Tuesday, 15 October 2019 06:07

IMPACT ON ZIMBABWE AND THE REGION OF THE UNILATERAL SANCTIONS IMPOSED BY THE UNITED STATES OF AMERICA AND THE EUROPEAN UNION

 

  1. INTRODUCTION
  • Zimbabwe’s Land Reform Programme of 2000 led the United States of America (USA) to impose illegal and unjustified sanctions under the so-called Zimbabwe Democracy and Economic Recovery Act (ZIDERA) of 2001. Supplementing the US’ legislative sanctions of ZIDERA are Executive Sanctions (Executive Order 13288) of March 2003 renewable on yearly basis. The European Union (EU) also introduced its own sanctions in February, 2002.
  • While the EU lifted much of its sanctions in 2014, political sanctions against the former First Family, Senior Government officials, the country’s Service Chiefs and Zimbabwe Defence Industries are still in place. The sanctions also include travel bans and asset freeze for Zimbabwean officials and companies. The EU insists that it will maintain the sanctions under constant review in light of political and security developments in Zimbabwe.
  • Far from the claim that sanctions are ring-fenced and targeted on a few individuals, the reality on the ground is that the tight grip of the declared and undeclared sanctions is being felt throughout the whole economy.
  • These punitive measures have effectively hampered the Government’s efforts to implement its development agenda.
  1. EFFECTS ON THE ZIMBABWEAN ECONOMY
  • The sanctions generally have resulted in devastating effects on the whole economy of Zimbabwe.

Access to credit lines / Decline in BoP Support

  • Zimbabwe’s Balance of Payment (BoP) position has deteriorated significantly since the introduction of sanctions.
  • Zimbabwe's access to international credit markets was blocked after the enactment of ZIDERA. The country has been forced to virtually operate on hand to mouth, and there has been a significant build-up of external debt arrears. This unfavourable development has worsened the country's credit worthiness 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), with the country receiving no support from the African Development Bank since 1998, the International Monetary Fund (IMF) since 1999 and the World Bank since 2001. In essence, the IFIs stopped their support to Zimbabwe by instituting a number of suspensions on Balance of Payment support, technical assistance, voting and related rights by the IMF, and declaration of illegibility to access fund resources.

Arrears Triggered Penalties

  • Due to Zimbabwe’s failure to honour its financial obligations to the IMF and World Bank since 1999, the Bretton Woods Institutions suspended Balance of Payment support and technical assistance. Consequently, the country’s external payment arrears continually increased from US$109 million in 1999 to US$5.4 billion in 2017. The arrears have been rising, now at more than 70 percent of total public and publicly guaranteed external debt.
  • Regrettably, the lending program from the World Bank is inactive due to accumulated arrears and sanctions. With effect from October 2000, the World Bank placed all its International Bank of Reconstruction and Development loans and International Development Association credits to, or guaranteed by, Zimbabwe in non-accrual status, resulting in the country being unable to access any loan.
  • The combined effect of the arrears situation and sanctions has resulted in Zimbabwean companies finding it extremely difficult to access offshore lending, thus, crippling their operations. Pre-sanctions era, loan inflows to Zimbabwean companies increased from USD$134 million in 1980 to US$480 million in the 1990s but fell significantly to an average of US$80 million between 2000 and 2008. Currently, where the private sector manages to secure offshore financing it is usually at punitive and exorbitant interest rates.
  • Moreover, 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 of Zimbabwean companies. Due to declining external budgetary support, Zimbabwe's budget deficit has largely been financed from domestic borrowing which has triggered high inflation.

Sustained Decline in Long-Term Capital

  • 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 resulted in the country suffering from deindustrialization and, subsequently, stagnation effects.
  • Consequently, there has been large scale emigration, especially of skilled labour. Two to four million Zimbabweans are estimated to have emigrated to mainly South Africa, the UK, Botswana, the USA, Canada, Australia and New Zealand. This has further strained the human resource capacity to hasten the pace of economic turn-around and development through brain drain.

