Zimbabwe forex rule costs gold miners amid price rally
Soaring prices are driving Zimbabwe's gold output and income, but the government's foreign currency retention rules are eating into producers' earnings, the country's mining industry body said.
The price of gold has surged more than $800 since the start of the year, reaching a peak of $3 500 an ounce in April before easing to current levels around $3 300 an ounce. The price rally has been mostly driven by central bank buying, geopolitical tensions and uncertainties in the global economy.
Zimbabwe's gold export earnings increased to $740-million during the first five months of this year, up 25% year on year. Its output was up 43% year on year at 20 metric tons in the six months to June, official data shows.
However, a rule requiring exporters to retain only 70% of their earnings in US dollars while converting the balance to a volatile local currency is straining miners.
Critics of the policy say the local currency is overvalued, resulting in miners losing significant income when their foreign exchange earnings are converted.
Zimbabwe has an acute foreign currency shortage and uses part of the proceeds from exports of minerals to fund vital imports such as electricity and grain.
Most mining companies are struggling to meet their own import needs despite earning foreign currency because most suppliers of goods and services demand payment only in foreign currency, Chamber of Mines President John Musekiwa told Reuters.
Zimbabwe reintroduced its local currency in 2019, a decade after abandoning it for foreign currencies to tame hyperinflation. The local currency has again proved volatile, suffering a 43% devaluation last September, and is shunned in many domestic transactions, including by government departments.
Currently, miners pay 50% of their taxes and royalties in foreign currency and would want to pay those expenses in local currency.
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