ANB-BIA SUPPLEMENT

With the demise of Zimbabwe’s agricultural sector during the course of 2002,
and agriculture’s bleak outlook for 2003, economists suggest
that  the burden now falls on mining to resuscitate the economy.
But can it?

Analysts say there’s no chance for mining to save the economy. At least not on its own. The economy is in its fifth year of recession and needs exports to be able to afford imports, which in turn provide some of the resources for export.

Roy Pitchford is a mining expert. He says that mining provides a much smaller share of the country’s exports, compared to agriculture and manufacturing. It would be an enormous task for mining to make up for the anticipated decline in agriculture and manufacturing —  task that will require many years of investment and development,if not decades. The fact is, mining provides only 20% of Zimbabwe’s total export earnings, while agriculture contributes over 40% and manufacturing industries around 20%. However, agriculture exports are expected to decline dramatically due to the land reform programme and drought, and this results in inputs to the manufacturing sector falling, while an unrealistic exchange rate will further reduce the manufacturing sector’s ability to export.

Pitchford said the expected decline in exports from agriculture and manufacturing, cannot be replaced by the mining industry because of the time factor and foreign investment required for mining projects. Government statistics project Zimbabwe’s economy to drop by 11% in 2002  from an initial projection of 5.3% last year.

The Century Bank’s chief economist, David Mupamhadzi, said growth in agricultural exports declined from 291% in 1996, to 13.6% in 2001, and is expected to decline further in 2002, mainly due to drought and a drop in output due to farm disturbances. Similarly, manufacturing exports have been declining strongly since 1996, showing the prevailing adverse economic conditions in the country. Manufactured exports declined from US $899.7 million in 1997 to US $406 million in 2001. Mr Mupamhadzi said: «We expect manufacturing exports to decline further in 2002, mainly due to the depressed output in this sector».

Mining in decline

Zimbabwe’s Chamber of Mines minerals economist, David Matyanga, said that mineral exports had declined from US $520 million in 1995 to US $389 million by 2001. A number of firms are currently struggling to break even due to high production costs. The plight of mining houses has been further worsened by an acute shortage of foreign currency and an artificial exchange rate.

According to Pitchford, it has taken Delta Gold Platinum, the forerunner to the Zimbabwe Platinum Mines (ZIMPLATS), 16 years to produce a positive cash flow. From 1996 to 2002, when it became cash positive, US $400 million was spent to get the Makwiro Platinum Mines’ operations produce 200,000 ounces of Platinum Group Metals (PGM) per year. Mimosa Platinum Mine, a much smaller mine than Makwiro, has taken six to seven years to achieve a positive cash flow.

The company is now expanding, as a result of South Africa’s Impala Platinum and Aquarius Platinum acquisition of 85% of its issued share capital, at a total cost of US $75 million. Impala and Aquarius have committed a further investment to increase production from 30,000 ounce of PGM to 135,000 ounces.

«However», says Pitchford, «Makwiro’s success does not reflect the general state of the mining industry, which like agriculture and manufacturing, is in decline. The mining sector is facing serious problems imposed by foreign currency shortages and a slowdown in the world economy. Besides low international commodity prices, the mining industry is further compounded by its failure to receive an adequate chunk of the foreign currency it earns. At present, gold producers have to sell gold to the central bank, while other metal exporters are allowed to sell and retain a portion of foreign currency earned by the export of minerals.»

Pitchford continues: «Furthermore, the rate of exchange received officially for foreign currency, bears no resemblance to the mining companies’ needs to have foreign currency in order to buy capital equipment. (Much of the equipment must be imported). Also, the artificial exchange rate prevents the mining industry from contributing towards the economy’s resuscitation, let alone saving it. While mining on its own cannot save the economy, it can be a significant contributory factor alongside other sectors. Even with news that platinum group metals, will replace gold as Zimbabwe’s premier mineral export earner, the country must not focus on mining to save the economy because the processing of metals and minerals provides a better return than metal production.

• Tonderayi Mukeredzi, Zimbabwe, January 2003 — © Reproduction authorised, with usual acknowledgment

Editor’s update: The Government has adjusted the exchange rate for its currency, moving it closer to rates paid on the black market. On 19 February, the Government set the rate for exporters at 800 Zimbabwe dollars to the US dollar.