It seems that the Mugabe administration found out what happens when the government tells private interests what to do with their resources: They slow down or stop producing them altogether. In response to this, they repealed the lousy law, and like magic, Zimbabwe’s gold mines are resuming operations.
What are/were the problems? For starters, private interests in the mines are limited to 49%. This means that even though you pour your capital and efforts into running an efficient operation, you will still be getting less than half the profit. In addition, Mugabe ruled that all gold sales had to made through the Central Reserve Bank of Zimbabwe. Once the bank sold the gold, the private interests would receive 40% of the proceeds….in Zimbabwean dollars. According to a report over at Mining Weekly, this method eventually failed (Short on paper?),  and they resorted to issuing a “special” type of bond, in lieu of the money they owe mines.
In case you haven’t been paying attention, Zimbabwe is in the midst of insane hyperinflation. According to the Cato Institute, the monthly inflation rate of their currency is 79,600,000,000 %. So, as soon as they paid the money to the mines (even if it was paid out the same hour as they sold it), it would be worth roughly 110,555,556 % less. This was if the payments didn’t get “lost” on their way to the mines. Given these factors, it’s not hard to see why mines closed up shop.
So, what do the new laws allow? It allows the mine to bypass the Central Reserve Bank, sell their gold directly to foreign commodities markets, and keep all of the proceeds. While I am occasionally critical of the mines’ lack of social responsibility (perceived or otherwise), the Mugabe administration is far worse by an infinite measure. The return of mining will bring jobs to a country that desperately needs it, along with benefits for surrounding businesses.
While gold mines may jump at the chance to resume operations, investors are still leery of putting down a stake. It seems that they are waiting for the chaos to subside. Robert Mugabe is getting on in years, and the chances that he will either die, or be replaced by a younger, more charismatic figurehead are high. What his successor will do is anyone’s guess, and the people putting up the capital don’ t really care for guesswork.
What does this mean for the tire industry? Well, someone has to get the equipment readied for service. As we speak, inventories are being taken, needs are being assessed, and the Requisitions Dept. stands ready to write out the purchase orders. In a year with little good news thus far, Zimbabwe is a bright spot of potential supply and demand.
We’ll keep an eye on the situation as it unfolds, and report on the overall impact on the mining and tire industries.
Until then, I’ll be…
Signing off…
Related posts:
