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US$157m lost monthly to gold plunder, illicit financial flows in Zim



A NEW investigative report by the Centre for Natural Resource Governance (CNRG), a civil society watchdog on the extractive industry, says Zimbabwe is losing at least three tonnes of gold valued US$157 million monthly through illicit financial flows.


The report, titled Zimbabwe’s Disappearing Gold: The Case of Mazowe and Penhalonga,  officially released yesterday, says the country is losing three tonnes of gold monthly worth US$157m through siphoning by top and influential Zanu PF politicians and government officials, as well as their business cronies.

Cumulatively, the report says, gold money worth billions of dollars is flowing through a parallel system or black market, with proceeds mainly salted away offshore.

Says the report: “Illicit financial flows (IFFs) in the artisanal mining sector in Zimbabwe are responsible for leakages of an estimated three tonnes of gold, valued at approximately US$157 million every month.

“The sector has now spread its tentacles from alluvial gold deposits along rivers and dry riverbeds to large-scale disused mines that are now patronised by politicians and ruling party officials.” 

The new monthly loss is way above the official estimates given by the government previously. The authorities say Zimbabwe is losing US$100 million a month through gold smuggling.

Finance minister Mthuli Ncube has estimated that between 30 tonnes and 34 tonnes of gold produced in Zimbabwe is smuggled to South Africa annually, translating to US$1.8 billion. Home Affairs minister Kazembe Kazembe placed the loss figure at US$100 million every month.

However, using the latest gold prices on the international markets, three tonnes of gold are worth over US$184 million calculated at the average price of US$1 742.70 per ounce.

This means the country is losing close to US$200 million a month through the illicit squirreling away of gold.

One tonne is equal to 1 000 kilogrammes or 35 274 ounces (oz); 1kg is equivalent to 35.274oz.

Gold prices are expected to average US$1 830/oz this year, a new record. The bullion’s March rally above US$2 000 per ounce could represent a highwater mark for the precious metal.

Although forecasts indicate the global gold market faces some challenges in the second half of the year, analysts say it still remains an important safe-haven asset for investors.

The volume of gold produced each year in the world has tripled since the early 1970s, and the amount of gold bought annually has quadrupled and gold markets have been flourishing across the globe. Over the last three decades, the annual volume of gold bought by investors has increased by at least 235%.

Gold is now bought by far more diverse consumers and investors than it ever has before.

The various and growing uses of gold in jewellery, technology and by banks and investors means the rise of several different sectors of the gold market.

The largest demand for gold in the world is jewellery, which consumes 50% of world production. Coins take up 10%, industry utilises 9%, and the rest is for investments. Over the last decade, demand for gold has since moved East, driven by wealth creation, cultural affinity, and income growth in some of the world’s fastest-growing economies.

While the world is benefitting from gold production increases and high prices, Zimbabwe is not reaping the rewards.

Smuggling, corruption and price manipulation by cartels, corrupt networks and criminal syndicates, as well as underworld dealings amid chaos, are robbing the country of billions of dollars.

Says the report: “Over the past four years, Zimbabwe has experienced an unprecedented increase in illicit financial flows. This problem dominates the mining sector in general but is more pronounced in the gold mining sector where artisanal mining is rampant.

“Artisanal gold mining, which has become a major mining activity in Zimbabwe, is fueling leakages of gold into a parallel system whose actors include those connected to the upper echelons of power in the country.

“The entire phenomenon reveals collapsed and captured state institutions that are expected to steward and account for national resources. An element of limited statehood has manifested itself in the mining sector. The state has voluntarily withdrawn from regulating particular policies and, as a result, criminal elements are not punished or held to account.”

Artisanal and small-scale miners produce over 60% of total gold deliveries, although they remain poor and live from hand to mouth.

“The country has become a huge gold mine, with artisanal mining occurring almost everywhere. Incidences of gold-rushes are frequent, chaotic and well-immersed in informality,” the report says.

“Gold money amounting to billions of dollars is flowing through a parallel system, outside the formal market, every year and consequently beyond the sanction of the law, whereby political and social elites deliberately keep state institutions weak in order to reap economic and political benefits or to increase rents.

“Today, the sector is now largely characterised by lawlessness, violence and blatant disregard for human rights and reigns of terror through marauding gangs known as MaShurugwi (machete-wielding gangs now mostly silenced),” the report says.

“The practice of artisanal mining is therefore illegal as it contravenes the Mines and Minerals Act [Chapter 21:05] which neither recognises nor defines an artisanal miner.

“Despite the illegality, in 2016 the Reserve Bank of Zimbabwe (RBZ) announced a policy of buying gold from artisanal miners on a ‘no questions asked’ basis. This was meant to bolster and boost gold deliveries and to expand government’s revenue basket.

“Nevertheless, the RBZ’s Fidelity Printers and Refineries (FPR) gold-buying rates remain lower than black market rates, thereby fuelling side marketing and smuggling of gold.”

