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IMF reviews Zimbabwe economy, eyes first new financing since 1999

Comments (0) Africa, Latest Updates from Reuters, Politics

HARARE (Reuters) – The International Monetary Fund (IMF) has started talks with Zimbabwe’s government to review its economic performance, stepping up engagement as Harare seeks a financial aid package after years of isolation.

President Robert Mugabe’s government started defaulting on debts to the IMF, World Bank, African Development Bank and several Western lenders in 1999 – leading to a freeze in IMF assistance – and is struggling to emerge from a catastrophic recession that ran for a decade until 2008.

Without balance of payment support or foreign credit, Zimbabwe is running its budget hand-to-mouth, leaving it with virtually no money for infrastructure.

With formal unemployment above 85 percent, Zimbabwe has since December 2013 softened previously sacrosanct policies in the hope of gaining fresh loans. [nL8N12L1Q0]

At the same time, Western countries have eased sanctions imposed over alleged human rights abuses and vote fraud, looking beyond the rule of the 92-year-old Mugabe, Zimbabwe’s sole leader since independence in 1980.

An IMF team met government representatives on Wednesday under the final phase of a Staff Monitoring Programme, Christian Beddies, the IMF representative in Zimbabwe, told Reuters.

The team will also meet central bank officials and local business leaders before March 10.

“The team is also doing the annual Article IV consultation, which is an important ingredient in the re-engagement process,” Beddies said.



Zimbabwe started the SMP – an informal agreement with the IMF to monitor implementation of its economic reforms – in December 2013, and has met its targets.

These include softening provisions of its black empowerment law to attract foreign investment, making it easier for firms to lay off workers, and improving government financial accountability.

A senior treasury official said Zimbabwe hoped to begin negotiations this year on new financial aid, which will require it to tackle difficult reforms such as cutting the state wage bill, 82 percent of the national budget.

A parallel programme to clear $1.8 billion in external arrears would also be undertaken. [nL8N129142]

“We are working on the structure of a new financing programme from the IMF and we will soon present to them a country strategy paper on this and the economic reforms that will support the programme,” said the treasury official, who is involved in discussions with the IMF.

The worst drought since 1992 has left 3 million people facing hunger and Zimbabwe has appealed for nearly $1.6 billion to help pay for grain and other food. [nL8N15O44B]

Zimbabwe says it expects growth of 2.7 percent this year after 1.5 percent in 2015, but the World Bank says the economy will stagnate due to drought and weak commodity prices. [nL8N15I3CV]

Beddies has already said the IMF might resume aid to Zimbabwe this year if foreign creditors accept its plans to clear arrears and implement economic reforms. [nL5N11R2YV]


(By MacDonald Dzirutwe. Editing by James Macharia and Kevin Liffey)

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Zimbabwe orders diamond mines shut, says not nationalising

Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Zimbabwe ordered diamond mining firms to stop operations immediately on Monday and leave the Marange fields as their licences have expired but denied the government was seizing the mines.

The diamond fields in the east of Zimbabwe near Mozambique are mined by nine firms. Eight, including two Chinese-run companies, are joint ventures 50 percent owned by the government and the other one is wholly owned by the state.

“The JV companies neglected or failed to renew the special (mining) grants. Some expired as far back as 2010 and others in 2013,” Mines Minister Walter Chidhakwa told reporters and executives from the mines in question.

“Since they no longer hold any titles, these companies were notified this morning to cease all mining activities with immediate effect,” he said, adding that Harare’s position was final and not negotiable.

Monday’s move follows months of wrangling between the mining companies and the government over its plans to merge the mines into one new entity to ensure efficiency and transparency, a proposal opposed by some of the firms.

Chidhakwa said the state-owned Zimbabwe Consolidated Diamond Company (ZCDC) will now hold all the diamond claims in the country, but said the state was not nationalising the mines.

“We are not expropriating. Remember the concession that we are taking does not belong to the company … it vests in the state. We are not touching the equipment, the bulldozers, the excavators, everything that you have put up remains your assets,” Chidhakwa said.

The latest move by President Robert Mugabe’s government could further tarnish the country’s image as a risky investment destination, with investors already unnerved by Mugabe’s drive to force foreign-owned firms to sell majority shares to locals.

“We have created a very unstable and threatening investment environment, no matter which sector you invest in Zimbabwe you will be interfered with,” said economic consultant John Robertson.

Zimbabwe was the eighth largest diamond producer in the world with 4.7 million carats in 2014, according to industry group Kimberly Process. Last year, the government received $23 million in royalties and other fees from diamond mines, down from $84 million in 2014.

Chidhakwa gave the firms, including Chinese-run Anjin and Jinan, 90 days to remove their equipment and said company officials now required government approval to access the mines.

He said companies in Marange had not fulfilled their investment promises and refused to be part of a new ZCDC, which was part of the reason why the government had to cancel the expired licences.

Robert Mhlanga, chairman of the largest mine in Marange, Mbada Resources, declined immediate comment on the move.


