Opinion / Columnist
Sanctions choking Zimbabwe: Myth or reality?
14 Jan 2023 at 11:33hrs | Views
"African politics is dogged by crises of legitimacy, monetised politics and corruption, personalised leadership, and lastly the sit-tight syndrome" notes the African Exponent. During an electoral season, policymakers easily find scapegoats to sanitise their inefficiencies.
This is the case in Zimbabwe, where sanctions imposed by the West have emerged as public officials' major stumbling block for ensuring the delivery of quality and affordable public services. But a closer analysis shows that although sanctions surely exert enormous negative spillovers on Zimbabwe's economic affairs, the country's problems are more domestic than foreign – the gist of this opinion piece.
Late last year, Finance minister Prof Mthuli Ncube bemoaned the impact of sanctions on the economy noting that the country has lost about US$40 billion in the last 22 years. It is the government's position that these Western embargoes had retarded the country's social and economic development, leaving the majority of citizens wallowing in extreme poverty. This then raises a question in one's mind, "Is the government's position on sanctions watertight?" My evaluation of this is two-thronged; yes, to a less extent, and no to a large extent as dissected below.
For the first part, one would need a brief historical walk of the modern history of sanctions imposed on Zimbabwe. It is reported that Zimbabwe is facing targeted unilateral and multilateral sanctions imposed by the United States and European Union (EU). The literature further expounds that targeted sanctions are sanctions imposed on individuals or governmental entities to enhance the political effectiveness of sanctions while minimising unintended consequences, especially adverse humanitarian impacts. Generally, targeted sanctions include travel bans, commodity boycotts, arms embargoes, and financial restrictions, among others.
Under the US unilateral sanctions set, there are three types, that is, the Zimbabwe Democracy and Economic Recovery Act (Zidera) of 2001 and amended in 2018; Executive Orders implemented through the Office of Foreign Assets Control (OFAC) since 2003, and exclusion of Zimbabwe from the African Growth and Opportunity Act (Agoa) of 2000. On the other hand, the multilateral sanctions imposed by the EU since 2002 are officially known as restrictive measures which comprise an arms embargo, asset freeze, and travel ban on targeted people and entities.
Although they are being viewed as targeted, I submit that the presence of a small economy like Zimbabwe on the sanctions list obviously deteriorates its investment risk premium. Thus, it harms trade, travel, financial intermediation, and cooperation between the sanctioned country and the rest of the world. For instance, because of Zidera, providers of concessionary loans such as the International Monetary Fund (IMF) cannot easily extend any loan or credit guarantee to Zimbabwe without the approval of the US.
This shows that although being termed "targeted sanctions" the suspension of grants and loans from multilateral institutions did not exert a direct impact on the targeted group. Instead, the Treasury is faced with limited external financing and is meeting a portion of public sector financing needs through money printing (quasi-fiscal activities). Hence, the nation is grappling with persistent high price inflation.
Due to OFAC restrictions and hefty fines, many foreign correspondent banks are now exiting the Zimbabwean market as a de-risking strategy. This is affecting the private sector, particularly exporting firms that are facing difficulties in accessing lines of credit as international banks are hesitant to provide help due to Zimbabwe's high-risk profile partly posed by sanctions.
It is reported that since the imposition of these sanctions, Zimbabwe is now left with only two correspondent banks thus posing great danger to the economic outlook. Consequently, the cost of borrowing has burgeoned amid the existence of a shallow domestic financial market. This has rendered domestic manufacturing firms uncompetitive.
However, on the other side of the coin, Zimbabwe's prevailing economic challenges are largely domestic instead foreign factoring the negative impact of flip-flopping policy making, toxic politics, unsustainable public debt, fiscal indiscipline, rampant resource leakages through corruption, impunity, and illicit financial flows (IFFs), among others.
Since 1980, the government has launched various economic blueprints, the majority of which were never fully implemented. The last two decades have witnessed material and frequent policy reversals like the Reserve Bank of Zimbabwe's (RBZ) ever-changing exchange rate policies and this is greatly destabilising the local currency resulting in chronic price inflation. Also, this is affecting business confidence that is usually anchored on policy predictability as well as subduing consumer confidence and obliterating the general welfare of citizens, particularly vulnerable groups and communities.
