The sanctions debate: myths, exaggeration and denial

The sanctions debate: myths, exaggeration and denial

HARARE, July 22 (The Source) – In politically polarised Zimbabwe, few issues raise temperatures as swiftly as the matter of sanctions.

On one hand are ZANU-PF and its sympathisers, who say Zimbabwe is under general sanctions, and that the embargo is responsible for every single thing that has gone wrong with the southern African country’s economy. On the other extreme are supporters of the main opposition parties, who say there are no sanctions at all on Zimbabwe, beyond travel and asset restrictions on President Robert Mugabe and a handful of his lieutenants.

In its election manifesto in 2013, Zanu PF claimed the sanctions had cost the country $42 billion in lost investment, aid and other activities.

The USA and EU have both placed a variety of measures against Zimbabwe over the past 15 years. Broadly, the sanctions cut direct budgetary support to the government and companies in which it has an interest, barred ZANU-PF leaders from travelling to the EU and sought to freeze any assets they may hold there.

The thinking in the US and EU was that such steps would force Zimbabwean leaders to behave better. The moves would also limit Zanu PF’s capacity to repress its people by cutting off funding.

US measures on Zimbabwe

The USA has a two-pronged sanctions regime on Zimbabwe. The first is the Zimbabwe Democracy and Economic Recovery Act (ZDERA), signed into law by former president George W Bush on December 21, 2001. The second, which the USA refers to as a “targeted sanctions program”, began on March 7, 2003 when Bush issued Executive Order 13288.

On March 8, 2001, US senators Bill Frist and Russ Feingold introduced the bill. Among the bill’s sponsors were Hillary Clinton and Joe Biden, who were senators at the time. It was a bipartisan effort; politicians from across the aisle pushed for the law.

Said Bush, signing ZDERA into law: “This Act symbolises the clear bipartisan resolve in the United States to promoting human rights, good governance, and economic development in Africa. My administration shares fully the Congress’s deep concerns about the political and economic hardships visited upon Zimbabwe by that country’s leadership. I hope the provisions of this important legislation will support the people of Zimbabwe in their struggle to effect peaceful democratic change, achieve economic growth, and restore the rule of law”.

ZDERA allows the US to veto any lending to Zimbabwe from multilateral financial institutions, such as the IMF, the World Bank or the African Development Bank. US representatives on these institutions are obliged to vote against any application by Zimbabwe for credit facilities, loan rescheduling and debt cancellations.

Bush added: “Section 4(c) of the Act purports to direct the executive branch to oppose and vote against the extension of loans or the cancellation of debt in international financial institutions unless and until I make a certification or national interest determination.”

Zimbabwe argues that these measures were responsible for the IMF turning down several pleas for financial support. However, the IMF had already withdrawn support in 1999 due to Zimbabwe’s failure to pay back debts. The IMF subsequently withdrew Zimbabwe’s voting rights in 2003.

In 2003, the US placed over a 100 individuals and entities under sanctions. It is this stage of measures that has provided the most controversy. The US insists that the measures only target 98 people and 68 entities, mostly owned by the sanctioned people.

The US renews the measures often, saying the Zimbabwe government is engaged in “actions and policies (that) continue to pose an unusual and extraordinary threat to the foreign policy of the United States.”

What does it mean for companies on the list?

The regulations under this law means no American companies can do business with entities on the list. The US Treasury, through its Office of Foreign Assets Control (OFAC), seizes any money that passes through the US banking system to any of the sanctioned firms.

Companies that have been on the list include Agribank, the state owned farm lender, ZBC Financial Holdings, in which government has a 23.5% stake and NSSA a 38% shareholding.

The Industrial Development Corporation (IDC), a wholly owned state enterprise, is also on the list. IDC has interests in a wide range of Zimbabwean companies. Most notable among these are Olivine, Sable Chemicals, Chemplex and Zimbabwe Fertiliser Company.

It can be said that the IDC has taken the most direct hits of the US measures.

In 2013, IDC successfully sought a loan from the PTA Bank for Olivine. The $2 million was seized by OFAC. The money was to be used for plant rehabilitation and raw material imports.

In April this year, IDC CEO Mike Ndudzo told The Source that the company had lost over $20 million to seizures by OFAC. Zimbabwe Fertilizer Company, one of its subsidiaries, had $5 million frozen. In addition, the IDC had to contend with normally friendly lenders growing cold feet. IDC of South Africa had granted IDC an $18 million loan, but turned down a second tranche, afraid of falling foul of the US.

Earlier in 2016, to avoid falling foul of the US treasury, Standard Chartered ordered IDC to close its accounts with the bank.

“It seems our corporation must not be allowed to breathe because it’s perceived to be buttressing the economy,” Ndudzo told a parliamentary committee hearing.

Standard Chartered’s fears were not unfounded. In February, Barclays plc paid a $2,5 million settlement to the US Treasury after processing 159 transactions worth $3,4 million between 2008 and 2013. The transactions were mostly for its client IDC and its subsidiaries.

Do the US sanctions affect ordinary Zimbabweans?

