Zimbabwe’s mining sector is faced with an impending funding shortfall of $10 billion over the next five years, according to Bloomberg News, citing estimates of the country’s Chamber of Mines.
Ability to attract capital into the sector is getting narrower owing to erratic power supplies and exchange rate volatility. More so, development in platinum-group metals, gold, diamond and chrome mines have been stymied by political instability, economic collapse and regulations that are a hindrance to foreign investment. Nonetheless, the sector is forecast to generate $5.5 billion in earnings.
“Key risks to the Zimbabwe mining sector outlook include inadequate foreign exchange allocations to fund operational requirements and expansion projects,” the Chamber of Mines was quoted as saying in the report.
In 2021, Zimbabwe announced rules forcing exporters to transfer 40 per cent of their foreign currency earnings to the country’s Central Bank, instead of 30 per cent. That’s exchanged into local currency at just a little more than half the parallel market rate.
Fundamentally, those foreign exchange losses pose a risk to the mining industry, said the chamber, a lobby group that represents companies including Impala Platinum Holdings Ltd. and Anglo American Platinum Ltd.
These notwithstanding, it’s not all gloomy. One area where Zimbabwe has been able to bring in more foreign investment is its platinum metals sector. In the last two months, Impala Platinum said it would spend $204 million expanding its Zimplats’ smelter while Tharisa said it would progress its $250 million Karo platinum mine in the country.
Albeit on a smaller scale, Caldeonia Mining, a Toronto-listed gold producer, said it planned to press on with expansion. “We see huge geological potential in Zimbabwe,” said Steve Curtis CEO of the Company in January 2022.
Potential Decline in GDP
Heavily dependent on its mineral resources, this decline in investment may also cascade into a decline in the country’s GDP. In February 2022, Fitch Solutions forecast Zimbabwe to remain slow from an estimated 4.7 per cent in 2021 to 3.7 per cent in 2022.
Fitch Solutions said: “We do not see output lost during the pandemic being recouped until 2025. Our real GDP growth forecasts imply that Zimbabwe will not be able to close the economic development gap with historically-more developed regional peers, and that it will fall further behind peers in real GDP per capita terms in the coming years.”
According to Fitch, several factors will prevent a more robust economic recovery in Zimbabwe in 2022. One of the factors include net exports subtracting 1.5 percentage points (pp) from growth in 2022. This will reflect weaker demand and prices for gold, which comprises over 40.0 per cent of the country’s exports.
That notwithstanding, the main growth driver in 2022 will be private consumption which is expected to add 3.7pp to growth. This is based on the expectation that restrictions aimed at tackling COVID-19 will remain largely absent from Q2 2022 onwards, given rising vaccinations rates, and coupled with the spread of the less deadly omicron. The country’s GDP growth for 2023 is forecast to remain subdued, falling to 3.1 per cent, Fitch said.
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