Zimbabwe introduced a new currency (ZiG) backed by gold on April 5, 2024.
Inputs that matter: The ZiG is officially trading at 13.41 against the U.S. dollar (USD), but it is closer to 20 on the street.
- John Mushayavanhu, the new governor of the Reserve Bank of Zimbabwe, predicts the currency will succeed because it is backed by reserves of gold and other minerals worth $175 million and $100 million cash.
- Zimbabwe Professor of Economics Gift Mugano explains that they have seen this before, "[In] 2016, we introduced bond notes which were backed by Afreximbank (African Export-Import Bank) facility of $400 million."
- Mugano states that in Zimbabwe, "85% of transactions are being conducted in U.S. dollars because [the] local currency was not living up to the function of store of value."
The opportunity: The World Bank reports that "Zimbabwe is highly competitive in several value chains in agriculture and agribusiness industries, including sugar, cotton, horticulture, and meat and dairy."
- Annual inflation increased from 26.5% in December 2023 to 47.6% in February 2024.
- Real GDP growth is projected to slow further to 3.3% in 2024.
- Extreme poverty has declined since its peak in 2020, but it remains high in the context of cyclical agricultural production and elevated food prices.
Zoom in: Zimbabwe has Africa's largest lithium reserves and is the world's sixth-largest producer and supplier.
- An essential mineral used in electric vehicle (EV) batteries is the country's economic catalyst to fuel growth.
- In August 2023, Zimbabwe's president, Emmerson Mnangagwa, opened a plant to process lithium in the eastern province of Manicaland.
Between the lines: Power China, a Chinese state-owned conglomerate, built the Sabi Star mine in 2022.
- According to a recent ZELA report, Chinese-owned companies have acquired Zimbabwe's most extensive lithium mining projects.
- On the other hand, Western investors remain reluctant to work in Zimbabwe and are concerned about human rights.
Follow the money: The exponential global demand for lithium is essential for energy transition based on zero carbon emission.
- In addition to Lithium, Zimbabwe enjoys the world's second-largest gold reserves per square kilometer.
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Read More
- https://www.voanews.com/a/zimbabwe-new-gold-backed-currency-sliding-on-black-market/7572007.html
- https://www.worldbank.org/en/country/zimbabwe/overview
- https://www.voanews.com/a/zimbabwe-seeking-to-profit-through-lithium-processing/7570985.html
- https://chinadialogue.net/en/business/zimbabwe-schoolchildren-drop-out-for-lithium-mines/
- https://ipisresearch.be/weekly-briefing/chinese-dominance-in-zimbabwes-lithium-mines-potential-risks-vulnerabilities-and-opportunities-in-the-critical-minerals-sector/
- https://www.intellinews.com/could-lithium-transform-zimbabwe-s-economy-or-will-the-opportunity-be-squandered-316296/