Zimbabwe is not largely benefitting from its huge natural resource endowment due to increased leakages emanating from illicit transactions. Statistics show that the country is losing at least US$1,2 billion annually to gold smuggling alone without factoring billions of dollars also being lost through missing trader fraud, trade misinvoicing, drug trafficking, and money laundering. For example, the Zimbabwe Anti-Corruption Commission (Zacc) estimates that Zimbabwe loses about US$3 billion through IFFs and externalised funds of about US$7 billion are being held illegally in foreign banks. The leakages of this magnitude can help transform the plummeting social sector and develop state-of-the-art infrastructure like road networks and mass transit systems.
Furthermore, Zimbabwe's poor socio-economic environment is also attributable to endemic corruption. While the government has undertaken various initiatives to curb corruption such as instituting anti-corruption courts, establishing Zacc with arresting powers, and name shaming rogue companies championing externalisation, reports of major tender-preneurship deals are escalating with perpetrators not effectively prosecuted.
These cases include the US$15 billion Chiadzwa Diamond loot, US$60 million Drax Covid-19 Scandal, US$5 million Mayor Wadyajena-Cottco case, US$340 million Pomona Deal, and the Fire-tender Scandal, among others. Also, in 2016, the government introduced Command Agriculture, a scheme that went on to blow at least US$3,5 billion of public funds but to date the majority of beneficiaries of this scheme are not repaying for inputs received from the government.
More economic activity is being suppressed by unsustainable public debt that continues to burgeon, compounding the nation's access to cheap external sources of finance. Now, the overreliance on collateralised borrowing is perpetrating intergenerational inequities, constraining the countercyclical effects of fiscal policies, and affecting capital accumulation through heightened interest, tax, and inflation rates. The unsustainable debt level is also depleting national reserves thus inhibiting the national ability to respond to adverse events caused by climate change like frequent droughts, disease outbreaks, and flooding. By resorting to resource-backed loans, authorities are fuelling unsustainable resource extraction which degrades the environment and pollutes air and sources of water.
Even if one is to view sanctions as the major contributor to Zimbabwe's economic decay, the conditions set for the removal of these sanctions are easily attainable. The sanctions were imposed largely on account of violations of human rights, property rights, lack of rule of law, political violence, and debt default – factors which can be addressed overnight if there is adequate political will.
Therefore, it is my submission that sanctions are being used by authorities as a scapegoat to cover up inefficiencies. It is high time they start to strengthen legal and regulatory frameworks as well as oversight institutions to curb massive leakages of public resources.
Also, there is a need to intensify domestic resource mobilisation, boost market confidence through responsible fiscal spending and credible and transparent monetary policymaking as well as swift implementation of economic and structural reforms to reduce market concentration causing excessive pricing distortions in the economy.
Sibanda is an economic analyst and researcher. He writes in his personal capacity. — bravosibanda@gmail.com or Twitter: @bravon96
This is the case in Zimbabwe, where sanctions imposed by the West have emerged as public officials' major stumbling block for ensuring the delivery of quality and affordable public services. But a closer analysis shows that although sanctions surely exert enormous negative spillovers on Zimbabwe's economic affairs, the country's problems are more domestic than foreign – the gist of this opinion piece.
Late last year, Finance minister Prof Mthuli Ncube bemoaned the impact of sanctions on the economy noting that the country has lost about US$40 billion in the last 22 years. It is the government's position that these Western embargoes had retarded the country's social and economic development, leaving the majority of citizens wallowing in extreme poverty. This then raises a question in one's mind, "Is the government's position on sanctions watertight?" My evaluation of this is two-thronged; yes, to a less extent, and no to a large extent as dissected below.
For the first part, one would need a brief historical walk of the modern history of sanctions imposed on Zimbabwe. It is reported that Zimbabwe is facing targeted unilateral and multilateral sanctions imposed by the United States and European Union (EU). The literature further expounds that targeted sanctions are sanctions imposed on individuals or governmental entities to enhance the political effectiveness of sanctions while minimising unintended consequences, especially adverse humanitarian impacts. Generally, targeted sanctions include travel bans, commodity boycotts, arms embargoes, and financial restrictions, among others.
Under the US unilateral sanctions set, there are three types, that is, the Zimbabwe Democracy and Economic Recovery Act (Zidera) of 2001 and amended in 2018; Executive Orders implemented through the Office of Foreign Assets Control (OFAC) since 2003, and exclusion of Zimbabwe from the African Growth and Opportunity Act (Agoa) of 2000. On the other hand, the multilateral sanctions imposed by the EU since 2002 are officially known as restrictive measures which comprise an arms embargo, asset freeze, and travel ban on targeted people and entities.