Impact on the Financial Sector

  • Due to the absence of Balance of Payment support, Zimbabwe's Balance of Payment position has been deteriorating significantly since the imposition of sanctions. The sanctions have branded Zimbabwe and its entire financial linkages with the rest of the world as high risk, thereby making the country a compelling target for de-risking interventions by lending correspondent banks in the USA and Europe. In 2016 alone, 19 de-risking cases were recorded in 10 of the local banks.
  • In the same year, the US’ Treasury Office of Foreign Assets Control (OFAC) fined a Zimbabwean commercial bank US$2.48 million to resolve potential civil liability for 159 alleged violations of the sanctions regulations for transactions that took place between July 2008 and September 2013.
  • In 2017, another commercial bank was slapped with a staggering USD3.8 billion fine by OFAC for facilitating transactions on behalf of a bank which was then specified institution under ZIDERA. The penalty was only reduced to US$385 million after mitigation and negotiations.
  • Another bank had funds in all foreign bank accounts and in transit from or to clients frozen, while all contracts and business relationships with US citizens and corporates were abrogated. Its US$ 5.8 million was blocked, contracts for various provisions terminated, licensing for core banking systems proscribed, support agreements discontinued and correspondent banking relationships terminated. Hence, the bank could not receive or send money outside the country while credit lines immediately dried up. Dealings with credit card issuers such as VISA and Master card were prohibited. The Group was immediately considered as risky and its going concern status became questionable.
  • Furthermore one agricultural bank, a leading provider of financial services for agriculture development in the country, and another infrastructural development bank were placed under sanctions. In 2016, the then CEO of the agricultural bank said the reputational damage caused by sanctions meant that the bank struggled to find an equity partner and had lost a USD98 million line of credit. Since being placed on sanctions, the bank could not open new correspondent relationships as many international banks could not risk being fined by the US.
  • In addition, the Small and Medium Enterprises Development Corporation had its USD 3 million blocked by OFAC.
  • Today, Zimbabwean Banks and money transfer agencies are facing problems in meeting their customers’ obligations owing to the termination of correspondent bank arrangements between local banks and international financial institutions.

Impact on International Financial Transactions

  • Zimbabwean companies and individuals 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.
  • A state-owned company lost over US$20 million to the OFAC, while its the fertilizer subsidiary company still has its US$5 million frozen to date. A total of USD2 million belonging to another chemicals company was also intercepted.
  • Another state-owned company responsible for marketing the country’s minerals lost over US$30 million in revenue to OFAC. A private company lost US$2 million it had secured from the PTA Bank to recapitalise and the firm is currently struggling to produce some of its basic household products.

Impact on Diaspora Remittances

  • The Diaspora community was also not spared and this had adverse effects on diaspora remittances into the country. Some money transfer companies cannot transact with some Zimbabwean financial entities through money transfers. Funds are intercepted and money transfer companies become victims of long tedious investigations on specific transactions emanating from individuals in the diaspora.
  • The sanctions regime reduces access to both consumptive and productive remittances from the Zimbabwean Diaspora communities. This impacts negatively on the Zimbabwean financial outlook because the sanctions obstruct capital and financial flows. Resultantly, this counters the efforts by Government to harness Diaspora participations and contributions into the country’s national development agenda.

Impact on Investment and Growth

  • Foreign Direct Investment (FDI) stimulates economic growth and employment creation in any economy. FDI also positively impacts on the country's balance of payment 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.
  • Foreign direct inflows increased significantly from an average of US$8 million per year in the 1980s to an average of US$95 million in the 1990s, but declined to about US$20 million per year after 2000.

