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Lifting Sanctions Will Spark Zimbabwe’s Economy

The conventional wisdom concerning sanctions is that the devastating financial burden imposed upon the citizenry of target nations will result in citizens’ dissatisfaction with the government. This view espouses that ultimately, the citizenry shall either put enough pressure on their regime to alter its policies in accordance with the demands of the sender state – or the regime will be ousted via the ballot – or if need be the bullet.

The contrasting view proposes that external imposition of sanctions may lead to a “rallying round the flag” effect whereby the sanctions have the unintended consequence of augmenting domestic constituencies’ support for the targeted regime.We must all rally around a common cause, namely, fully understanding the nature and effects of sanctions as well as the benefits that would accrue from their removal so as to definitively speak with one voice against them.

Speaking with One Voice

The current silence on the issue of sanctions within some quarters of the newly constituted government is akin to taking six with one hand and giving half a dozen with the other and does nothing for the aforementioned need to speak with one voice. The need to close ranks and vocally denounce sanctions has been demonstrated by 118 member states of the Non Aligned Movement, 53 from the African Union and 15 from the Southern African Development Community, and it is time we all follow suit.

Sanctions: Fact or Fiction?

Despite the deafening nature of this silence, once broken, it will have an equally thunderous effect and should send a message loud and clear that Zimbabwe, SADC and Africa are united in opposition to economic sanctions that are neither smart nor targeted.

It is important to point out that proponents of the notion that there are ‘smart’ or ‘targeted’ sanctions on Zimbabwe are absolutely right and these include travel bans and asset freezes on certain individuals. However, the sanctions imposed on Zimbabwe are not confined to this form and include a range of measures imposed by Britain, the US and the EU, designed to severely cripple the economy and by extension the living conditions of ordinary Zimbabweans, so as not to rally around the President but rather to try and defeat him at the ballot box.

Zimbabwe Democracy and Economic Recovery Act 2001

The concerted effort to put pressure on Zimbabweans and cripple the economy began late in 2001 when President George W. Bush signed into law the inaptly named Zimbabwe Democracy and Economic Recovery Act of 2001. The law directed the U.S. Treasury Department to instruct U.S. members of international financial institutions to oppose and vote against any extension of any loan, credit or guarantee to Zimbabwe. Soon after the enactment of the act, the International Monetary Fund declared Zimbabwe ineligible to access Fund resources and suspended balance of payments support, technical assistance, voting and related rights.

President George W. Bush mentioned two primary objectives for the act saying he hoped that “the provisions of this important legislation would support the people of Zimbabwe in their struggle to effect peaceful democratic change and achieve economic growth.” Prior to the bill’s enactment, Zimbabwe could obtain credit from international financial institutions other than the IMF and the World Bank, however, as a result of the bill, a  host of key credit suppliers are ruled out.

Given this aspect of the legislation, one could be understood for believing that only the former of the President’s two aforementioned objectives was truly intended, in so far as the legislation is concerned, having a direct negative impact on the latter.

European Union Sanctions

Soon after multinational financial institutions began withdrawing support for Zimbabwe, on February 18, 2002 the European Union formally imposed sanctions against Zimbabwe. The specific terms of sanctions made it such that all financial and technical assistance would be “reoriented in support of the population, in particular in the social sectors, democratization, respect for human rights and the rule of law.” The EU then suspended the budgetary support it previously provided and terminated “financial support for all projects” apart from “those in direct support of the population.” It is somewhat paradoxical that the EU “reoriented” its support to the “population” which has inevitably been hurt by its “suspension of budgetary support and termination of financial support for all projects”.

Economic Costs of Sanctions on the Citizenry

In order for Zimbabweans to be galvanized into speaking with one voice against sanctions, it will not suffice to only have a clear picture of the nature of the sanctions on Zimbabwe. We must also be equally clear on the direct impact sanctions are having on our everyday lives, and by extension the relief, recovery and reconstruction which can occur once they are lifted.

Three main areas in which the US and EU sanctions have caused clearly demonstrable hardship for the citizenry include foreign currency, inflation, corporate Zimbabwe, employment and key sectors of the economy.

Foreign Currency and Inflation

The withdrawal of support by multilateral financial institutions in accordance with the Zimbabwe Democracy and Economic Recovery act, has led certain other bilateral creditors and donors to follow suit and reduce or suspend disbursements on existing loans for both the Government and parastatals. This capital flight has been accentuated by biased negative publicity and as a result, the capital account of the balance of payments has been registering persistent deficits since 2000.

