1. GOLD SMUGGLING IN ZIMBABWE - ROLE OF MARKET DISTORTIONS

There are two markets that explain why gold smuggling takes place in Zimbabwe - the minerals market and the foreign exchange market.

No level of policing can compensate for distortions in these markets

2. The official gold market in Zimbabwe comprises one ultimate buyer - Fidelity Printers an Refineries, owned wholly by the Reserve Bank of Zimbabwe.

In economics, this is a classic case of a monopsonist & as expected Fidelity Printers sets price below market clearing level!

3. To illustrate, as of 22 Oct 2020 Fidelity Printers was buying gold at ~USD55 per gram. The world market price for the same is around ~USD61 per gram.

Someone with 6.09kg of gold faces either getting USD334,950 from Fidelity Printers or USD371,490 on more competitive markets.

4. One is able to gain an extra USD36,540 in revenue if they can get the 6.09kg of precious metal out of the country.

That’s a lot of money to lose to Fidelity Printers, no wonder some people will take their chances. The market invites them to.

5. The official exchange rate adds to the incentives to smuggle gold out of the country

As of 22 October the Fidelity Printers was paying for gold it buys at an exchange rate of USD1:ZWL81.35 in line with the FX auction. But I have explained before, the auction rate is fixed!


6. While Fidelity Printers is exchanging at USD1:ZWL81.35, the parallel market rate is almost 30% higher at USD1:ZWL105. Again this presents another opportunity for one to gain.

6.09 kg of gold sold to Fidelity Printers yield in domestic currency ZWL27.248 million.

7. This is opposed to ZWL39.006 million is one is able to sell their gold directly out of the country.

One gets 44% more in ZWL if they are able to smuggle gold out of the country, bring in the USDs and sell them onto the black market.

The incentive to smuggle is enormous!

8. They are other aspects of the FX market that also encourages the smuggling of gold. The key one is the idea of a priority list.

People/businesses off the list, who can’t access forex via the auction are buying precious minerals like gold using ZWL to sell out of the country

9. Previously some of these people used the dual listing of Old Mutual shares - buy shares in ZWL in Zim and resale in USD. However this opportunity is closed, so these types of trades have moved to gold and other commodities. It means Zim’s net forex earnings are much less

10. If RBZ can allow the domestic gold and FX market to function more competitively, it removes arbitrage opportunities and it will go some way in managing down incentives to smuggle minerals out of the country

@ReserveBankZIM @ZimTreasury @MthuliNcube @FingazLive @BusisaMoyo

@shingaiRndoro @BusinessTimesZW @baba_nyenyedzi @MlamboProf