Cablegate: Why Gold Is Up and Other Exports Down

This record is a partial extract of the original cable. The full text of the original cable is not available.

231114Z Sep 04




E. O. 12958: N/A
SUBJECT: Why Gold Is Up and Other Exports Down

Ref: Harare 1498

1. Summary: Zimbabwean gold production could increase 67
percent to 20 tons this year, according to industry
insiders. At current world prices, bullion will easily
soar past tobacco and cotton to become the country top
foreign exchange earner. As part of the Government's
efforts to encourage production, it is providing gold
miners with zimdollars at a favorable exchange rate.

Gold Doubles Tobacco in Revenue
2. Econoff spoke with several mining executives this
week. They confirmed Reserve Bank (RBZ) Governor Gideon
Gono's claims that output would rebound to about 20 tons
this year, up significantly from last year's 12 tons but
still shy of the 30 ton-record set in 2000. (N.B. The
RBZ is 6 months behind in publishing mineral statistics.)
From 2000-2003, Zimbabwean gold production slipped from
third to seventh in sub-Saharan Africa. At the current
US$390/oz world price, industry reps estimate Zimbabwe
will earn US$250 million this year, roughly double the
revenue anticipated from tobacco (ref).

3. Unlike its treatment of other export commodities that
it requires be sold to the government, the GOZ has
established a realistic floor price for gold that nearly
reflects the world price. The current rate the
government is paying miners is Z$85,000/gram. Although
the currency is not freely convertible, this equates to
about US$ 15.00/gram versus a world market price of US$
12.50/gram at the official exchange rate of Z$5600. The
GOZ is not, in fact, paying above the world price, but
instead is simply incentivizing production by offering
golf miners a favorable exchange rate of Z$6800:US$, much
closer to the current parallel market rate of
Z$7500:US$1. In further contrast to its handling of
other exporters, the RBZ does not require gold producers
to exchange 25 percent of earnings at the ultra-low
Z$824:US$ rate, provided they accept all revenue in

4. Gold's resurgence underscores how rapidly certain
aspects of the economy can bounce back under favorable
macroeconomic conditions. The GOZ has deployed a
concerted strategy to boost output, including use of a
favorable exchange rate and elimination of disincentives
such as the 25 percent retention requirement. The GOZ's
use of a favorable exchange rate for this sector also
indicates the artificiality of the official rate and how
difficult it may be to maintain it over time.


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