Persistent capital account deficits and reduced foreign currency capital inflows have led to pressures on foreign exchange reserves, making it particularly difficult to finance critical imports such as grain, drugs, raw materials, fuel and electricity.

For a country that has to import 100% of its fuel and 40 percent of its electricity, Zimbabwe is very vulnerable to being blocked off from accessing foreign currency. Consequently, the scarcity of fuel and electricity has severely impacted industrial production which is operating below 30% of capacity, as has the inability to import essential spare parts and raw materials.

The importance of lifting economic sanctions is underscored by the fact that when multilateral financial institutions and bilateral creditors resume the extension of credit to Zimbabwe, the increased foreign currency capital inflows will ease pressure on both the capital account and foreign exchange reserves. Thus, allowing foreign exchange to be diverted towards meeting fuel and electricity requirements will dramatically increase operating capacity in the industrial sector which is an integral cog of the economy.

Corporate Zimbabwe and Employment

Foreign exchange shortages have also severely constrained the country’s capacity to honour foreign payment obligations, leading to a build-up in external payments arrears. This in turn has worsened the country’s risk profile and has reduced its creditworthiness. Consequently, traditional sources of external finance from bilateral and multilateral sources have dried up and Zimbabwean companies have had to either pay cash for imports – or secure offshore funds at prohibitively high interest rates – or demand credit internally which in turn has put great inflationary pressures on the internal credit system.

This has had devastating ripple effects on the nation’s employment levels and has led to capacity underutilization reflected by shortages of basic goods and services. Unemployment problems and lack of basic provisions have resulted in large scale emigration of skilled labour, further exacerbating the employment problems the country faces.

The mere act of lifting sanctions on Zimbabwe coupled with the tangible effects of credit availability will ease the external payments arrears and improve the nation’s risk profile, allowing companies to receive credit at more viable rates. This will serve to reduce internal inflationary pressures as well as allow companies to increase capacity utilization levels and in so doing provide more goods and services whilst bolstering employment.

Key Sectors of the Economy

The persistent fuel shortages have severely reduced productivity across all the key sectors of the economy namely agriculture, mining, manufacturing, tourism, construction and transport. These shortages have also been affecting the day to day operations of commerce and the public transport system, resulting in loss of crucial production hours. Small-scale miners and newly resettled farmers are being hit hard because of their reliance on diesel powered equipment and inadequate fuel has also impacted negatively on land preparation and ultimately yields of a whole range of crops.

This fuel shortage coupled with the fact that scarce foreign currency resources are being used to import grain and other food as opposed to being channelled towards importing critical inputs to reduce costs for farmers has had a devastating impact on the sector.

The agriculture sector contributes approximately 20% of Zimbabwe’s GDP, 22% of foreign exchange earnings and 23% of formal employment, therefore if economic sanctions are lifted and credit is made available to Government, the 300,000 newly resettled farmers will be in an ideal position to contribute to the economic recovery process. Not only because of the inevitable increase in availability and affordability of essential inputs but also because of the Reserve Bank’s farm mechanization initiatives which have equipped them and the current liberalisation will ensure that they have great financial incentives to produce.

Many Questions but One Voice

It is now time for Zimbabweans from all walks of life to ask tough questions of those who continue to entertain the notion that sanctions are only targeting certain individuals and thus, are failing to publicly recognise the main underlying cause of the citizenry’s plight and by extension the main means for extricating them from it.

Questions such as: How as beneficiaries of chalk in schools, medicine in clinics and asphalt on roads, that would otherwise be bought with these withheld funds, we can continue to entertain the notion that sanctions are merely targeted at the regime. How as an investor, employee or consumer of one of our companies under sanctions we can claim that the sanctions are only targeted at the heads of these companies. Why as an exporting manufacturer, farmer or miner suffering from fuel and electricity shortages I am told that only certain individuals are being weakened by these shortages.

It is clear that the economic sanctions imposed on Zimbabwe are neither smart nor targeted and that all political parties in Zimbabwe must emulate SADC, the AU and the Non Aligned Movement’s clear, principled and unwavering stance on the issue and speak resolutely with one voice because the lifting of sanctions will be a formidable catalyst for economic recovery.

By Garikai Chengu
African and African American Research Institute Fellow, Harvard University

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Discussion

One thought on “Lifting Sanctions Will Spark Zimbabwe’s Economy

  1. Well written article!

    It is now quite undeniable that sanctions were called upon the beloved country of Zimbabwe to effect regime change and to turn the citzenry against the leadership. The Blair-Bush alliance has not been good to the world. We are now all swimming in this global recession which was caused by this poor leadership.

    No more!

    Posted by Java | August 2, 2011, 10:40 am

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