Impact on the Agriculture sector

  • Agriculture was the backbone of Zimbabwe’s economy; providing employment and income to over 60 percent of the population, supplying 60 percent of raw materials required by the manufacturing sector and contributing 40 percent of the total export earnings.
  • However, several key institutions with direct influence to the agricultural sector were placed under sanctions, while other financial services providers were slapped with huge fines.
  • The unilateral sanctions brought a myriad of challenges to the agriculture sector. Specifically, they have made it extremely difficult to access agriculture lines of credit and attract investment. This resulted in lack of development, rehabilitation, modernisation and deterioration of production and marketing infrastructure, ultimately reducing productivity and access to markets. The sanctions affected the livelihood of households owing to lower agricultural yields and this derailed Zimbabwe’s quest to attain the United Nations Sustainable Development Goals (SDGs) against poverty and hunger. In essence, these unjustified and illegal sanctions have violated basic human rights by directly perpetuating hunger and poverty in Zimbabwe and working against the SDGs.
  • The number of functional tractors declined from 14,000 before sanctions to 6,000 against a national requirement of 40,000 units. The combined capacity declined from 300 units to 130 functional units against a national requirement of 400 units. There is a shortage of cold storage infrastructure around the country. The state of the art packing houses, which are required to facilitate exports to European markets are also limited.
  • Functional irrigation schemes also declined from 275,000 hectares to less than 206,000 hectares due to lack of repair and maintenance, rehabilitation and modernisation. Zimbabwe has potential to irrigate up to two million hectares. However, the lack of FDI has made Zimbabwe unable to develop this irrigation potential utilising existing water bodies, underground water and trans-boundary water bodies such as Zambezi River and Limpopo River which can make a significant contribution to food security and agricultural growth in the country, especially in drought periods. The available 1,000 small, medium and large water bodies remain under-utilised, mainly due to lack of investment and foreign direct investment in irrigation development, rehabilitation and modernisation.
  • Zimbabwe used to have a well-developed input support, manufacturing and processing industries. However, the lack of investment and lines of credit made it difficult for these industries to retool and invest in better plant and machinery. Plants to produce agricultural inputs such as fertiliser and seed are operating below capacity due to dilapidation and lack of repair and maintenance. This has resulted in high cost of inputs leading Zimbabwe to be uncompetitive on the regional and international market.
  • With limited capacity for irrigation and investment in climate smart agriculture, Zimbabwe remains vulnerable to climate change. The country has not been able to develop its Early Warning system, resulting in the country failing to predict disasters and risks such as Cyclone IDAI which hit hard the eastern part of the country.
  • An Agricultural Bank was under sanctions up to February 2016 and could not finance the agriculture sector properly due to lack of lines of credit. The bank ended up getting higher interest rates of about 15 percent instead of the usual four (4) percent from off shore banks because it was considered high risk to deal with. Furthermore, the bank could not partner with international organisations and donors, and ended up losing a number of customers and opportunities from the outside world.
  • The market access for horticulture, sugar, beef and cotton, among other crops was negatively affected. Horticulture was the fastest growing sector and generated significant amounts of foreign exchange, and at one point becoming the second largest foreign exchange earner after tobacco. The horticulture export industry grew from US$32 million in 1990/91 to a value of about US$143 million in the 1998/99 season.
  • However, due to sanctions the country lost most of its niche and lucrative markets for horticulture products. Previously, farmers used to export horticulture produce to the Netherlands and the UK. However, these markets were closed due to sanctions, resulting in a significant decline in the horticulture industry. By 2005, horticulture exports had gone down to about US$72 million, with the value further tumbling to US$40 million by 2009. The horticultural industry’s contribution to the Gross Domestic Product (GDP) fell from about 4.5 percent before sanctions to the current 0.8 percent.
  • Under the Convention on Beef and Veal Protocol, Zimbabwe had a preferential tariff quota which allowed it to export 9,100 metric tonnes of beef into the EU annually. Under the Sugar Protocol, Zimbabwe’s preferential tariff quota stood at 30,225 metric tonnes annually. It could increase its sugar quota by a further 25,000 metric tonnes under the variable Special Preference. All the quotas were lost due to sanctions imposed on Zimbabwe.
  • The short supply of vaccines and other drugs indicate how sanctions affected animal health in Zimbabwe. This resulted in failure by the relevant department to control diseases like foot and mouth and this in turn affects the country’s beef export. Given that 70 percent of funding for animal health programmes were through collaborative work, the withdrawal of funds hard hit the sector. Since 2001, there has been huge shortages in vaccines, dipping chemicals and antibiotics, unlike from 1980 to 1990 where there were no recorded shortages.
  • The cotton industry is failing to access the EU markets directly, but only through middlemen, resulting in the loss of between 5 to 10 percent of the value of produce. The cotton industry is failing to pay for inputs, spare parts and machinery to companies outside the country. Payments are blocked, foreign companies demand first class bank guarantors and funds take long to process.
  • Due to sanctions a number of agricultural programmes and projects were terminated. The Danish International Development Agency’s (DANIDA) support to Zimbabwe’s agriculture sector in 1998 was about USD15.4 million. The International Fund for Agricultural Development (IFAD) was supporting five projects in Zimbabwe to the tune of US$215,700; namely the National Agricultural Extension and Research Project (US$39.4 million), Agricultural Credit and Export Promotion Project (US$116.9 million), Small Dry Areas Resource Management Project (US$19.8 million), South Eastern Dry Areas Project (US$20.3 million) and the Smallholder Irrigation Support Programme (US$19.3 million). All these projects were stopped after the imposition of sanctions.
  • As aptly put by the United Nations Food and Agriculture Organisation, “sustainable development goals offer a vision of a fair more prosperous, peaceful and sustainable world in which no one is left behind”. Regrettably, the unjustified and illegal sanctions imposed on Zimbabwe by the US and its allies run counter to this noble vision, impacting negatively on the country’s agriculture sector.

