the world compels Zimbabwe to come up with viable structures to mortgage some of this mineral in exchange for the much needed capital to transform the economy. Suffice to mention the country has already considered offering some of its gold resources for repayment of its debts, which currently stand at $11.3 billion, albeit with low traction, ostensibly due to lack of investor confidence.
These ideas are not new as they are also expounded in the Zim-Asset economic blueprint. If the country can unlock $50 billion from its trillions of dollars of un- encumbered gold resources, it could transform its economy, and lift the standards of living of its citizens. This amount is enough to close the infrastructure gap of between $14 and $20 billion, as well as provide the $5 billion or so needed to reindustrialise.
The balance can be invested into increasing the exploration and mining of gold and other minerals, which requires investment about $5 billion to realise the mining sector’s full potential, as well as taking care of other attendant Government needs.
The distinct features of the yellow metal have continued to make it a better alternative investment option, thus driving its demand. Importantly, gold has proved to be a preferred currency hedge, in the wake of currency crisis, with the one experienced during the global financial crisis being the most recent one. It’s also these broken promises of paper currencies that are driving the mooted idea of gold backed currencies the world over. It’s therefore unsurprising that China, Russia and America now have the biggest reserves of the yellow metal in the world.
Given the increasing dominance of the small-scale miners, it’s important to transform their mining models. This group of miners is unorganised, their activities environmentally unfriendly and riddled with leakages of both the mineral and foreign cur- rency.
More worrying is the fact that the current Mines and Minerals Act (Chapter 21:05) criminalises the activities of small-scale miners. However, it’s comforting to note that the amendment to this Act, which was enacted in 1963, is currently underway, will decriminalise gold possession.
Again, the fact that these amendments have been in pipeline since 2007 does not reflect well on our policy and lawmakers. Hopefully, the respective technical working team under the ease of doing business Rapid Results Initiatives reforms will change things. Decriminalising the possession of gold would also set the foundation for introduction of a gold-backed currency, which could be a solution to the country’s cash crunch.
The country can consider economic citizenship concept to realise value from its gold resources. Given the preference of Zimbabwe by foreigners, it would make economic sense for the country to consider offering permanent residence in exchange for certain minimum investments in gold for a certain timeframe, say five years, before these investors can redeem their investments. The concept of economic citizenship worked very well in to attracting international capital in a number of Caribbean and European countries such Turkey.
What would be more important is to ensure that the country is readmitted to the London Bullion Market Association (LBMA) for more competitive prices for its bullion. Zimbabwe was dropped out of the LMBA after production slumped below required levels 2008. Since then the country has been selling its bullion through the Rand Refinery of South Africa at sub optimal prices. Readmission into the LBMA will only be allowed when production level of 10 tonnes for three consecutive years. This calls for urgent intervention in this sub-sector, through some of the measures outlined earlier.
The importance of increasing investment in gold exploration and mining cannot be overemphasised. This mineral will remain important in the future, so Zimbabwe should capitalise on its comparative advantage on the mineral before it is shifted by forces beyond its control.
The fact the gold was mentioned more than 50 times in the Bible could be an indication of its importance in the past, today and in the future. Some of the benefits of unlocking the value of gold to Zimbabwe include:
Boosting foreign currency (gold is the number one foreign currency earner in the country)
Both gold and foreign currency reserves are important to support the value of a currency.
Readmission in the LBM for more competitive prices of the bullion
Employment creation especially by small-scale miners
Attraction of investment, both foreign and local.
It’s important to note that the success of the suggested initiatives to unlock the value of gold would depend on the business and investment environment in Zimbabwe. That’s why the ease of doing business reforms are seen as an important initiative by policy makers. Needless to mention that these reforms should be implemented wholeheartedly, without half measures as before.
- Persistence Gwanyanya is a Futurist and founder of Percycon Advisory Services. For feedback WhatsApp on +263 77 3 030 691 or email [email protected] <mailto:[email protected]>
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