Fungi Kwaramba and Joseph Madzimure
ZIMBABWE scored big in its quest to have the punitive and illegal economic sanctions imposed by the West two decades ago removed after the United States’ House of Representatives Committee admitted that the embargoes were hitting hard on the poor and causing untold economic pain.
This emerged at a virtual meeting held between Political Actors Dialogue (Polad) members and the US Foreign Affairs, House of Representatives Committee Subcommittee on Africa Global Health, Global Human Rights and International Organisations last week.
According to a letter to Zimbabwe’s Permanent Representative to the United Nations, Ambassador Stuart Comberbach from Polad International Relations and Re-Engagement Committee Rapporteur Mr Kwanele Hlabangana, Ms Karen Baas, the chairperson of the subcommittee, posed key questions to the panellists who included non-governmental organisations, on whether the sanctions were not affecting ordinary people.
“She questioned the integrity of continued use of sanctions in a country as the case is in Zimbabwe whose effect may be misdirection and failure to achieve the intended purpose. She acknowledged that sanctions had a glaring tendency to affect innocent victims, had effects of shrinking the economy, a negative socio-economic effect on service delivery, health, education, water, sanitation, and infrastructural development programmes,” reads the letter in part.
In its submissions, Polad said the baneful sanctions had resulted in Zimbabwe failing to access lines of credit, being discriminated on the international frontier, and the negative perception had resulted in a slump in tourist arrivals.
“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,” reads part of the submissions gleaned by The Herald.
No sector has been spared by the effects in terms of capacity utilisation due to the sanctions that were imposed by Western countries as punishment for embarking on the land reform programme.
“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 the 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. 12.3 Industry’s capacity utilisation fell from 76 percent in the 1980s to an all-time-low of 10 percent in 2008,” reads part of the submissions.”
With international financial lenders withholding loans to Zimbabwe, the cost of doing business from local companies has shot up as the outstanding areas have 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.
The lending programme 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 resulted in Zimbabwean companies finding it extremely difficult to access offshore lending, thus, crippling their operations.
In the 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.
As a result of the illegal sanctions, Zimbabwe has lost US$42 billion in terms of potential investment, jobs have been cut and capital projects stalled. To bear the full brunt of the unilateral sanctions, that violate human rights, has been the ordinary Zimbabweans.
However, the Second Republic Engagement and Re-engagement efforts are now bearing fruits as some countries that were once openly hostile to Zimbabwe are coming to the table through dialogue.