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USD For Entire Mining Value Chain.

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The Reserve Bank of Zimbabwe says the decision to allow fuel companies with free funds to import the precious liquid is simply a matter of accepting reality.

Expectedly social media has erupted with accusations suggesting that the central bank is allowing re-dollarisation by other sectors whilst denying the same to others.

Well it gets worse. There is another reality the RBZ should treat with the same urgency. This reality has even more dire consequences if left unattended, than the fuel issue.

Zimbabwe’s main exports currently come from the mining sector which contributes in excess of USD2 billion annually. The RBZ has allowed a few freedoms for that sector. It has accepted that salaries for instance be paid in foreign currency.

This has been done to ensure that the mining industry avoids potentially crippling brain drain. There are countries which are actively seeking the Zimbabwean labour force and willing to go beyond just paying in USD but topping up obtaining local salaries.

In a global world, one’s problem sometimes means your neighbor is cheering and seeing opportunities in your troubles.

Unfortunately as the RBZ took this ‘pragmatic’ decision, to allow payment in USD, it excluded the entire value chain and only took into account the primary producer.

Resultantly the miner can retain their labour force but will lose on the supply side as this dispensation has not been extended to them.

By and large suppliers in Zimbabwe are still required to be paid in local RTGS dollars. With the instability that has ravaged the local unit. this has presented huge challenges for locally based suppliers.

Most can not access foreign currency on the interbank market and thus have to resort to the black market where prices are at least 80 percent higher than the official market.

However it has proven a nightmare to pass such costs to the miner who in turn argues that such prices are uneconomic.

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For the miner whatever the interbank market says is the price of forex, means that is the cost of their money. Anything higher will mean they must fork out more in foreign currency. As price takers most miners can not afford to take a route that makes them more costly and less productive.

In seeking to go around this matter, a number of suppliers have had to relocate outside Zimbabwe where payments can be made without getting trapped into complexities of the local market.

For Zimbabwe this has meant loss of jobs and foreign currency from a sector whose main priority should have been to increase the local content of its products.

According to the Chamber of Mines of Zimbabwe while 70 percent of supplies to the local mining industry are driven by Zimbabwean based entities, the products themselves have less than 20 percent of local content, that is materials made from local raw materials.

In essence most of the money from our mining industry is going out of the country. Efforts though were being made to transform the local suppliers into manufacturers and producers.

The prevailing environment is threatening not only the viability of the mining industry but reversing all efforts of preserving local value.

International competitors have also caught up to the obtaining Zimbabwean situation and are rushing to provide terms and conditions that will make it not only difficult to start afresh but for any Zimbabwean supplier to compete.

In the face of the situation, it seems only fair for RBZ to do two things. One is to accept the reality that the entire mining value chain must transact in USD.

Secondly, RBZ must immediately engage the entire mining value chain to work out on a programme that ensures that temporary losses are managed in a way that sees less lost jobs and income to Zimbabwe.

We can still increase the amount of local content in the industry albeit under very challenging economic conditions. In any case, what is the point of realising a USD 12 billion mining industry while at the same losing most of the money to foreign countries? Mining is a finite resource.

At some point the gold and platinum we have, will be gone. What should remain are the new industries such resource will have unlocked for us. At the present moment we need to think of mining as value chain not isolated units without any link to the national economy.    

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