Inflation, high costs hurt Zimbabwe gold sector

Zimbabwe must devalue its dollar and take drastic steps to curb inflation if it wants to stabilize its struggling gold sector, says David Murangari, CEO of the Zimbabwe Chamber of Mines.

Mines there are producing less than a ton of a gold per month, a decrease of 20% from last year and a slide of nearly 66% over the past five years. About 12 mines have closed in the past three years, and numerous other projects have been shelved. Inflation stood at a record 365% in mid-August.

“If nothing happens with the exporters’ exchange rate, we are going to witness a slow but sure decline of production of gold mines to a point where we see them go out of business,” says Murangari.

In February, the government devalued its currency to 824 Zimbabwean dollars for every U.S. dollar after pegging it at Z$55 since 2000. Murangari recommends that the exporter rate be moved to Z$1,400 per U.S. dollar. The currency is trading on the black market at Z$3,500 to each U.S. dollar.

Gold output, which accounts for about half of Zimbabwe’s mineral production, totalled 15.2 tons last year, or three tons less than in 2001.

Production peaked at more than 30 tons five years ago, when Zimbabwe was the third-largest gold producer on the continent after South Africa and Ghana. It now ranks eighth.

The sector is buckling under high operating costs, largely as a result of state-owned Zimbabwe Electricity Supply Authority, which bills its clients in foreign currency.

Zimbabwe’s current gross domestic product is about US$3.7 billion, two-thirds the size it was in 1998 when it stood at US$5.4 billion. The economy contracted 11.9% last year and it is expected to contract by 7.2% in 2003.

Minerals that recorded decreases in volumes last year include gold, black granite, coal, chromate, cobalt, graphite, iron ore, iron pyrites, lithium minerals, magnesite and nickel.