ZIMBABWE’S economic growth is likely to be blighted by weakening mineral prices and domestic currency shortages, among other factors, which could undermine the welfare of citizens, particularly the poor majority.
Zimbabwe — which boasts Africa’s largest and the world’s fifth-biggest reserves of lithium, known as the “white gold” among several other valuable minerals, is hinging its economic growth aspirations on mining, which is one of the country’s main sources of foreign currency.
Apart from the drop in mineral prices and the Zimdollar’s decline, the economy has also been plagued by recurring electricity shortages, commodity price volatility and rising global geopolitical tensions.
According to an economic review for September by the Zimbabwe Coalition on Debt and Development (Zimcodd), these headwinds may derail economic activity by increasing the cost of industrial production, fuelling inflation tax, reducing disposable incomes, subduing aggregate consumer demand, widening societal inequalities, and deepening poverty.
The mining sector is facing immense pressure, with global prices of key minerals having declined significantly, with lithium down at 69%, diamond (-60%), palladium (-41%), rhodium (-74%), and nickel (-8%).
“As for gold, the yellow metal lost 3.7% in September 2023. The decline was largely the result of higher opportunity costs caused by extensive run-on bond yields alongside a stronger dollar as well as a large drop in the Chinese local gold price premium,” reads the Zimcodd analysis.
“The available official trade data show that Zimbabwe exported gold worth US$141 million, down 12.8% from US$161 million exported in July 2023. Cumulatively, the nation earned about US$1.15 billion in the first eight (8) months of 2023, down 10.9% from US$1.29 billion earned for the same period in 2022.
“The decline in gold export earnings is partly attributable to a decline in official gold deliveries. Cumulative deliveries of gold came in at 22.4 tonnes between January-September 2023 which lag behind 25.6 tonnes realised for the same period in 2022.”
The decline in bullion deliveries has been attributed to side marketing, smuggling, incessant rains experienced in the first quarter which affected small-scale and artisanal miners, and rising mining cost structure propped up by high electricity tariffs.
Zimbabwe needs adequate infrastructure to support advanced technologies which are key in ensuring gold production tracking and monitoring to minimise chances of gold leakages and illicit trading.
Zimcodd said the government’s Liquidity Management Committee (LMC) should also be capacitated to establish an optimal level of Zimdollar liquidity in circulation in the economy to stabilise the monetary base and contain frequent local currency fluctuations.
“The economy is rapidly dollarising, with the latest Zimbabwe Statistical Agency (ZimStat) survey establishing that about 80% of domestic transactions are now conducted in United States dollar. This trend is now also being reflected in Treasury revenue collections which are now dominated by foreign currency,” Zimcodd said.
“Latest statistics from the Zimbabwe Revenue Authority (Zimra) have shown that after factoring in tax refunds totalling ZW$212.5 billion, half-year (1HY23) total net revenue collection came in at ZW$4.43 trillion. Using the 1HY23 average official exchange rate of ZW$/US$1,996.64, this 1HY23 revenue collection translates to about US$2.22 billion. Of this amount, the actual United States dollar collection was US$1.32 billion which is almost 60% of the total collection.”
Zimcodd said while it was plausible that the stable United Stated dollar is gradually constituting a lion’s share of Treasury revenue collection, rising cash dollarisation being experienced in the economy is posing serious 2024 budget risks.
“Cash dollarisation is deepening the hard-to-tax informal sector economy while fuelling corruption, tax evasion, and other underground activities like smuggling, drug dealing and money laundering/ externalisation,” Zimcodd said.
“Other likely 2024 budget risks include the persistence of both commodity price volatility and exchange rate deterioration which may adversely affect revenue collection, service delivery, and debt servicing costs. As such, going forward, authorities must adopt innovative strategies to increase revenue collection efficiency which is key in reducing the chances of unsustainable budget deficits amid rising economic dollarisation.”