SANCTIONS BY THE UNITED STATES OF AMERICA AND THE EUROPEAN UNION, THEIR IMPACT ON ZIMBABWE (March 10, 2019)

1. Introduction

1.1 Zimbabwe’s land reform programme of 2000 led the United States of America to impose illegal sanctions under the so-called Zimbabwe Democracy and Economic Recovery Act, 2001 (ZIDERA) which is subject to annual extensions, the latest being in January 2019. Supplementing the USA legislative sanctions of ZIDERA are Executive sanctions (Executive Order 13288) of March 2003 also renewable on a similar yearly basis. The European Union also introduced its own sanctions in February, 2002. While the EU lifted much of its sanctions in 2014, political sanctions against former President R.G Mugabe, Mrs. Grace Mugabe and Zimbabwe Defence Industries are still in place. The EU’s de-escalation posture, unlike the USA’s position, is positive in that it acknowledges the Second Republic’s re-engagement policy.

2. EFFECTS OF SANCTIONS ON THE ZIMBABWEAN ECONOMY

2.0 The sanctions have had a devastating effect on the economy of Zimbabwe.

2.1 Access to credit lines / Decline in BOP Support

2.1.1 Zimbabwe’s balance of payments position has deteriorated significantly since the introduction of sanctions.

2.1.2 Zimbabwe’s access to international credit markets was blocked effectively after the enactment of ZIDERA. The country has been forced to virtually operate on hand to mouth, and there has been a significant buildup of external debt arrears. This unfavorable development has worsened the country’s creditworthiness as the country’s international financial risk profile escalated. This subsequently led to the drying up of traditional sources of external finance from the International Financial Institutions (IFIs).

2.1.3 The effect of the arrears situation has resulted, in Zimbabwean companies finding it extremely difficult to access offshore lending thus crippling their operations. Where the private sectors manage to secure offshore financing it is usually at punitive and exorbitant interest rates.

2.1.4 Consequently Zimbabwean importers are asked to pay cash upfront resulting in a significant squeeze on private sector cash flows. This has led to bigger challenges, including under capacity utilization. Due to declining external budgetary support, Zimbabwe’s budget deficit has largely been financed from domestic borrowing which has triggered high inflation.

2.2 Sustained Decline in Long-Term Capital

2.2.1 The sustained decline in long-term capital inflows has had ripple effects on the country’s employment levels, and its ability to provide basic goods and services to its people, ultimately leading to a decline in the standards of living. This is has led Zimbabwe to be a net importer of virtually everything especially from the neighboring including from South Africa, a dependence syndrome detrimental to the country’s industrialization. This has resulted in large scale emigration, especially of skilled labour, thus further straining the economy’s capacity to hasten the pace of economic turnaround and development.

2.3 Impact on the Financial Sector

2.3.1 Due to the decline in Balance of Payments (BOP) support, Zimbabwe’s BOP position has been deteriorating significantly since the imposition of sanctions. This unfavorable development was exacerbated by combined effects of poor export performance, high import demand, and reduced capital inflows, on the back of adverse publicity. The withdrawal of the multilateral financial institutions from providing BOP to Zimbabwe had a ripple effect as some other bilateral creditors and donors also followed suit by either scaling down or suspending disbursements on existing loans for both Government and Parastatal loans.

2.4 Regional Cooperation

2.4.1 Sanctions are affecting the smooth running of regional groupings such as SADC and COMESA. The European Union through the European Development Fund (EDF) compensates COMESA member states for revenue losses suffered under the tariff phase down exercise under specific conditions, which take into account macroeconomic policies and governance issues. Zimbabwe has not benefited from the fund and this could affect, in the long term, its tariff reduction process in line with other countries in COMESA, thereby undermining regional integration initiatives. Sanctions have also resulted in Zimbabwe failing to be effectively represented at regional meetings such as ACP- EU meetings as some targeted individuals especially high-ranking government officials are denied visas. This means that the country is not represented at international fora where crucial decisions and commitments are made. A recent case is where “Trade Mark Southern Africa” (TMSA), a DFID financed project aimed at promoting regional integration and trade in Southern Africa working with SADC and COMESA was shut down after providing direct support to the government of Zimbabwe for fruit fly eradication project. TMSA financed most SADC and COMESA programmes including the establishment of a One Stop Border Post at Chirundu.