(By MacDonald Dzirutwe. Editing by James Macharia and David Clarke)


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Drought plunges Kariba Dam hydropower to record lows

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kariba dam

Power shortages in Zambia and Zimbabwe undermine their struggling economies.

Drought has brought record-low water levels at the Kariba Dam on the Zambia-Zimbabwe border, forcing significant power cutbacks and rationing.

The crisis at the world’s largest man-made reservoir threatens to further weaken the growth outlook for the two countries at a time when they face falling commodity prices. The struggling mining industry has been particularly hard hit.

The reservoir fell to 11 percent of capacity in late January before rising slightly to 12 percent this month after dam authorities cut hydropower production to 25 percent of capacity. A year ago, the dam, which is fed by the Zambezi River, was at more than 50 percent capacity but drought and heavier than expected water usage resulted in the decline.

Power shortage could last years

While authorities may avoid a shutdown of the hydropower production, power shortages are expected to last for years. According to the World Bank, the power deficit could last at least until 2018 and possibly until 2020.

Henry Kapata, spokesman for Zambia’s state power utililty said power blackouts were averaging eight hours a day or more when imports were limited.

Kapata said the power deficit totaled 630 megawatts in January. The utility’s goal is to reduce the deficit to less than 160 megawatts by August, he said.

Mining industry suffers

Kariba Dam

The power cuts have dealt a significant blow to a mining industry that was already in trouble.

Zambian mining interests in August agreed to cut hydropower consumption by 30 percent as the problems became evident last summer. In Zimbabwe, mines and other major users were ordered to cut their consumption by 25 percent in October.

As a result of cutbacks and global price declines, mining growth has stalled.

In Zambia, where mining accounts for 80 percent of exports, production of copper, also was expected to decline this year. Two major mining companies suspended operations and cut thousands of jobs following the decline in copper prices and thousands of jobs were lost.

Effective January 1st, the government increased power tariffs by 25 percent in an attempt to encourage mining companies to invest in power generation.

In Zimbabwe, where minerals account for 55 percent of all exports, production fell slightly in 2015, according to the Chamber of Mines of Zimbabwe. The total value of mineral shipments declined steadily between 2012 and 2015 from $2.2 billion to $1.8 billion because of low output and declining prices globally.

Finance Minister Patrick Chinamasa has said the power crisis has become an obstacle to economic growth in Zimbabwe and the government is putting a priority on power projects.

“We regard power generation as our number one priority to move the country toward an economic recovery,” Chinamasa told the Parliament in December.

Engineers see risk of dam collapse

Even as the drought eases, a larger crisis looms for the Kariba Dam. Engineering experts have been warning for years that the dam wall is in danger of collapse.

The low water level reduces the pressure temporarily, but “the bigger picture of the state of Kariba dam is critical,” said Kay Darbourn, author of an extensive 2015 report on the dam.

Darbourn said factors including high rainfall that will feed water inflows locally and from other regions as well as potential earthquake activity, “could all contribute to the likelihood of failure of the Kariba Dam.”

The report, “Impact of failure of the Kariba Dam,” (pdf) said 2014-2017 was a crucial period of danger for the dam, while a project to repair it will not be completed until 2025.

Bedrock at the foot of the dam erodes

The dam was built in 1959 on a seemingly solid bed of basalt. However, torrents from the spillway have eroded the bedrock at the foot of the dam and a large crater now undermines the base of the dam wall.

Engineers have warned for years that the dam, which is 128 meters tall and 579 meters wide, will collapse and the floodwaters will breach Mozambique’s Cahora Bassa Dam, knocking out about 40 percent of southern Africa’s hydroelectric supply.

An estimated 3.5 million lives would be at risk in Zambia and Zimbabwe as well as further downstream in Malawi and Mozambique.

Fears were heightened in January when an earthquake measuring 4.6 on the Richter scale struck less than 60 kilometers away from the dam. The dam has withstood quakes as high as 5.5. Authorities are assessing whether the quake caused additional damage to the dam.

Munyaradzi Munodawafa, spokesperson for the Zambezi River Authority (ZRA), manager of the dam, said Zambia and Zimbabwe had raised about nearly all of the $300 million needed to fix the structure. Work was expected to start early in 2016.

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Moody’s says yuan use may benefit Zimbabwe, sees limitations

Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Moody’s said on Thursday plans by Zimbabwe to increase the circulation of the Chinese yuan could lift investment from the world’s second largest economy but may not be enough to strengthen investor confidence and improve competitiveness.

Zimbabwe abandoned its currency in 2009 after inflation reached 500 billion percent and adopted foreign currencies, anchored by the United States dollar, to tame runaway consumer prices and start an economic recovery.

The U.S. dollar is widely used, along with the rand currency of neighbouring South Africa and the finance minister and central bank governor said last month Zimbabwe would now increase the use of the yuan.

“The renminbi’s use will likely facilitate greater levels of foreign direct investment from and bilateral trade with China by reducing transaction costs and exchange rate risk,” Moody’s said in a report on Zimbabwe.

China has in the last few years invested more than $1 billion in Zimbabwe, becoming the largest investor after the Southern African nation was shunned by the West over its human rights record.

