The myth behind sanctions

via The myth behind sanctions – The Zimbabwe Independent June 19, 2015

It is now crystal clear that the economy will not recover anytime soon. From 2000 to 2008, the economy lost much of its wealth through successive negative growth rates, hyperinflation, de-industrialisation and capital flight.

Dr Mashakada

This devaluation of the economy had so many adverse socio-economic implications. But the worst social impact was the loss of national savings, whether at government, household or company level. Today, Zimbabwe is even grappling with the issue of demonetisation — a grim reminder of our troubled economic past.

Economic pundits have been struggling to define the nature and character of the Zimbabwean economic crisis since 2000. Some analysts have attributed Zimbabwe’s economic crisis to sanctions while others blame politics for our economic quagmire.

It is a truism that sanctions affect the capital account of the balance of payments which is normally loaded with capital inflows from grants, bilateral and multi-lateral assistance, portfolio investment and remittances.

Empirical evidence shows that sanctions are an external shock to the domestic economy and when exerted, they affect growth but their impact will not last more than five years because affected countries will seek other means to get gain access to capital and foreign aid. Moreover, countries use sanctions busting measures to blunt their effects.

In the case of Rhodesia (as Zimbabwe was known during British colonial rule), when prime minister Ian Smith declared the UDI (Unilateral Declaration of Independence) in 1965, the UN Security Council imposed sanctions. But for Rhodesia, sanctions presented an opportunity for import substitution which spurred massive industrial innovation and infrastructural development.

Heavy engineering companies like Risco (now Ziscosteel) were established during the UDI. The Rhodesian Railways became the main artery of the economy. Hwange power station was established in 1972 at the height of sanctions.

Rhodesian products were exported to Europe and America under South African labels. Indeed, the industries we used to know in Bulawayo and Harare were established during the era of sanctions in Rhodesia.

The Rhodesian dollar became stronger than the American dollar and was at par with the British pound in 1980. What defeated Smith was the libration war not sanctions. Of course, some talk about a combination of the two, but without elaborating what that means.

Another example is Cuba which suffered the same fate in its historical development. After its revolution, the United States imposed an economic embargo on this Caribbean island. Cuba used its science and medical sector to defeat sanctions.

It became a net exporter of doctors, scientists and other medical personnel. The University of Science Education in Bindura is a testimony of Cuban scientific education.

Cuba turned to the Soviet Union and other eastern European countries for economic co-operation. Of course, being an island resisting sanctions took a much longer period. Having failed to suffocate the Cuban economy, America recently opened the doors of diplomacy.

What we can deduce from these two examples, out of many, is that sanctions exert cyclical shocks on the economy for a while but once counter-cyclical measures are activated, sooner or later, sanctions are defeated. The only problem with sanctions is that they provide an excuse for leadership failure. Sanctions breed a fertile ground for dictatorship and rent-seeking activities.

In Zimbabwe, we sometimes call them restrictive measures or “illegal sanctions” because they were not imposed by the UN Security Council. The truth of the matter is that no country can stay with cyclical shocks forever. Zimbabwe adopted the Look East policy to vaccinate the economy against sanctions.

The discovery of diamonds was supposed to equally deflate the impact of sanctions. Why, therefore, are we still blaming sanctions for our economic ills? Did the government not devise other sanctions busting measures? The sanctions mantra has outlived its justification as a perennial cause of our economic suffering. The opposition MDC formations added their voice on the need to have sanctions removed.

In fact, during the inclusive government, a tripartite committee comprising of Patrick Chinamasa (Zanu PF), Priscillah Misihairabwi-Mushonga (MDC) and Elton Mangoma (MDC-T) was set up to engage the European Union. To date, the EU has removed all the sanctions except the travel ban on the First Family. It is high time we critically examine what has been the real cause of our economic collapse since 2000?

Yet another fallacy regarding sanctions is that without them, Zimbabwe would get unfettered access to international finance capital and lines of credit. This cannot be true. No country will get automatic access to foreign assistance without addressing its own political and economic jurisprudence. Our debt to the Paris Club and multi-lateral institutions is the albatross.

With or without sanctions, debt is the elephant in the living room.
If the truth be told, agriculture is the kingpin of our economy. It occupies the centre-stage of our political economy.

Since 2000, the agricultural sector has been decimated by 80%. The country has lost its production capacity in maize, wheat, soya bean, coffee, cotton, beef, horticulture and other crops. In short, Zimbabwe kissed good-bye to commercial agriculture many years ago. The country lost its coveted bread basket status in 2000 and we are now importing maize and cereals from Zambia and Malawi. Tobacco production has increased quantitatively, but not qualitatively. Farmers are getting a raw deal from tobacco contractors.

All other sectors like engineering and other industrial entities used to survive because of the agricultural value chain. Zimbabwe must therefore address agricultural production in order to spur economic growth and development. Agriculture is the missing link in all turnaround efforts.

The other issue that Zimbabwe needs to address is corruption which causes allocative inefficiencies in the macro-economy. Therefore, looking back, the collapse of agriculture in Zimbabwe is the epitaph written on the grave of the once-vibrant economy.

Then comes the toxic politics of the country. Why is it that a country of so many educated people can fails to find solutions to its economic problems. The reason lies in selfishness. Zimbabweans are all over the world providing economic thought leadership and developing other peoples’ economies.

During the inclusive government, Zimbabweans breathed some fresh air as the economy stabilised. The middle class that had been wiped out prior to 2009 re-emerged and aggregate demand increased. Now we have so many cars on our roads that the roads cannot cope. Hyperinflation was wiped out by dollarisation and the economy recorded average growth rates of 8% between 2009 and 2012 compared to an average growth rate of 2,5% since 2013.

Since 2013, many companies have closed down and the evidence is there on our streets. The pavement economy has replaced formal employment. The government’s much-touted economic blueprint, ZimAsset, has failed to stimulate the economy from its state of deflation.

The liquidity crisis continues to deepen with no end in sight. On the ground, there is all the evidence that Zanu PF has lost the stewardship of the economy. The economy is in freefall. The rate of economic deceleration is frightening.

Zimbabwe now needs everybody to put their minds together and pull the country out of this morass. We have to come up with sustainable strategies to revive our productive sectors. It does not make sense to continue to insist on indigenisation at the expense of investment and job creation.

Let all Zimbabweans who are in the diaspora come back and develop their motherland. This includes the likes of Strive Masiyiwa, Mthuli Ncube, Mutumwa Mawere and James Makamba, just to mention a few. We need to build Team Zimbabwe and save our country. As the situation stands right now, every Zimbabwean is saying that 2018 is too far.

We must sort out our politics now. The economy is in the jaws of politics.

Paradoxically, ZimAsset has now turnout out to be the catalyst for the collapse of the economy. Not even the Chinese and Russian “mega-deals” can rescue us from economic demise. All we know is that Zimbabwe is now in dire need of political and economic reforms.

Dr Mashakada is an economist and MP for Hatfield. “New Perspectives” articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. E-mail kadenge.zes@gmail.com; cellphone +263 772 382 852.