Impact on Industry/Manufacturing sector

  • The sector has been heavily affected by sanctions through its effects of high cost of borrowing, tight liquidity conditions, outdated technology, continued use of antiquated plant and machinery, declining agriculture output, low aggregate demand and power outages. The sanctions affected the manufacturing sector through lack of long term financing which precluded the sector from accessing the much-needed capital injections for retooling. This eroded the viability and competitiveness of the sector.
  • The unfavourable 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 balance of payment support 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.
  • Industry’s capacity utilization fell from 76 percent in the 1980s to an all-time-low of 10 percent in 2008. The sector rebounded from 2009 to 2011 to about 60 percent before deteriorating again in 2015 with another rebound in 2016 to about 48 percent which was attributed to import restrictions under the Statutory Instrument 64 of 2016.
  • Due to sanctions, Zimbabwe lost some of its overseas international markets for its manufactured goods. This was due to cancellation of contracts to the EU and US markets. Manufacturing businesses were also affected through reduced exports, reduced markets and international credit lines.

Impact on the Mining sector

  • The mining sector was negatively affected by the sanctions resulting in:
  • Limited funding to recapitalize as most financiers stopped providing lines of credit to the industry;
  • Failure to receive proceeds from minerals sales especially those associated with the Minerals Marketing Corporation of Zimbabwe (MMCZ); and
  • Reduced ability to access new markets.
    • Of particular concern are the negative effects on the minerals marketing and the diamond companies.
    • Two minerals marketing companies were designated by the US and the EU as some entities against which sanctions were imposed in 2008 and 2012 respectively, with the American and EU citizens and entities, and other entities outside these two jurisdictions prohibited from doing business with or providing financial and technical assistance to these organisations. Assets belonging to these marketing companies within the USA and the EU were immediately frozen and could not be withdrawn or liquidated. In essence, the marketing companies could not deal with US and EU persons and entities because anyone who violated these measures was liable for prosecution. Potential buyers of Zimbabwean minerals risked losing the minerals or proceeds thereof.
    • After selling the minerals on behalf of producers, marketing companies are supposed to receive all monies for sales outside the country. However due to sanctions, the two companies were incapacitated to carry out this mandate and this affected the Corporation’s receipts of funds.
    • On its part, one of the marketing companies has failed to implement its turnaround strategy due to the failure to attract investors, high cost of capital and/or inability to recapitalize, inaccessible lines of credit, and inability to trade in any USD denominated currency.
    • From a marketing perspective the sanctions have led to:
  • Reduced ability to access new markets and market share as it eliminated the US and the EU as its markets;
  • Reduced negotiation clout, competitiveness and choice as it could not access essential services like banking, logistics, and marketing journals from the USA and the EU;
  • Loss of customers/clients as major corporations were unwilling to deal with the minerals marketing companies;
  • Compromised monitoring role as the corporation is no longer involved in logistics and movement of products to the market; and
  • Forced to sell on an ex-works basis instead of free-on-board or delivered basis, thus significantly reducing potential revenue to the government.
    • From a financial perspective, the sanctions have affected all the foreign currency transactions with the companies unable to directly transact in foreign currency. To date, a total of USD1.2 million in producer funds and government royalties have been blocked by the US government. Producers are now receiving their funds directly from customers outside Zimbabwe creating a problem for the government as some producers tend to evade paying taxes and royalties. It is never guaranteed that Zimbabwe will recover its blocked funds.
    • Concerning the diamond companies, the sanctions made it difficult for them to effectively market and trade their diamonds at competitive prices, forcing them to sell the precious mineral at discounted prices of more than 25 percent below the normal prices. The companies traded their diamonds through unconventional means because major international banks, insurance companies and couriers did not want to be associated with diamonds from Chiadzwa. Furthermore, some global diamond players could not trade and deal directly with Chidzwa diamond companies under their normal banners/names for fear of retribution. They had to find other entities to trade with, a process that had serious business and cost implications. 

