Zambia’s US dollar reserves have been under pressure following the perpetual depreciation of the local currency – the Kwacha. Servicing US dollar denominated external debt has been ballooning as more Kwacha is needed to be converted to US dollar to service debt.
Establishing of gold reserves is viewed as a diversification strategy that would enable the country to buy gold which is locally mined in the local currency – Kwacha and be used to shore up reserves over and above the direct US Dollar forex earnings and inflows.
The advantage of establishing gold reserves include the greater security of gold reserves kept at home. Relative to foreign exchange reserves, which are claims against foreign banks and authorities, which can be blocked any time for political reasons.
The other known advantage is that most suited to Zambia is that gold reserves would provide a more stable asset to diversify from only holding US Dollar reserves. Zambia has struggled to have a stable Kwacha and gold reserves could provide a war chest to draw on and counter the perpetual Kwacha slides experienced year in year out.
And The Bank of Zambia (BoZ), has disclosed that negotiations on the resumption of the purchase of gold to establish gold reserves have advanced and that the central bank has concluded the initial negotiation stage and submitted a draft contract to the identified supplier that will govern gold purchases.
The Central Bank had in December 2019 announced plans to start the process of buying gold locally as an alternative to US dollar forex reserve as a way of revamping Zambia’s national reserves as well as diversifying from the concentration risk of only holding US dollar reserves.
BOZ has confirmed that they have sent out a draft contract to the identified supplier(s) and currently expecting feedback. The supplier is to deliver purified gold bullion to a standard that it can be held as part of international reserves.
BoZ Acting Assistant Director for Communications, Besnat Mwanza, on May 18, 2020, said that the date of resumption of gold purchases is dependent on the conclusion of the contract. She said that the mechanisms of purifying gold to international bullion standard and stored safely have also been agreed in principle with the relevant stakeholders.
Even on the economic front, Zambia has every reason to prioritise gold mining. Although copper might be fetching a staggering US$6.300/ton on the London Metal Market, with cobalt fetching a whooping US$80,000/ton, gold is in a class of its own, relatively fetching US$445.58 per gram with price per kilo averaging US$45,594.94.
It is no surprise that President Edgar Lungu has given special attention to the commodity and has put in place a specific vehicle to drive this agenda to push Zambia out of its current economic status.
ZCCM-IH through ZCCM Gold has been mandated to drive the national gold agenda, working in collaboration with the Ministry of Mines and Minerals Development and other stake holders. ZCCM Gold is undertaking and overseeing all gold related investments throughout the gold value chain in the country including exploration, mining, processing, refining, marketing, trading and beneficiation in Zambia. ZCCM Gold is a wholly owned Zambian firm.