Although they are being viewed as targeted, I submit that the presence of a small economy like Zimbabwe on the sanctions list obviously deteriorates its investment risk premium. Thus, it harms trade, travel, financial intermediation, and cooperation between the sanctioned country and the rest of the world. For instance, because of Zidera, providers of concessionary loans such as the International Monetary Fund (IMF) cannot easily extend any loan or credit guarantee to Zimbabwe without the approval of the US.
This shows that although being termed "targeted sanctions" the suspension of grants and loans from multilateral institutions did not exert a direct impact on the targeted group. Instead, the Treasury is faced with limited external financing and is meeting a portion of public sector financing needs through money printing (quasi-fiscal activities). Hence, the nation is grappling with persistent high price inflation.
Due to OFAC restrictions and hefty fines, many foreign correspondent banks are now exiting the Zimbabwean market as a de-risking strategy. This is affecting the private sector, particularly exporting firms that are facing difficulties in accessing lines of credit as international banks are hesitant to provide help due to Zimbabwe's high-risk profile partly posed by sanctions.
It is reported that since the imposition of these sanctions, Zimbabwe is now left with only two correspondent banks thus posing great danger to the economic outlook. Consequently, the cost of borrowing has burgeoned amid the existence of a shallow domestic financial market. This has rendered domestic manufacturing firms uncompetitive.
Since 1980, the government has launched various economic blueprints, the majority of which were never fully implemented. The last two decades have witnessed material and frequent policy reversals like the Reserve Bank of Zimbabwe's (RBZ) ever-changing exchange rate policies and this is greatly destabilising the local currency resulting in chronic price inflation. Also, this is affecting business confidence that is usually anchored on policy predictability as well as subduing consumer confidence and obliterating the general welfare of citizens, particularly vulnerable groups and communities.
Zimbabwe is not largely benefitting from its huge natural resource endowment due to increased leakages emanating from illicit transactions. Statistics show that the country is losing at least US$1,2 billion annually to gold smuggling alone without factoring billions of dollars also being lost through missing trader fraud, trade misinvoicing, drug trafficking, and money laundering. For example, the Zimbabwe Anti-Corruption Commission (Zacc) estimates that Zimbabwe loses about US$3 billion through IFFs and externalised funds of about US$7 billion are being held illegally in foreign banks. The leakages of this magnitude can help transform the plummeting social sector and develop state-of-the-art infrastructure like road networks and mass transit systems.
Furthermore, Zimbabwe's poor socio-economic environment is also attributable to endemic corruption. While the government has undertaken various initiatives to curb corruption such as instituting anti-corruption courts, establishing Zacc with arresting powers, and name shaming rogue companies championing externalisation, reports of major tender-preneurship deals are escalating with perpetrators not effectively prosecuted.
These cases include the US$15 billion Chiadzwa Diamond loot, US$60 million Drax Covid-19 Scandal, US$5 million Mayor Wadyajena-Cottco case, US$340 million Pomona Deal, and the Fire-tender Scandal, among others. Also, in 2016, the government introduced Command Agriculture, a scheme that went on to blow at least US$3,5 billion of public funds but to date the majority of beneficiaries of this scheme are not repaying for inputs received from the government.
More economic activity is being suppressed by unsustainable public debt that continues to burgeon, compounding the nation's access to cheap external sources of finance. Now, the overreliance on collateralised borrowing is perpetrating intergenerational inequities, constraining the countercyclical effects of fiscal policies, and affecting capital accumulation through heightened interest, tax, and inflation rates. The unsustainable debt level is also depleting national reserves thus inhibiting the national ability to respond to adverse events caused by climate change like frequent droughts, disease outbreaks, and flooding. By resorting to resource-backed loans, authorities are fuelling unsustainable resource extraction which degrades the environment and pollutes air and sources of water.
Even if one is to view sanctions as the major contributor to Zimbabwe's economic decay, the conditions set for the removal of these sanctions are easily attainable. The sanctions were imposed largely on account of violations of human rights, property rights, lack of rule of law, political violence, and debt default – factors which can be addressed overnight if there is adequate political will.
Therefore, it is my submission that sanctions are being used by authorities as a scapegoat to cover up inefficiencies. It is high time they start to strengthen legal and regulatory frameworks as well as oversight institutions to curb massive leakages of public resources.
Also, there is a need to intensify domestic resource mobilisation, boost market confidence through responsible fiscal spending and credible and transparent monetary policymaking as well as swift implementation of economic and structural reforms to reduce market concentration causing excessive pricing distortions in the economy.
Sibanda is an economic analyst and researcher. He writes in his personal capacity. — bravosibanda@gmail.com or Twitter: @bravon96
Source - The Independent
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