It adds: “Organised syndicates comprising a few politically connected individuals sponsor the artisanal miners, manipulate security channels, have unlimited access to cash, and carry the contrabands out of the country through official ports of exit, sometimes in connivance with officials.”

The report says gold barons – who include Zanu PF politicians and their business cronies – are ruling the roost and reigning supreme in the cut-throat wheeling and dealing goldfields.

“Gold dealers abuse their gold-buying licences to fight for control of artisanal miners and gold millers. Through the patronage system they also access cash for their illicit business from wealthy gold barons and FPR, the sole gold-buying and 100% state-owned gold trading, refining and exporting company,” it says.

“In Penhalonga, there are over 5 000 gold pits that are controlled by one gold dealer (Pedzisai ‘Scott’ Sakupwanya), while thousands of gold pits in Mazowe are also controlled by a few gold dealers registered with FPR. The gold dealers submit less than 30% of the gold to FPR, while the rest finds its way to South Africa, United Arab Emirates and other Asian countries such as China and India. Most smugglers prefer to exit the country by road to South Africa where the gold is flown from.”

Zimbabwe’s Robert Gabriel Mugabe International Airport and OR Tambo in Johannesburg, South Africa, are part of the smuggling corridor in the region.

In 2020, controversial Zimbabwe Miners’ Federation president Henrietta Rushwaya was arrested trying to smuggle 6kg of gold worth US$366 000 to Dubai.

Last year, Zimbabwean gold smuggler Tashinga Nyasha Masinire, Rushwaya’s former aide and driver, was arrested at OR Tambo International Airport with 23 pieces of gold worth R11m (US$783 000 at the time).

Sources told the investigators that some of the gold is flown out of South Africa by private planes from Lanseria Airport, a privately owned international airport that is situated north of Randburg and Sandton to the northwest of Johannesburg.

“Gold barons sponsor a tightly monitored patronage system that is recruiting artisanal miners through political offices. Artisanal miners earn a pittance while in return the gold baron gets lucrative rewards from the illicit trade.  Although the gold smuggling syndicates ultimately boils down to a few gold barons and kingpins, the pyramid is very wide at the base with so many runners who operate numerous ‘offices’ for gold collection at the mines and in towns closer to the mines,” the report says.

“Gold leakages are rampant at the mining, milling and transportation levels of the supply chain. While there was no evidence to suggest smuggling of gold from FRP, this institution remains responsible for creating arbitrage opportunities for the gold dealers who then choose to sell gold outside the country where there are better offers.

“Section 17(2) of the Gold Trade Act mandates the Secretary of the Ministry of Finance, or any person authorised by him with issuance of gold buying/dealing licences. Previously the Ministry of Mines issued the licences based on Gold Buying Regulations derived from the Gold Trade Act which states that the Minister of Mines may make regulations to further the effectiveness of the Gold Trade Act.

“However, in a statement issued by RBZ on 26 May 2020, the central bank stated that ‘small-scale gold buying agents will have to enter into an agency agreement with FPR which contract shall clearly spell out the terms and conditions under which the agents shall operate’.”

The report goes further: “The entry of small-scale gold dealers into the formal value chain has resulted in an opaque system of awarding these licences without due process being followed and a system of patronage has arisen where only politically correct and connected individuals are awarded such licences as ‘fronts’ for kingpins in the gold sector. Further, FPR has failed to proffer an efficient pricing mechanism to incentivise miners and maintain its regulatory role in gold trading in Zimbabwe

“This report looks at the political economy of illicit gold mining and trade in Zimbabwe and unmasks the intricate and interlinked close relationship between partisan politics and access to gold-mining rights by artisanal miners; acquisition of gold-trading licences and gold-buying privileges; gold milling and smuggling.

“The report recommends political will to bring order at FPR, and for civil society to demand

accountability in the artisanal gold mining sector in light of continued increase in cases of gold smuggling from Zimbabwe.”

It says more and better incentives than what the government is currently offering must be given to attract gold producers to sell through official channels and not on the parallel market.

“The gold pricing system should be attractive to local gold producers and the trading platforms should be efficient in paying the gold producers. All producers should have equitable access to FPR gold trading platforms in order to protect artisanal miners from exploitation,” the report adds.

“FPR should develop a mechanism for accountability for its gold-buying agents. They must have paper trail for their transactions. The government must expedite commissioning of the mining cadastre system that computerises allocation of and registration of all mining claims, inclusive of gold claims.”

CNRG conducted a study to investigate and conceptualise the illicit economy of the artisanal gold mining sector in Zimbabwe, using cases of two selected sites, namely Mazowe (Mashonaland Central province) and Penhalonga (Manicaland province).

The investigation was meant to elicit evidence of criminality – smuggling, corruption, organised crime and exploitation – within the chaotic gold-mining sector.

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