Impact on the Energy sector

  • The energy infrastructure dilapidated significantly since the imposition of sanctions due to decreased Foreign Direct Investments. There has been limited access to credit lines and financial support from international financial institutions like the World Bank, which stopped their support for energy infrastructure development programmes. International investors demand government guarantees as prerequisite for investing in the sector, while charging high interest rates on loans for infrastructure development.
  • This has impacted negatively on the rate of implementation of capital projects, resulting in curtailed and unreliable power infrastructure, insecure power supply and uncompetitive industries, with power outages directly affecting other sectors such as agriculture and manufacturing.
  • Oil traders used to extend credit facility to oil importers, a facility which has since stopped with insistence on upfront payment. This has negatively impacted on the country’s ability to secure adequate fuel supplies. The fuel shortages has downstream effects on the cost of production, and public transportation.
  • The unavailability of both electricity and fuel impacts negatively on industry and commerce.

Impact on health, water, and sanitation infrastructure 

  • Water and sanitation infrastructure virtually collapsed resulting in the outbreak of cholera and typhoid. The collapsed infrastructure is largely a result of constrained capacity to provide adequate clean and safe water to communities. Water treatment plants have not been upgraded to match increased demand.
  • Some health facilities that were under construction like provincial and district hospitals and were being financed through the World Bank loan facility could not be completed soon after the imposition of sanctions as donors withdrew their funds. Government failed to raise enough funds to complete the projects leaving some facilities incomplete.

Impact on the Transport sector

  • The transport sector was adversely affected by the illegal punitive measures, resulting in dilapidated aviation, road and rail sub-sectors.
  • Air transport lost almost 50 percent of traffic movements at its airports and airspace since the imposition of sanctions. In 1997, a total of 2,280,153 passengers were registered in Zimbabwe but the number of passengers dropped by almost 63 percent to as low as 834,269 in 2003. A number of foreign (European) Airlines like Lufthansa, British Airways, Air France, KLM and Qantas exited the Zimbabwe market. In the same year, recorded aircraft movements stood at 36,215, representing a 58 percent fall from the 1997 figure of 87,618. These figures mean retarded growth and loss of revenue, which had direct impact on tourism industry, employment rates, exports and foreign currency generated.
  • By its nature, the aviation industry is capital intensive, with most airlines thriving through leasing of equipment and purchasing the same through loans and other credit facilities. Due to sanctions, local airlines were unable to access loans, purchase equipment and get any financial support from the traditional funders. This crippled domestic air operators, who failed to get spares and other equipment to sustain their operations. In some cases, private air operators had to contend with high credit costs, while still being considered as not very suitable for trade and business partnerships with Western firms.
  • Furthermore, the movement of funds via the International Air Transport Association (IATA) has been difficult resulting in airlines failing to access their funds from ticket sales, thereby making it difficult for airlines to do business in Zimbabwe. For example, the national airline was suspended from the IATA billing and ticketing system. By implication, the airline cannot sell interline tickets or international tickets via travel agents or other airlines.
  • The road and rail sectors were not spared by the sanctions. A transport sector support programme funded by DANIDA to the tune of US$48 million was discontinued because of sanctions. In addition, a labour-based roads and rehabilitation works programme with the aim of rehabilitating 116 kilometers of roads, which was funded by the Swedish government to the tune of US$15.1 million, was discontinued due to sanctions.
  • The national railway’s capitalization and operations were hampered by sanctions because all of its rolling stock was supplied by an American company, General Electric. Currently the national railways purchases parts through third parties outside Zimbabwe, which makes their cost of doing business very high. It also faces challenges of securing lines of credit and loans from the American market for recapitalization as the US companies are forbidden to engage with the national railways.