2.5 Impact on Investment and Growth

2.5.1 Foreign Direct Investment (FDI) stimulates economic growth and employment creation in any economy. FDI also positively impacts on the country’s balance of payments position. The negative perception that has come with sanctions has negatively impacted on FDI inflows as investors tend to shy away from economies that are perceived as risky.

2.6 Impact on tourism sector

2.6.1 Bad publicity has dealt Zimbabwe’s tourism sector a painful blow. Zimbabwe has been falsely perceived as an unsafe and risky country to visit, thus drastically reducing the number of tourist arrivals. Similarly, ordinary Zimbabwean travelers are finding it difficult to obtain visas to travel abroad due to negative perceptions and xenophobia arising indirectly from the sanctions.

2.7 Impact on Health Sector

2.7.1 Health Services Support Programmes which were suspended include the following:
i) Supporting the provincial health service capacity building and policy issues to Ministry of Health & Child Welfare (MOHCW);
ii) Development of a gender strategy Support to HIV/AIDS activities;
iii) Integration of Zimbabwe Essential Drugs Action Program (ZEDAP) to national laboratories;
iv) Establishment of the health information system; and
v) Support to the Health Services Fund Transport Management.

2.8 Impact on international financial transactions

2.8.1 Zimbabwean companies have found it extremely difficult to effect payments through the international payment platforms as these transactions are intercepted and blocked in the hostile countries especially the US. The Industrial Development Corporation has reportedly lost over $20 million to the “United States Treasury Department’s Office of Foreign Assets Control” (OFAC). The Zimbabwe Fertiliser Company, a subsidiary of the IDC, still has its $5 million frozen to date. The Minerals Marketing Corporation also lost over $30 million in revenue to OFAC. Zimbabwe has lost a total of $42 billion in revenue over the past 13 years because of the sanctions. Another IDC subsidiary, Olivine, lost the $2 million it had secured from the PT A Bank to recapitalise and the firm is currently struggling to produce some of its popular household products.

2.9 Other Socio-Economic effects

2.9.1 Zimbabwe has seen widespread reversal and cessation of donor funding in the areas of social development such as health, education, and infrastructure development. Ordinary citizens were thus, adversely affected by the sanctions. Sanctions have also had adverse and downstream social and economic effects on the Zimbabwean economy’s key sectors. Zimbabwe took years negotiating to gain access to the Global Fund to fight Malaria, TB, and HIV / AIDS.

2.9.2 A significant number of Non-Governmental Organizations have moved their operations out of Zimbabwe since the enactment of the ZIDERA for instance, DANIDA and the Canadian International Development Agency (CIDA) pulled out of Zimbabwe in 2001 and 2003, respectively, terminating all projects in progress and retrenching their employees.

2.9.3 It is believed that Zimbabwe lost donor support amounting to approximately US$ million annually since 2001, US$ million in loans from the International Monetary Fund, the World Bank and African Development Bank, commercial loans of US$ million and GDP reduction of US$ billion.

2.10 WAY FORWARD

2.10.1 Sanctions are a blunt coercive instrument with far-reaching implications for the ordinary people hence there is need for unity of purpose from all Zimbabweans, SADC and AU in lobbying for the removal of these sanctions.

2.10.2 There is also need to liberalise the business operating environment in a manner that enhances confidence, in order to unlock value in the country for vast investment opportunities strewn across all sectors, including agriculture, tourism, manufacturing and mining.

2.11 Conclusion
2.11.1 It is evident from the foregoing that sanctions imposed on Zimbabwe adversely affected the vulnerable groups and the economy in general. Beyond the country’s borders, neighbouring countries continue to feel the strain of the implosion of the Zimbabwean economy, which continues to reel under illegal Western sanctions. Significant progress that the country had made in the development of infrastructure, health and social service delivery systems was severely affected by the imposition of sanctions. The sanctions must therefore be removed to allow the country to move forward.