The empty bread basket: The state of mining in Zimbabwe

As yet further spates of xenophobic attacks swept through South Africa in 2019, the situation in our neighbouring country, Zimbabwe, continues to worsen. From cholera outbreaks, to increased government control, to inflation and foreign currency deficits, Zimbabwe is in crisis. Nowhere is this state of affairs clearer than in the Zimbabwean mining sector. Having languished in the first, second and third quarters this year, this sector shows little sign of recovery or improvement. Foreign currency deficiencies, rolling electricity blackouts, fuel shortages and an on-going cholera outbreak remain serious threats to the wellbeing of this sector. 

Between 2007 and 2009, Zimbabwe experienced some of the worst hyperinflation since the Great Depression, reaching an astronomical 79,600,000,000 per cent at its peak in November 2008. When the Zimbabwean dollar was eventually scrapped in April of 2009 due to this state of affairs, the exchange rate stood at Z$35 quadrillion to US$ 1.[1]

It came as an unpleasant surprise to many, then, when the Zimbabwean government introduced a new local ‘currency’ in February of 2019.  Since the Zimbabwean Dollar had been scrapped, payment methods in Zimbabwe underwent a number of permutations. Although the US Dollar became Zimbabwe’s anchor currency, practically a multicurrency system was in place. In terms of this arrangement, those trading within Zimbabwe could pay in US dollars, South African rands, mobile money and bond notes, amongst others methods. 

Foreign currency has never been plentiful in Zimbabwe and this, coupled with the nation’s veracious appetite for imported goods, soon made this system untenable. Some have argued that the introduction of this quasi-currency was the only option available, given Zimbabwe’s persistent foreign currency shortages. This new quasi-currency, the RTGS dollar (an abbreviation of ‘real-time gross settlement dollar’), is made up of bond notes, bond coins and RTGS balances. Importantly, RTGS dollars cannot be traded outside of Zimbabwe. 

What does not make sense, however, is the government ban on local foreign currency trading. Zimbabwe has been crippled by foreign currency shortages for years, and the situation shows no sign of amelioration. This ban can only aggravate these circumstances. What is worse is that RTGS dollars have been devaluing at an alarming rate. When they were first introduced, 2.5 RTGS dollars could theoretically buy one a US dollar. Now, a mere nine months later, it will require about 15.9 RTGS dollars to purchase a US dollar. 

What does this have to do with the mining sector, one may well ask. A great deal. By law, gold extracted from Zimbabwe cannot be sold directly on the open market. Instead, miners must sell gold to Zimbabwe’s central bank. The bank pays for this gold partly in US dollars, and partly in RTGS which – we remember – cannot be traded outside of Zimbabwe. This poses a challenge for turning a profit off Zimbabwean gold.

Two of the largest mining corporations operating within Zimbabwe, Metallon and RioZim, are currently suing the central bank over this arrangement: these companies grievances include both the currency in which they are remunerated, as well as late payments. Too add to this litigation labyrinth, Metallon is being sued for allegedly sending over US$ 30 million to the United Kingdom unlawfully. Moreover, Zimbabwe’s largest mining union, the Associated Mine Workers Union of Zimbabwe, sought an order from the Harare High Court declaring two of Metallon’s mines to be put under business rescue. The union alleges that about 1 400 workers at Metallon’s Shamva and Mazowe mines are owed salaries, benefits and unremitted pensions to a value of US$ 40 million.

To add to this maelstrom facing the Zimbabwean mining sector, the country is facing its worst black outs since 2016. In May of this year, Zimbabwe Electricity Transmission and Distribution Company (ZETDC) introduced indefinite powercuts, sometimes lasting up to 10 hours per day. Mining producers have been asked to pay higher electricity tariffs to guarantee uninterrupted power supply. Even so, corporations and small scale miners alike – especially in the gold sector – have been forced to turn to the use of diesel generators. These are exceptionally expensive to run, compounding the difficulty of turning a profit off Zimababwean gold. Moreover, petroleum and diesel shortages continue to plague Zimbabwe. In the absense of a reliable power grid and a consistent supply of fuel, gold production continues to decline.

These challenges in the gold sector have serious consequences for the country at large. Last year, gold accounted for 45 per cent of Zimbabwe’s mineral exports and the sector provides 30 per cent of all formal mining jobs. Mining accounted for most of Zimbabwe’s USD 4.8 billion export earnings last year. Moreover, a further estimated half a million small-scale and artisanal miners make their living off digging for gold. This all adds some context as to why the gold sector’s slump in the first quarter of this year – gold production in the first quarter was down by a whopping 10 per cent – is a serious economic blow to an already languishing economy.

The failing economy has had another of other implications, both in Zimbabwean mines and more broadly. Zimbabwe experienced a number of cholera outbreaks last year. By October of 2018, an estimated 8 535 Zimbabweans – mostly in Harare – were infected with this disease, fifty of which succumbed to it. In November of 2018, another outbreak of cholera struck the mining town of Mt Darwin. All of the November outbreak cases were reported at Mukaradzi Mine. The outbreak of this disease, which is highly treatable as well as preventable, has exposed the appalling state of Zimbabwe’s infrastructure, healthcare and living conditions.

The Zimbabwean mining sector, as well as Zimbabwe more generally, is in crisis. Systemic issues, such as failing infrastructure, foreign currency and fuel deficits, and rampant inflation mean that, unfortunately, the sector shows little sign of recovery. It may be time for the rest of Africa to take notice.

Written by Hannah Massyn.