The US restrictions have been of some inconvenience to people not on the sanctions list. Until 2013, you could not use payments platform PayPal from Zimbabwe. When you tried to access the system, you got the message: “Error 3028: You have accessed your account from a sanctioned country. Per international sanctions regulations, you are not authorized to access the PayPal system”.

PayPal has gradually eased the restrictions, but you still cannot receive money in Zimbabwe via PayPal. It is easy to argue that PayPal is worried more by the economics of doing business with Zimbabwe, but the fact is that the company did explicitly mention sanctions.

In 2011, a Zimbabwean couple in the UK had its transfer of $30,000 for a property in Chinhoyi blocked by the US, because the Chinhoyi town council’s bank, ZB Bank, is on the sanctions list.

Zimbabweans trying to do business with US often get caught up in the net. US companies are reluctant to deal with Zimbabweans, even those who are not connected to any of those on the sanctions list.

This was an issue raised by Zimbabwean techpreneur Takunda Chingonzo, during a public meeting with President Barack Obama in 2014: “In our work we got to a point where we needed to import a bit of technology from the United States. And so we were engaging in conversation with these US based businesses, and the response we got time and time again was that unfortunately we cannot do business with you because you are from Zimbabwe. I was shocked. This doesn’t make sense.”

Similar complaints were heard from at least one private citizen at a recent meeting, arranged by media house 263Chat, with the US ambassador to Zimbabwe.

It is however hard to gauge the extent of the impact on private businesses.

The US, however, insists there are no general sanctions on Zimbabwe and trade remains open between the two countries. The US embassy in Harare says: “Since 1980, the US has provided over $2 billion in assistance to Zimbabwe.  In 2015 alone, our support to Zimbabwe was over $130 million, largely in health, agricultural development, humanitarian assistance, and support for democratic institutions, rule of law and human rights.”

The 2016 national budget shows USAID gave Zimbabwe $64,5 million in development aid between January and September 2015.

EU sanctions on Zimbabwe

The EU’s initial package of sanctions involved a travel ban on 200 Zanu PF officials. In 2002, the EU suspended budgetary support to Zimbabwe. The decision was made under the 2000 Cotonou Partnership Agreement between the African, Caribbean and Pacific Group of States (ACP) and the EU. Article 9 of the deal provides for “transparent and accountable governance” as a condition for cooperation.

The EU also imposed a freeze on senior Zanu PF officials’ assets in Europe. No notable assets were ever found or frozen.

Relations between Zimbabwe and the EU continue to thaw, and Europe has gradually rolled back its embargo. Only President Mugabe and First Lady, Grace Mugabe remain on the sanctions list, while a ban on doing business with the Zimbabwe military remains.

While the EU continues to deny Zimbabwe budgetary support, between January and September 2015, EU developmental support stood at $38 million, according to Treasury data. UKAID support was $97 million over the same period.

Zanu PF claims

In 2013, Zanu PF claimed in its election manifesto that Zimbabwe lost $42 billion due to sanctions.

Zanu-PF estimated Zimbabwe lost donor support amounting to approximately $36 million annually since 2001, $79 million in loans from the International Monetary Fund, the World Bank and African Development Bank, commercial loans of $431 million and GDP reduction of $3,4 billion.

“The negative publicity created an artificially induced negative national image which attracted high-risk premium on alternative sources of offshore lines of credit and killed the tourism market. It also scared away potential creditors and reduced commercial loans by US$431 million per annum during the 200s.

“Furthermore interruption of trade and constraints on manufacturing and general economic activities saw GDP almost halving from US$7,49 billion in 2000 to US$4 billion in 2010,” the manifesto reads.

It is impossible to verify these figures as they are mostly assumptions.

The Opposition claims

The MDC has often insisted that there are no sanctions on Zimbabwe, preferring to align with the West’s position that these are only “restrictive measures”. The closest the MDC has gone to mentioning sanctions was during the unity government.  In 2012, Tendai Biti, then MDC-T secretary general and Finance Minister, told a meeting in Washington that “your foreign policy as a country, as America, could be better towards Zimbabwe. You do not deal with very difficult, fragile states by disengagement, by isolation. It does not work”.

Conclusion

One side blames every problem on sanctions, while the other extremely denies their existence. The truth is, in fact, somewhere in the middle.

While sanctions have had an impact on Zimbabwe’s economy, they cannot be the main cause of economic decline.

Some 15 years after the first sanctions, Zanu PF is even more entrenched in power than ever, and the sanctions have provided little else beyond propaganda fodder and excuses for the Mugabe government. The EU has progressively pared down on its measures, and is once again engaging Zimbabwe.

It is impossible to accurately measure the impact of sanctions. What is clearer though is that sanctions have provided a convenient excuse for the economic mismanagement of  resource-rich country.

What is also clear is that the measures, whether they be “general sanctions” or “targeted sanctions”, have failed so far to do what they set out to do; punish the Mugabe administration and force it to reform.

In a 2012 article, scholar Blessing Miles Tendi wrote: “The answer is that in 10 years sanctions have had no demonstrable effect on Mugabe and ZANU-PF. They have become an effective political tool for ZANU-PF instead.”

  • Jinga Mugarwe

    well said..