Moody’s, which has never rated Zimbabwe, said widespread use of the yuan could be limited by a population which has more confidence in the U.S. and is suspicious of other currencies after the traumatic experience with the Zimbabwe dollar.


(Reporting by MacDonald Dzirutwe; Editing by James Macharia)

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Zimbabwe gets $200 mil Afreximbank loan to import maize

Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Zimbabwe has secured a $200 million loan from Africa Export and Import Bank (Afreximbank) to import maize following a drought that will see 10 percent of the population facing hunger, the central bank governor said on state radio on Friday.

The Southern African nation of 13 million people said early this month it planned to import up to 700,000 tonnes of the staple maize this year to avert hunger as the El Nino weather pattern brings poor rains and affects crops.

“We have arranged a facility of $200 million from Afreximbank and we will be importing from anywhere in the world,” John Mangudya was quoted saying by state radio.

He did not say how much the country would import.

Mangudya said Zimbabwe had 250,000 tonnes in its strategic reserves, adding that the country had enough maize to last until September. Private millers have previously said maize stocks would not last beyond June.

The United Nations World Food Programme said some 14 million people face hunger in Southern Africa because of a drought that has been exacerbated by an El Nino weather pattern.

Zimbabwe’s annual maize consumption is 1.5 million tonnes but the 2015 harvest was half that following another drought.

Agriculture is critical to Zimbabwe’s economy, generating 30 percent of export earnings and contributing 19 percent to GDP, while 70 percent of the population still survives on farming.


(Reporting by MacDonald Dzirutwe; Editing by James Macharia)

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Zimbabwe platinum mines seek lower royalty fees amid low prices

Comments (0) Africa, Business, Latest Updates from Reuters

HARARE (Reuters) – Zimbabwe should reduce the royalty fee levied on platinum producers from the current 10 percent to help mining firms offset the impact of low prices, the country’s mining chamber has said.

Zimbabwe has the world’s second largest known deposits of platinum after South Africa but mines have struggled with low prices, a black empowerment law forcing mines to sell more than 50 percent of the business to locals, and power shortages.

In a commentary on the 2016 budget presented to parliament in November, the Chamber of Mines said royalty fees charged on the local divisions of Anglo American Platinum and Impala Platinum should be cut.

“The platinum sector requires support in the form of royalty reduction to restore viability, especially during this period of depressed prices,” the mining chamber said in a statement seen by Reuters on Tuesday.

Platinum prices are near seven-year lows of about $850 an ounce, hobbled by slowing demand in top consumer China and as the Volkswagen’s emissions-cheating scandal weighs on market sentiment.

Zimbabwe charges the 10 percent royalty rate on gross platinum sales. The government expects platinum production to increase to 468,791 ounces next year from 423,288 this year.

A 15 percent platinum levy on raw exports was deferred to January 2017 to allow mines to build smelters and base metal refineries, a move the mining chamber welcomed.

“In 2016, the sector will continue to be weighed down by depressed commodity prices, power shortages, inadequate capital and an unsustainable cost structure, compounded by high electricity tariffs, high cost of funding and sub-optimal royalty,” the chamber said.


(Reporting by MacDonald Dzirutwe; editing by Ed Stoddard and David Clarke)

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Zimbabwe proposes 10% black empowerment tax

Comments (0) Africa, Latest Updates from Reuters, Politics

HARARE (Reuters) – Zimbabwe plans to impose a 10 percent tax on foreign-owned firms to fund a black economic empowerment programme that is designed to bring the companies under local majority control, a minister was quoted as saying on Monday.

Some of the companies that could be affected by the new tax include the world’s top two platinum producers Anglo American Platinum and Impala Platinum Holdings, which both have operations in the southern African nation.

Under Zimbabwe’s Indigenisation and Economic Empowerment Act passed in 2008, the minister of youth and empowerment can, with the approval of the finance minister, levy a tax on any company to raise money to fund the black economic empowerment programme.

Youth and Empowerment Minister Patrick Zhuwao told the government’s Herald newspaper that he would propose a 10 percent levy on all foreign-owned firms that have not complied with the law, known locally as indigenisation.

The money raised would fund mostly rural community trusts to invest in businesses, said Zhuwao, adding that the government expected to raise $93 million annually.

“For us to be able to fund empowerment programmes in the long term, we are proposing the introduction of an empowerment levy and we are empowered by law to propose the levy,” Zhuwawo was quoted as saying by the newspaper.

Zhuwao, a nephew to President Robert Mugabe who was appointed to his job on Sept. 11, could not be reached to comment further.

Efforts to introduce the levy in 2012 failed after then finance minister Tendai Biti, from the opposition Movement for Democratic Change party, refused to sanction its implementation.

Zhuwawo’s comments come more than a month after the previous empowerment minister said the government was relaxing the law in a bid to attract foreign investment.

Zimbabwe’s economy is expected to grow by 1.5 percent this year, half the government’s initial forecast, after weak global commodity prices hit exports and a drought halved the staple maize crop harvest.

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