/How Zimbabwe is losing billions through gold smuggling

How Zimbabwe is losing billions through gold smuggling

By Thembelani Moyo

3 Minute read

Zimbabwe is losing billions of dollars in potential revenue through gold leakages, and will soon tighten its laws to prevent further losses, Finance and Economic Development Minister has said.

Professor Mthuli Ncube made the revelations in parliament, last week, as he presented the 2020 national budget. Questions, however, have been raised about how the government has been caught sleeping.

Who is involved in gold production in Zimbabwe?

This is the starting point to trace who is responsible for dealing gold illegally. Zimbabwe gets most of its gold from Artisanal and Small-scale Gold Mining (ASGM) activities. According to reports, the Midlands districts of Kwekwe and Kadoma provide the bulk of the country’s gold. Mashonaland district also has rich gold deposits.

ASGM gold output, for the first time in 2017, surpassed that produced by Large Scale Mining. This is revealed in a 2018 report by the United Nations Industrial Development Organization (UNIDO).

“Overall, ASGM is responsible for a significant portion of the country’s gold production, and, in 2017, production from ASGM surpassed LSM production for the first time,” said UNIDO.

Small-scale miners fingered in gold rot

Since ASGM is informal, their operations are a fertile ground for black market dealers, says the UNIDO report. A government official, Munesu Munodawa admits that a lot of gold is unaccounted for within the ASGM sector.

“If all players in the sub-sector become responsible and patriotic citizens delivering all hold to Fidelity Printers and Refineries, I can assure you that this country will not remain the same,” said Munodawafa.

Why small-scale miners trade on the black market

Artisanal and Small-scale Miners (ASMers) prefer to sell gold illegally than sell to Fidelity Printers and Refinieries (FPR) for many reasons. FPR is the sole buyer, refiner and exporter of gold in Zimbabwe.

ASMers, according to UNIDO, want a high price for their gold that FPR cannot offer. The black market, however, is able to offer such attractive prices. Also, miners find it unattractive to sell gold to FPR because of the taxes that they have to pay.

“Illicit buyers are able to offer higher prices than FPR, while still realizing profits… The difference in pricing makes it very difficult for legal buyers to compete with illicit buyers in the black market,” says the UNIDO report.

Foreign currency retention threshold

Small-scale miners, in 2018, were left unhappy after the Reserve Bank of Zimbabwe cut the foreign currency retention threshold. ASMers now receive 55% of their payment in foreign currency; the remainder is paid in Zimbabwe dollars.

Emily Hwengwere, managing director of MEJRKH, revealed that ASMers are not happy with the foreign currency retention threshold policy. This is another reason that could be driving small-scale miners to deal on the black market.

“Miners were unequivocally clear that they are not happy with the 55%:45% retention rate when selling gold. They believe this is the major reason gold deliveries are going down because small-scale miners prefer the 80%:20% retention rate that had earlier been proposed,” said Hwengwere.

Access to foreign currency

Black market dealers have access to US dollars, and, this gives them an advantage. They find it easy to buy gold from ASMers who prefer to sell to those who have cash. Fuel importers are also said to be involved in gold smuggling. They use gold as a form of currency that they sell abroad to secure foreign currency for their businesses.

“In contrast, illicit buyers on the black market have more ready access to cash (US dollars), and are willing to pay 100% cash, on the spot for gold. As long as one has cash, they can buy as much gold as they want… As a result, the FPR policy ( of paying part in forex and part in local currency) is pushing both ASMers and buyers to buy and sell gold on the black market, as well as empowering foreign actors who have easy access to US dollars,” reports UNIDO.

Ease of doing business

ASMers are pushed to sell on the black market because of ease of doing business. Despite FPR decentralizing their operations from the capital, Harare, its operations still don’t cover all places. Black market dealers, however, are willing to travel long distances that FPR officials cannot travel. For ASMers, this eases the burden of traveling costs and constitutes ease of doing business.

“Illicit buyers are much more able to quickly pay for gold entirely in cash, thus dwarfing the amount of time it takes to secure the same amount of cash for gold sold through formal channels.

“ In addition, ASGM operations are dispersed, and can be a very far distance for FPR offices or other official buying agents.

“The FPR requires individuals selling a minimum of 5 grams of gold with a purity of 75%. Many ASMers are unable to meet these minimum standards, and thus, are forced to sell gold to buyers on the black market.”

Where is smuggled gold sold?

South Africa and Mozambique are the regional destinations for gold smuggled out of Zimbabwe. The United Arab Emirates is another viable market for smugglers. Weak border post controls have made it easy for smugglers to transport gold by road.

Harassment by the police

ASMers, in Mashonaland East, told a news website that they are forced to dump Zimbabwe because of harassment. They said they sell their gold in Mozambique because Zimbabwean police harass them and demand bribes and protection fees.

“The police always arrest us if we don’t pay them bribes after selling our gold to Fidelity.

“We end up crossing into Mozambique where we also fetch better prices than what is offered by Fidelity,” one miner said.

South Africa also offers higher prices for gold, making it a favorite destination for smugglers.

“The dominant reason gold is being smuggled to South Africa is higher prices. Gold is smuggled to  South Africa where it is bought by a recovery works plant, under the guise of it being scrap metal,” claims UNIDO.

How much gold is smuggled?

It remains unknown how much gold is smuggled out of Zimbabwe. Over 50% of Zimbabwe’s gold, however, is estimated to be traded on the black market. This is about US$ 1 billion worth of gold that is unaccounted for.

Reuters reports that Zimbabwe will not meet its gold production target of 40 tonnes it set for 2019. This is due to many factors that currently affect the mining industry. The government had set the 40 tonnes target after an encouraging 2018. Production reached 33,2 tonnes against a target of 30 tonnes in 2018

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