Impact on the Tourism sector

  • Bad publicity has dealt Zimbabwe's tourism sector a very negative blow. Zimbabwe has been falsely perceived as an unsafe and risky country to visit with the like of the UK, US, Germany and Australia issuing negative Travel Advisories to their citizens. This drastically reduced the number of tourist arrivals from the West with resort towns such as Kariba being rendered ghost towns.
  • 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. The air services industry is also hamstrung by incessant logistic and financial impediments.
  • The downturn in the tourism industry experienced during 2000 to 2008 resulted in the closing down of a number of tour operating companies in the country. Whilst there were 118 companies operating in the country in 2000, by the year 2005 the number had gone down to 56. While room occupancy averaged above 60 percent during the period 1989 to 1998, the figures fell to 40 percent in 2000 and 34 percent in 2006.
  • The effects of sanctions on tourism were, thus, experienced through the decline in international partners, decline in room occupancy, volume of tourist arrivals and bookings and revenues.

Impact on the Health Sector

  • Sanctions had a catalytic effect on the deterioration of health services in Zimbabwe.  The Government was forced to fund salaries and running costs with little funding supporting real health programmes.
  • As an example, after the imposition of sanctions in 2001 the DANIDA withdrew aid funding towards various vertical health programmes to the tune of US$29.7 million. This was followed by the Swedish Government’s withdrawal of US$6.4 million worth of grant towards supporting HIV/AIDS, water and sanitation, alleviating disability and health education. Access to the Global Fund grant was also turned down. Sanctions created a humanitarian crisis of gigantic proportions, with a rise in infant mortality rate rising from 70/1000 to 132/1000 by 2005.
  • Health Services Support Programmes which were suspended due to sanctions include:
  • Support to the provincial health service capacity building and policy issues to the Health Ministry;
  • Development of a gender strategy Support to HIV/AIDS     activities;
  • Integration of Zimbabwe Essential Drugs Action Program to national laboratories;
  • Establishment of the health information system; and
  • Support to the Health Services Fund Transport Management.
    • The deteriorating economic environment resulted in the failure by Government to recapitalize hospital equipment, with available equipment breaking down more frequently due to lack of technical support from manufacturers. Since Government could not raise adequate foreign currency, the costs of procuring equipment and drugs/medicines also became expensive as it had to be done through middlemen.
    • A number of deaths arsing from HIV/AIDS, malaria and cholera could have been avoided had sanctions not been imposed on the country.

Other Socio-economic effects of sanctions

  • Zimbabwe has seen widespread reversal and cessation of donor funding in the areas of social development such as environment, health, water, sanitation, education, and infrastructure development. Ordinary citizens have, thus, been worst affected by the sanctions. The sanctions have also had adverse downstream effects on the Zimbabwean economy's key sectors.
  • A significant number of non-governmental organizations (NGOs) and international cooperating partners have moved their operations out of Zimbabwe after the imposition of sanctions. DANIDA and the Canadian International Development Agency pulled out of Zimbabwe in 2001 and 2003, respectively, terminating all projects in progress and retrenching their employees. The Swedish government funded Education Sector Support Programe to the tune of US$95 million by supplying textbooks and other educational material, as well as constructing schools and promoting gender equality in schools. However, the funding was withdrawn after the imposition of sanctions.
  • The decrease in donor funding and support resulted in the marginalized vulnerable groups sinking deeper into poverty. As the government struggled to meet its financial obligations women, children and people living with disability and the unemployed faced increased challenges. Thus, sanctions have hard hit the marginalized and vulnerable people more than the so-called targets.
  • The average number of people employed in the formal sector was bigger before the imposition of sanctions. On average 1.17 million people were employed in the formal sector per given year during the pre-sanctions period. This declined to 1.03 million per year during the period of sanctions. The decline in employment levels was attributed to massive retrenchments mainly due to the downsizing of operations and closure of companies particularly in the manufacturing sector. Labour force surveys indicated that over 400,000 were at one point retrenched in the period 2005 to 2013.
  • Consequently, the average number of people employed in the informal sector increased significantly. The informal sector employed an average of 0.49 million people per year before sanctions and this average rose to 1.65 million during the period after imposition of sanctions. This suggests the increased dependence on the informal sector by households, but which affected government’s revenue base through loss of taxes.
  • Before the imposition of sanctions, the yearly average number of people living below the country’s poverty datum line was 54.2 percent. This average rose to 60.7 percent during the period after the imposition of sanctions. For example in 2011, 72.3 percent of all Zimbabweans were considered poor, whilst 62.6% of the households in Zimbabwe are deemed poor. Individual poverty prevalence is as high as 84.3 percent, while extreme poverty is 30.3 percent in rural areas. Prior to the imposition of sanctions, 10 percent of the population was deemed to be extremely poor and living below the food poverty line. Worryingly, the proportion of the population in extreme poverty rose in the aftermath of sanctions.

