Miners seek crisis meeting with RBZ

isaac kwetsu u

Chamber of Mines of Zimbabwe chief executive officer Isaac Kwesu

DIAMOND and gold miners have planned a meeting with Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, after a new policy compelling them to remit all their earnings to the central bank triggered a cash flow crisis.
The situation is particularly worrisome for gold mining companies, which resumed operations on dollarisation after closing down during the hyperinflationary era.
Executives in the mining sector said they would be represented by the Chamber of Mines of Zimbabwe (CoMZ) at the meeting with the RBZ.
CoMZ chief executive officer (CEO), Isaac Kwesu, confirmed the planned meeting but said it was premature to comment.
“We are meeting the RBZ,” he said.
“Not all minerals have been affected (by the new policy) but 100 percent of proceeds for gold and diamond mines go to RBZ. Some of their costs are funded externally,” Kwesu said.
The meetings had been planned for this week, although no date could be given by the sector players.
It has been a difficult decade for the gold mining subsector, which reported the highest casualties during hyperinflation between 2007 and 2008.
As hyperinflation deepened, the RBZ’s gold buying unit, Fidelity Printers and Refineries, failed to pay up to US$50 million for bullion, causing mine closures and capital flight.
Most gold mines returned to production at dollarisation in 2009; government issued Treasury Bills (TBs) for the outstanding US$50 million due to the fact that it did not have the cash to pay for the gold.
Diamond output is expected to be affected by the recent closure of seven players to pave way for a consolidated firm.
Mining industry sources said this week the two remaining players, Murowa Diamonds and Marange Resources, had approached CoMZ, seeking an audience with the RBZ to be allowed to remit a certain threshold and remain with funding for operations.
The planned meeting with RBZ by miners comes as government has warned of closures in the sector due to low mineral prices.
Mines Minister, Walter Chidhakwa, told the CoMZ congress a fortnight ago that many mines could cease production due to continuing slowdown in mineral prices on the international markets.
His views were backed by CoMZ president, Toindepi Muganyi, who said the mining sector was “fragile, distressed” and struggling to break even.
“For or the second year in a row our sector recorded negative growth of -2,5 percent in 2015, from -3,4 percent in 2014, while total mineral revenue declined from US$1,9 billion in 2014, to US$1,86 billion in 2015,” Muganyi told the 77th CoMZ AGM in Victoria Falls.
“The negative growth of the mining sector contributed to the softening growth of Zimbabwe’s economy to 1,1 percent in 2015, from 3,8 percent in 2014.
Notwithstanding the above challenges, Zimbabwe’s mining industry remains a key driver to economic revival, and its contribution compares favourably with both international and regional experiences,” he added.
The mining industry contributes about 10 percent of the country’s gross domestic product, more than 50 percent to national exports, about 13 percent of fiscal revenue, at least 50 percent to foreign direct investment, and employs about 45 000 people in the country, according to CoMZ statistics.
The grave situation within the mining sector has been compounded by growing uncertainty over the proposed introduction of bond notes by the RBZ.
In a statement, the RBZ said it wanted to curb money laundering and externalisation of funds, which have been blamed for the cash crunch affecting the economy.
When the policy was announced, the RBZ said it would introduce bond notes, backed by a US$200 million loan from the Africa Export Import Bank, to fund a five percent export incentive meant to boost production and encourage exports.
Now, industries say the five percent incentive falls far short of the 50 percent that has to go through RBZ, or 100 percent for gold and diamond mines.
“If you give a five percent incentive and get 50 percent, the difference is too big,” a senior executive with a manufacturing entity said. Captains of industry said companies were struggling and business confidence had dropped as investors adopted a wait and see attitude since the policy announcements.
The crisis in the mining sector comes as the Zimbabwe Stock Exchange-listed plastic products manufacturer, Proplastics, said last week the business climate had deteriorated since the announcement of the measures.
“Trading conditions have deteriorated further following the recent pronouncements by the RBZ which indicated that 50 percent of all export proceeds will be transferred to the central bank and returned as RTGS,” Proplastics’ CEO, Kudakwashe Chigiya, said.
“This will have adverse effects on our business as 80 percent of the export proceeds are required for funding the import of raw materials. As we speak, business is at a standstill as the market uncertainly awaits the introduction of the bond notes. The adverse effect of these policy pronouncements has already been felt in our May figures,” Chigiya told shareholders at an annual general meeting.
A fresh wave of mine and firm closures could spell doom for the country, which is battling to raise taxes to fund government operations.
Thousands of firms have closed in the past decade.
Many more have relocated to regional economies were the operating climate is favourable, with dire implications to the employment situation in the country.
In an interview with the Financial Gazette’s Companies & Markets, Zimbabwe National Chamber of Commerce CEO, Takunda Mugaga, said business had been affected by the new measures.
Reports said firms have cancelled orders because they feared they could fail to pay for imports in bond notes should they be introduced.
Others have had orders withheld by international suppliers who want to understand first how the bond notes would operate, according to people aware of developments in international trade.
Mugaga said the RBZ had failed to clarify issues, and this was bringing uncertainty in transactions.
“It could be apprehension, it could be uncertainty but we see that a lot of companies have taken a wait-and-see attitude,” Mugaga said.
“The trading environment is uncertain, yes; the market wants to understand more about bond notes. For instance, people want to know the difference between bond notes and bearer cheques. We are not against bond notes but we want to understand them,” he said.
In an analysis released two weeks ago, advisory firm, Invictus Securities, said there would be problems in the acceptance of bond notes.
It said banking sector confidence could be “negatively affected by perceptions regarding bond notes introduction”.
“The Reserve Bank recently announced the introduction of an export incentive scheme that is expected to be paid out in bond notes. This may have implications on US dollar denominated loan book quality and transactional revenue as driven by market perceptions. The public will be the final arbiter on this yet to be implemented recent policy pronouncement,” said Invictus.

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