The Sunday Mail
President E.D. Mnangagwa
Because of vigorous interventions, measures and instruments we have taken and brought into train, our economy has stabilised and is set on a sustained growth trajectory.
Inflation is coming down; prices are stabilising; the national currency is firming; activity in the real economy is evident. The breakthrough in meeting our national wheat requirements shows we now have internalised the culture of working to rigorously set national targets.
We have a few more measures up our sleeve to ensure there is complete discipline in the market, and until predictability returns in the operating business environment. With the national economic hand now so visible and unflinching, each and all must know what is right to do, and how to conduct business lawfully, so our economy remains on an even keel. Zimbabwe is on the rise.
New policy on royalties
Last week, the Second Republic announced a far-reaching policy initiative whose full significance is yet to be fully appreciated. We have unveiled a new policy of building and accumulating national reserves in precious and high-value minerals. I am talking about building national stocks of real precious and processed high-value strategic minerals, so we physically deposit these in our national vaults, both for us and for future generations.
Ending colonial profligacy
This is a first since the 19th Century, when our country became a centralised mining proposition, under the then colonial order. Of course, no one expected colonial governments to stockpile minerals for us, indigenous people, whether then or for future African generations. They knew they would not be part of that future, and thus did not feel obliged to make provisions for it. Instead, they sought to scoop as much as they could, for externalisation and stashing in their countries of origin. We are now independent; that mercenary and exploitative outlook now has to change, given that nyika yave kutongwa nevene vayo! We cannot, as the present Government, and as the current generation, run and manage finite resources profligately, without any regard for generations yet and sure to come!
Providing for inter-generational equity
To that end, we have decided on this new policy which is dynamic, and which for a start targets four of our key minerals. Two of them are precious; they are gold and diamonds. These must now be stockpiled both for prudence and inter-generational equity. The other two are high-value minerals, and these are lithium and platinum group of metals, PGMs.
As with all other non-renewables, these strategic minerals are finite. They will exhaust at some stage in the life of our nation. When that day comes, we have to have something to show and share with those who come after us. Hence, this policy we have just unveiled, which takes effect from this month of October 2022 onwards. I would have wanted this to start last month, in September; this could not happen since certain things needed finalising. Now we are ready.
Revisiting our policy on mining royalties
How does this new policy play out? Essentially it pans out in the way we now interpret our old policy on royalties, by which miners have always paid an output-based fee to Government. Simply put, a royalty is a share of output which Central Government levies on all miners privileged to exploit our finite subsoil assets. This takes the form of a percentage on output — say 5 percent — which Government collects in the form of a fee. We are now changing this.
Part refined mineral, part cash
Starting this October, Government now requires that part of these royalties come as actual refined mining product in respect of each of the four minerals or group of minerals I have alluded to.
The other part of the royalties will, as before, come as cash to underwrite the business of Government. This split and two-pronged approach to royalty payments allows us to build physical reserves of precious and strategic minerals, while also ensuring we continue to get our revenue for the day-to-day running of Government business.
Dynamic interpretation of the policy
I described the policy as dynamic. This is for two reasons. Firstly, to suggest that Government reserves the leeway to add or subtract minerals affected by this dual/split interpretation of mining royalties, as circumstances warrant.
In doing so, Government will be guided both by national subsoil reserves of any one mineral, and by global demand there is, and by, therefore, value the mineral fetches on the global market.
Our policy on mining royalties should never be frozen in time; it must respond both to the geological scarcity of the resource, and to global demand trends.
Tracking changing value in by-products
Second, I am aware that in geological terms, no mineral exists or is extracted singly. Most target minerals come with by-products. For instance, platinum comes alongside nine other minerals, each of which assumes different value at any one time on the global market. This is why we speak of platinum group of minerals, PGMs. As I write, by-products from platinum mining, such as rhodium, palladium, silver, cobalt and gold, now account for 80 percent of mining revenues at today’s prices, with the flagship platinum only contributing a paltry 20 percent! Our policy should, thus, be flexible enough to respond to such changes and trends in the global metals market.
Fine-tuning and operationalising the policy
I have already tasked concerned Ministries of Finance and Economic Development, and that of Mines and Mining Development, to jointly fine-tune this far-reaching policy, of course, in close consultation with the mining sector and mining concerns affected. The new policy also means our Reserve Bank of Zimbabwe has to have a system for demanding and collecting designated minerals, even where these are processed beyond our borders.
Equally, the Central Bank should have enough, commodious and secure vaults for the storage of these hard minerals as companies begin to fully comply with this new policy. Our policy, I must stress, is not to receive or stockpile ore or matte; it is to receive processed final products from these designated minerals.
Harmonising sibling policies
This new policy must be appreciated in a broader context. We already have a policy on Sovereign Wealth Fund, which shares the same goals with this new thrust on royalties. Both policies seek to secure and achieve inter-generational equity.
The two policies must thus talk to each other. Already, the Sovereign Fund has stakes in Tuli Coal, Kuvimba Mine Group and in the promising oil project straddling Guruve and Muzarabani, which is now at drilling stage.
Increasing propensity to save and to value-add
Another policy area which this new initiative must speak to relates to our minting and selling of gold coins to ensure Zimbabweans have more avenues and instruments both for savings and for storing value, as we stabilise our currency and the broader macro-economic environment.
With Fidelity (Gold Refinery) as the sole buyer of our gold, and with this new policy on royalties also yielding more gold, it means our gold stocks are set to grow significantly. Through gold coins we have already introduced, the national propensity to save should grow in the economy. Equally, we must see a buoyant gold and precious metals beneficiation industry taking root and expanding in the country.
Small gold coins are coming in November
As I write, the Reserve Bank of Zimbabwe, RBZ, has sold over 10 000 gold coins, for about US$15 million.
This means Zimbabweans have an appetite for gold coins, and to save. Our target is releasing US$30 million-worth of coins. By mid-November this year, the RBZ should be in a position to unveil smaller denominations of gold coins, whose value will range from a tenth, a quarter, to half of an ounce.
This allows more Zimbabweans to participate, including those in lower-income bands. That way, we buoy our currency, while stimulating national savings.
We have also started seeing US dollars, all along stashed, circulating more and more in the formal market. The impact has been positive, including a gradual convergence of different exchange rates in the economy. All these are very auspicious signs towards the stabilisation of our economy.
Securitising prudent borrowings
I have already detailed what all these policy measures, including this latest one on royalties, mean for our economy. Let me, in conclusion, say that the precious and high-value strategic minerals we accumulate can also be used to securitise any borrowings we may prudently envisage.
This raises our country’s creditworthiness, and, thus, our ability to circumvent and fend off funding limitations designed against our economy by those who have imposed illegal and unjust sanctions against us.
Like I indicated last week, our response to these spiteful sanctions should always show greater resolve and creativity on our part so that what was meant to hit us as an adversity turns to defiant advantage, through the alchemy of inventive policies.