Impact on Women, children and other vulnerable groups

  • Women and youth organisations and other vulnerable groups like children, the elderly and the disabled were severely affected by sanctions.
  • Besides, the livelihoods of women and youths have become precarious as they cannot access financial assistance and lines of credit from local banks. The group can no longer access development and entrepreneurship funding from regional and international financial institutions due to sanctions.
  • The sanctions caused a fall in the country’s revenues and devaluation of national currency, resulting in high inflation and unemployment. This resulted in the deterioration of people’s overall welfare and lowering of their ability to access the necessities of a standard life such as nutritious food, healthcare and medicine.
  • In essence, the illegal sanctions have caused significant worsening of public health conditions and economic well-being of the majority of Zimbabweans. While the number of people who could have died due to poverty is difficult to ascertain, the above figures reveal that the effects of sanctions directly contributed to poverty in the country which now perpetuates the cycle of poverty, resulting in poverty-related deaths.
  • The innumerable socio-economic challenges like high incidences of poverty and related deaths faced by the general populace in Zimbabwe were a direct result of the sanctions. The poor water, health and sanitation services experienced by Zimbabweans not only indicate poor living conditions but also helped perpetuate the vicious cycle of poverty which the Government is grappling with.
  • The impacts of sanctions are more immense on the lives of the most vulnerable groups. In the past two decades, humanitarian interventions by some NGOs have failed to protect ordinary Zimbabweans from the adverse effects of the sanctions. Funds that were previously channeled through the Government Treasury are now channeled through NGOs, most of whom have diverted from their core humanitarian business to issues to do with the governance and human rights.
  • It is important to note that the UN Human Rights Council draws attention to the high unemployment rate, failure to expand the infrastructure, high incidences of poverty, HIV and AIDS, low life expectancy and challenges faced by the vulnerable as examples of the negative impact of sanctions in Zimbabwe.
  • This proves that the illegal sanctions that were imposed on Zimbabwe for political purposes have violated all the basic human rights of the ordinary Zimbabweans and the norms of international behaviour by denying them their basic human rights. Such action has precipitated man-made humanitarian catastrophes of unprecedented proportions with the intention of effecting regime change in the country.

Impact on the Region

  • Zimbabwe was the bread basket of the SADC region. The Land Reform Programme that the country undertook could not bear optimal benefits because the sanctions made it difficult to import capital equipment, spares and ancillaries to mechanise agricultural production, resulting in low productivity, thereby subjecting the country and the region to food and nutrition insecurity.
  • The imposition of sanctions saw an increase in outward migration of skilled and non-skilled labour force to neighbouring countries. This human capital flight heavily affected the economy of Zimbabwe which was already under stress. In turn, this impacted on resources in terms of social services delivery in the recipient neighbouring countries. The sporadic attacks on foreigners in some of the neighbouring countries could be directly attributed to sanctions as the recipients of our citizens have to put more resources towards social services.
  • Before 2000, Zimbabwe used to enroll and train a high number of students from the SADC region in its colleges and universities. However, the situation has changed due to sanctions. Internationally, Zimbabwe has been struck off from a number of scholarships programmes that complemented Government’s human capital development efforts.
  • On infrastructure that support regional trade, Zimbabwe provides road and rail links for many SADC countries due to its strategic central location. The deterioration of road infrastructure due to financing challenges has resulted in high cost of operations for road users from the region. Zimbabwe could not revamp the railway system that could have benefitted the region due to sanctions.
  • The long and winding queues of Zimbabweans travelers witnessed at land entry and exit points into the country reflect the negative effects of sanctions on the Zimbabwean economy. It has forced Zimbabweans to import basic necessities and other personal effects from neighbouring countries resulting in high human traffic at border posts that has caused insurmountable logistical challenges for our border authorities and those of our neighbours. Before sanctions, the reverse situation played out. Neighbouring countries relied on Zimbabwe for manufactured goods. This helped to ease the challenges now experienced at borders.

