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Sanctions increase cost of doing business in Zimbabwe

by Staff reporter
03 Oct 2022 at 06:06hrs | Views
ILLEGAL sanctions imposed on Zimbabwe by the West hamper the free movement of funds across international borders, and therefore can raise the cost of doing business, or at least make investors worry about the cost, businesspeople have said.

Zimbabwe has been grappling with sanctions imposed by the West in 2001 in retaliation for the land reform programme that sought to correct colonial land ownership imbalances.

The country would have moved forward faster without these financial sanctions and been able to have access to multilateral finance while the private sector would have had access to more banking finance.

Realising the negative impact of sanctions on Zimbabwe, in 2019, Sadc member states declared October 25 a day of solidarity against sanctions, as a way to continue pressing for the removal of the illegal embargo.

In an interview, Zimbabwe National Chamber of Commerce chief executive Mr Takunda Mugaga said sanctions affect investor appetite as some of them fear an extra cost of doing business.

"They (sanctions) increase both perception and country risk, which in turn raises cost of credit as well as demand for cash business, with credit sales being frozen, movement of funds by business across the borders is also difficult than ever before.

"For a business to transact with an international bank, it is difficult if not impossible and in the process, increasing the cost of doing business," said Mr Mugaga, who is an economist.

Businessman and ZNCC president Mr Mike Kamungeremu said local banks have lost correspondent relationships because of sanctions and are not able to remit payments to some countries easily.

The problem is that the United States in particular, where almost every global bank has at least an office, tries to rigidly enforce the sanctions. Banks therefore have to do checks to ensure that no sanctioned person or entity is involved and the cost of those checks can make the actual banking transaction unprofitable and so not wanted.

"When businesses need to import raw materials or machinery from those countries, they are forced to, at times, make use of middlemen who will facilitate the payments for a fee and that increases their cost of doing business.

"In some cases, some businesses have had their money intercepted in Europe or the US by some correspondent banks and subjected to some clearance process to check if the payments do not violate the banks' internal sanctions policies.

"This clearing process takes between two to six weeks and in some cases, the funds are sent back to Zimbabwe and a lot of time and effort would have been wasted during all this, and is a huge cost to business," said Mr Kamungeremu.

Companies are also finding it hard to get foreign credit to boost their businesses by way of retooling and restocking.

Some companies such as the National Railways of Zimbabwe said they were struggling to get spare parts and each time they tried to buy the spares on their own, their money would be blocked and later sent back because it would have been paid from a country under sanctions.

Added Mr Kamungeremu: "Sanctions make doing business very difficult for all businesses operating in Zimbabwe. For that reason, we also wish to unequivocally and eloquently add our voice to the call for the lifting of sanctions against Zimbabwe."

A number of prominent people across the world, including African leaders, have voiced their concern over the impact of sanctions on Zimbabwe and have demanded their immediate removal.

African leaders who include President William Ruto of Kenya, President Mokgweetsi Masisi of Botswana, President Cyril Ramaphosa of South Africa, President Hage Geingob of Namibia and President Felix Tshisekedi of the Democratic Republic of Congo, called for the lifting of sanctions in their addresses during the United Nations General Assembly last month.

United Nations Special Rapporteur Professor Alena Douhan, who visited Zimbabwe last year to assess the impact of sanctions unilaterally imposed on Harare, said the coercive measures were affecting business operations.

Prof Douhan said the sanctions must be removed to allow Zimbabwe to grow its economy.

Estimates say Zimbabwe has lost commercial loans estimated at US$18 billion, which could have gone to the private sector and into other areas for economic development.

The sanctions have succeeded in paralysing the manufacturing sector and causing high inflation, but they have failed dismally to turn citizens against the Government.

Noting that there would be no cheap loans from international financial institutions such as the World Bank and the International Monetary Fund due to sanctions, the Government has been looking inward for solutions to sidestep the illegal embargo.

Driven by President Mnangagwa's mantra, "Nyika inovakwa, igotongwa nevene vayo/Ilizwe liyakwa, libuswe ngabanikazi", Zimbabwe has seen unparalleled infrastructure development covering areas such as roads, dams, airports and borders, using internally generated resources.

Importantly, all the developments are being undertaken by local companies, which have in turn, demonstrated good workmanship.

Source - The Herald