Could Zimbabwe be about to regain its LBMA membership?
Liam Sheasby, News Editor
23 Jan 2019, 2:04 p.m.
Zimbabwe is seeking to be readmitted to the London Bullion Market Association this year and accredited as a trusted gold producer. The African nation was removed from the LBMA in 2008 after failing to meet its required 10 tonne output for the year but has since renewed its gold mining and consistently met this target for three years.
In 2015, Zimbabwe produced 21 tonnes of gold – the third year they had surpassed the 10 tonne requirement for LBMA members. Their application to rejoin the association was dismissed, but since then their output has increased further: 21.1 tonnes in 2016, 24.8 tonnes in 2017, 33.2 tonnes in 2018 (worth over $1 billion), and the forecast for 2019 is a landmark 40 tonnes of gold.
Fidelity Printers and Refiners smelting gold at their plant. Photo courtesy of Wikipedia archives.
The Zimbabwean government is keen to return to the LBMA in order to gain access to a more competitive gold bullion market, with better rates. At present Fidelity Printers and Refiners, who act on behalf of the Reserve Bank of Zimbabwe, sell their gold on to the Rand Refinery of South Africa – a well-known refinery who produce the South African Krugerrand coins amongst others. The Rand Refinery takes a 0.3% levy on the gold it sells on behalf of Fidelity, and it is this levy that the Zimbabwean government is seeking to avoid.
ZBCtv, Zimbabwe’s pro-government state broadcaster, reported comments from the Mines and Mining Development Deputy Minister, Polite Kambamura, who told a news reporter that by rejoining the LBMA, Zimbabwe can sell its gold with better protection against the risk of sharp price movements – another aspect which is punishing gold miners aside the levy rates.
While Zimbabwe meets the requisite amount of gold mined to qualify for LBMA membership, the big hurdle for its readmission is worker safety and environmental consciousness. The London Bullion Market Association has rigorous rules in place to dissuade ‘blood gold’ – gold mined and produced outside of safety or environmental rules. As this article from Bloomberg points out, mining in Zimbabwe as of last November is still very unregulated and very dangerous. Many miners operate in cramped conditions with poor ventilation, limited light, no specialist equipment, and even no protective clothing. Many mine holes and shafts are left open once excavated too, posing a threat to human life and wildlife, as well as risking ground instability and collapse. One quote stands out in Bloomberg’s article: Dosman Mangisi on behalf of the Zimbabwe Miners Federation describes the LBMA’s rules as ‘a noble idea’ but stresses that they are too costly. “Although miners here want to comply, many won’t be able to”.
Zimbabwe previously operated on the LBMA solely through Fidelity Printers and Refiners. They were the one authorised buyer and exporter of gold in the country. They were responsible for all of Zimbabwe’s refining and took 7.5% of the gold produced as payment.
With the rapid decline in Zimbabwe’s economy since 2000, and hyperinflation running riot, gold mining and output shrunk significantly, resulting in the expulsion of Fidelity Printers and Refiners from the London Bullion Market Association on June 30th, 2008. By this point output had fallen from 10.9 tonnes in 2006 to 3.5 tonnes – far lower than the 10 tonne annual output required by the LBMA.
President Mugabe is heavily blamed for political policies that damaged Zimbabwe significantly. In 2000 he introduced land seizures, with policies under a black economic empowerment initiative targeting farms and foreign-owned mines. The United Nations was heavily critical, but this did not dissuade Mugabe. Indeed, his policies continued for years until late 2008 when the country’s economy teetered on the verge of collapse. Hyperinflation peaked in November that year at 79.6 billion percent, with political violence rife following the likely rigged Spring elections. Aid workers and UN inspectors reported violence from Mugabe’s ZANU-PF party towards opposition groups – primarily the Movement for Democratic Change (MDC) – including beatings, rape, kidnapping, torture, and murder.
In 2009, to combat the unfathomable levels of hyperinflation, Zimbabwe’s reserve bank stopped printing currency. The Zimbabwean Dollar is now no longer used; instead the country uses a raft of currencies both local and international, such as the South African Rand, Botswana’s Pula, Pound Sterling, the Euro, Yen, the Chinese Yuan, and both the Australian and US Dollars.
Present Day troubles:
Many thought the turmoil would end after President Mugabe left office, which happened late in 2017. The ZANU-PF leader sacked Emmerson Mnangagwa, his vice-president, with the intent to appoint his wife Grace to the position. Grace Mugabe was very unpopular within ZANU-PF and so the army and members of his party launched a coup d’etat, putting Mugabe under house arrest. Robert Mugabe was instructed to resign, but he refused, instead being dismissed from his presidency by the courts. Before impeachment proceedings could conclude, Mugabe negotiated a deal to ‘resign’ – a deal which meant he and his family were immune from prosecution and his assets would be untouched.
Election posters for President Mnangagwa (ZANU-PF) and the main opposition leader Nelson Chamisa (MDC)
Since his dismissal, Mnangagwa took over as President. He applied for Zimbabwe to rejoin the Commonwealth before contesting an election early in 2018, with repeats of the violence seen under Mugabe and the opposition MDC contesting the ZANU-PF victory as a fix. Away from the politics, the country has shown some signs of rejuvenation, but still suffers under a cloud of economic mismanagement following decades of authoritarian rule. Foreign companies like KFC have closed down outlets in Zimbabwe due to the still-high levels of inflation affective prices of goods and services. Recent riots saw news agencies including Reuters reporting of fatalities in the capital Harare after the government raised the price of fuel, with people already queueing for miles to get what little they can. Zimbabwean newspapers are all suggesting that the current turmoil could be a repeat of 2008.
For Zimbabwe’s gold industry (and the wider economy) the return to the LBMA’s good delivery list is a much sought after accreditation. The status boost would be an indicator to the wider world that Zimbabwe is on the mend and is ready for further foreign investment. The problem is that over 50% of Zimbabwe’s gold production is from small mining companies and independent miners, delving into dangerous areas to mine in unsafe conditions. The government has not stopped this practice, nor does it enforce the law that producers (miners) must sell their gold to Fidelity Printers and Refiners. The black market receives a lot of this gold because people, desperate for employment and money, can’t afford to wait for a sale. Trading their gold is a matter of urgency and survival.
Until Zimbabwean authorities remedy this then it’s unlikely that they will meet the criteria set by the London Bullion Market Association for readmission, though perhaps Mnangagwa’s government could argue that a return to the LBMA would allow them to enforce the law that all gold must go through their bank subsidiary, and thus introduce effective working practices as the market demands.