MINING companies will likely not get their demand for an upward review of the foreign currency they retain on their export proceeds after Treasury indicated recently that Government desperately needed the hard currency for critical national imports. According to Treasury, the foreign currency is required for key imports that include medication, fuel, grain and settling lines of credit among others, which also comes against the backdrop of insufficient foreign currency on the interbank market for forex.
The miners have repeatedly made the call for Government to increase their foreign currency retention threshold saying what they remained with after part of the earnings are converted to local currency, was insufficient to cover operational requirements.
Miners retain 55 percent of their export earnings as foreign currency while the balance is converted at the ruling interbank rate and paid to the miners in local currency.
Government has various retention thresholds for various sectors. Manufactures retain 80 percent of proceeds; gold producers 55 percent; other minerals 50 percent; tobacco and cotton merchants, for input schemes 80 percent; tobacco growers; 50 percent, cotton growers; 30 percent while horticulture, transport, and tourism retain 80 percent.
Through their parent ministry miners are on record saying they require foreign currency to re-open closed mines, reclaim and start working on dumps, expand existing operations, open new mines and meet growing obligations under difficult economic conditions.
Mines and Mining Development Deputy Minister Polite Kambamura, once said the forex retention threshold for miners needed to be increased on a gradual basis to levels between 65 and 70 percent.
Immediate past president of the Chamber of Mines of Zimbabwe Batirai Manhando, told the media in June this year that the foreign currency miners are allowed to retain was only enough to cover procurement of inputs for production and nothing more.
Mining is strategically important to Zimbabwe given that the sector accounts for between 4 and 12 percent of gross domestic product, generates 60 percent of the country’s total export earnings and employees about 45 000 people direct and indirectly.
Responding to legislators during a 2020 National Budget seminar in Victoria Falls recently, Finance and Economic Development Minister Mthuli Ncube, said Zimbabwe had several key national foreign currency obligations, making a concession on reviewing upward the forex retention threshold a difficult proposition.
“The foreign currency surrender is used for procurement of critical imports such as medication, fuel, grain and settling letters of credit, among others.
“This is against the background of inadequate foreign currency on the market, which if Government does not intervene through implementing surrender requirements, critical products would be in short supply,” the minister said.
Minister Ncube said apart from critical imports, for which the forex is required, Zimbabwe needed to build its foreign currency reserves to over six months import cover.
“Our currency reserve levels are nowhere near enough and this is unacceptable and explains some of the foreign debts and balance of payment challenges we face.
“These should therefore balance the desire to increase investments and national strategic interests, especially on matters involving depleting natural resources,” he said.
He said what must also be taken into context was the fact that Government had already previously consented to reviewing upward the retention threshold for the mining sector from 30 to 55 percent to ensure that mining companies remain viable.
“Nevertheless, Government continue to monitor the situation, including developments on the international commodity markets, with a view of engaging mining houses on any further required support to guarantee sustained viability of mining houses,” the minister added.
Government recognised, Minister Ncube said, the factor that the mining sector will continue to be the major generator of foreign currency in the country, hence Treasury will continue to prioritise and render full support, including over the year in 2020.