Impact on Regional Co-operation

  • Sanctions are affecting the smooth running of regional groupings such as SADC and COMESA. The SADC macroeconomic convergence targets of low inflation, sustainable budget deficits, minimal public debt, equitable current account balances, as well as the formation of a regional monetary union and the movement towards attaining the region’s industrilisation agenda are being compromised by the sanctions. Zimbabwe has failed to meet most of the targets owing to the adverse effects of sanctions. For instance, while the average rate of inflation for the region declined from 29 percent in 2002 to 7.7 percent in 2012, Zimbabwe’s inflation around 2000 was in the three digit range while in 2012, it was in the negative territory and the economy was stagnant yet it desperately needed some growth to stimulate employment.
  • The European Union, through the European Development Fund, 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. The Zimbabwe Government had not directly benefited from the fund until only 2014. This discrimination had the effect of undermining regional integration initiatives and slowing down development.
  • Sanctions have also resulted in Zimbabwe failing to be effectively represented at some international meetings, where crucial decisions and commitments are made, as some targeted individuals especially high-ranking government officials are denied visas.

African Growth and Opportunity Act

  • The USA enacted the African Growth and Opportunity Act (AGOA) in 2000, an Act which incentivized trade with African countries and encouraged them to open up their economies. Countries perceived to uphold democratic values and rule of law, as well as adopt free market economic principles were allowed to export a wide range of products to the USA duty free. This led to the dramatic increase of African exports to the USA, in some cases of up to 1,000 percent.
  • Thirty-seven African nations have benefitted from AGOA, while Zimbabwe is still considered ineligible thereby missing in investment and job creation.
  1. OVERALL IMPACT OF SANCTIONS

Zimbabwe has lost over US$42 billion in revenue over the past 18 years because of the sanctions. It is believed that Zimbabwe lost bilateral donor support estimated at US$4.5 billion annually since 2001, US$12 billion in loans from the International Monetary Fund, the World Bank and African Development Bank, commercial loans of US$18 billion and  a GDP reduction of US$21 billion.

  1. CONCLUSION
  • The US and EU sanctions on Zimbabwe are illegal and unjustified because they violate Article 41 of the United Nations Charter, which states that sanctions can only be decided by the UN Security Council. Any unilateral measures taken by an individual state without the authorisation of UNSC resolution are illegal in nature because they infringe upon States’ right to economic and social development. Cognisant of this, the UN General Assembly has passed a resolution which calls upon all States not to recognise unilateral extra-territorial coercive economic measures or legislative acts imposed by any state on another.
  • Sanctions by their nature are foreign policy tools of economic coercion and are incompatible with international law. They discriminate a country from trading freely on the international markets and to access funding. They are a blunt coercive instrument adversely affecting the entire economy with far reaching implications for the ordinary people, especially the most vulnerable groups. Significant progress that the country had made in the development of infrastructure, health, education and other social service delivery systems was severely reversed by the sanctions.
  • The country’s neighbours and the entire African continent continue to feel the strain of the implosion of the Zimbabwean economy, which continues to reel under these Western sanctions.
  • In view of the new dispensation thrust on engagement and re-engagement, the sanctions are out of date and irrelevant to the situation that prevails in Zimbabwe. In this regard, they must be removed immediately to allow the country to move forward. The need for unity of purpose from all Zimbabweans, SADC and the AU in lobbying for their unconditional removal cannot be over-emphasized.

 

MINISTRY OF FOREIGN AFFAIRS AND INTERNATIONAL TRADE

17 SEPTEMBER 2019

 

Last modified on Tuesday, 15 October 2019 06:17