Mining to drive economy in 2020 — analysts

21 Feb, 2020 - 00:02 0 Views

eBusiness Weekly

Enacy Mapakame

The mining sector is expected to be one of the key drivers for economic growth in 2020 on the back of its export generation capacity but the challenging operating environment will put a damper on the sector’s full potential.

The mining industry accounts for between 12 and 15 percent of annual Gross Domestic Product (GDP) and the diverse mineral base has potential to generate about US$18 billion annually.

However, since 2009 approximately US$2 billion is being generated, which is about a tenth of the sector’s full potential when operating full throttle.

Of the minerals in the country, gold, is the single largest foreign currency earner ahead of tobacco.

While gold prices are expected to remain firm this year, following a price rally of metals last year, the operating environment in Zimbabwe is still a challenge for realising full potential.

Key among these challenges are persistent power shortages that may impede growth as hours of production time are severely reduced due to load shedding.

The gold sector is also affected by low foreign currency retention threshold, which leads to smuggling of the yellow metal as the illegal parallel market gold buyers offer 100 percent foreign currency.

Last year, artisanal miners accounted for 63 percent of gold deliveries to Fidelity, as they continue to eclipse output from large scale gold producers, although this was slower than 2018 due to power shortages, smuggling, poor policy environment and the spate of violence in the sector.

Mining is one of the sectors that underpins economic growth prospects this year and beyond 2030 when the country is expected to be an upper middle income economy.

“We believe there is a lot of potential in the mining sector, however, low retention levels of fore from Government might
hamper the optimisation of operations,” said Harare brokerage firm, IH Securities in their Zimbabwe Equity Strategy 2020 report.

“Despite this sector having the potential to bring in the much-needed forex into the economy as all minerals are exported, we assume a reduction in output in key minerals owing to the challenging operating environment.

“We expect a decreased in chrome given government’s anticipated ban on unbeneficiated chrome exports,” said IH.

The Mining Business Confidence Index, which is calculated by the Chamber of Mines declined to 2,2 percent in 2019 from 8 percent in 2018, representing a further reduction from 21,99 percent recorded in 2017.

The declines were a result of the erratic power supplies, shortages of foreign currency and policy uncertainty.

In addition to that, capacity utilisation within the sector narrowed to approximately 70 percent from 75 percent recorded in the prior comparable period, with all key minerals, with the exception of Platinum Group Metals, recording an average decline in capacity utilisation.

“Resultantly the sector is estimated to contract by 12,3 percent in 2019, attributed to the operational challenges faced throughout the year, while a recovery representing 4,7 percent growth is forecasted for 2021 contingent on an improved economic and business environment,” said IH.

Zimbabwe is one of the world’s top platinum producing countries accounting for 7,6 percent of global output in 2018.

Platinum production fell 4,2 percent to 115 000 ounces in 2019 third quarter, compared to previous quarter on the back of repair work on concentrating facilities while the unfavourable operating environment also contributed to the decline.

Global platinum output is projected to contract 1,8 percent on the back of shaft closures in South Africa and power outages.

In Zimbabwe, production is also expected to stagnate on the back of poor business environment, characterized by foreign currency shortages and erratic power supplies.

However, Government is anticipating mining led economic growth. Last year, President Mnangagwa launched a Strategic Roadmap to achieving a US$12 billion mining sector by 2023.

Under this plan, Government also anticipates increased diamond production to 11 million carats, with support from companies such as Alrosa, Anjin and Vast Resources anticipated to drive up output.

Agreements between the Zimbabwe Consolidated Diamond Company (ZCDC) and Alrosa, as well as finalising the creation of a joint venture for prospect and exploration work for primary diamond deposits in the country are expected to work in the country’s favour.

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