Sanctions yoke weighs down on critical economic sectors

The Chronicle

Nqobile Bhebhe/Sikhulekelani Moyo, Business Reporters

DESPITE exhibiting resilience amid unforeseen macro-economic shocks, Zimbabwe’s economy continues to reel under the yoke of illegal economic sanctions imposed by the United States and its Western allies, which continue to scare away potential investments and frustrate trade opportunities.

The mere mention of sanctions is a scary factor to any potential investor given the sensitive market sentiment to country risk profile.

While the United States pontificates about “targeted” political sanctions, business players say the punitive embargo’s impact is being expressed in the fear induced factor among international firms and financial institutions keen on trading with Zimbabwe who have over the years withheld or cancelled planned mega investment projects in the country. Due to sanctions, international firms are avoiding clashing with the US authorities as dealing with Zimbabwe might also attract sanctions on them, experts say.

Apart from discouraging foreign investors from coming to Zimbabwe, the illegal sanctions have seen many local companies fail to retool or get working capital to sustain operations, let alone procure critical equipment from Western markets.

Economic leaders have said the continued maintenance of illegal sanctions is harmful to business growth as it frustrates fresh                                                        potential investments, which constrains economic growth.

Last week, the US Department of State Sanctions coordinator, Mr James Obrien, admitted that his government was fully aware of the economic and social hardships induced by illegal sanctions on the country.

The US promulgated the Zimbabwe Democracy and Economic Recovery Act (Zidera) in 2001 that cut all lines of credit to Zimbabwe from multilateral lending institutions.

Zidera, among other provisions , forbids American banks from processing transactions on behalf of Zimbabwean companies and at times individuals who are not even on the sanctions list.

The sanctions, targeting both the economy and individual Zimbabweans are central to decision-making in Government — being estimated to have cost the country up to US$100 billion in lost economic opportunities.

“We are aware that because of the depth of the problem and the duration of this (sanctions) programme, probably there are a lot of companies that believe that doing business in Zimbabwe is just too difficult and that does cost opportunities for the people of Zimbabwe,” said Mr Obrien in a virtual media briefing.

“We are well aware that in difficult environments, companies may decide not to be involved for a host of reasons and one of those reasons may be the risk that either new sanctions will be put in place or current sanctions are not clear.”

He claimed the US was willing to work with those who fear that sanctions are getting in the way of legitimate business activity.

The reality on the ground, experts say, is that all sectors of the economy have been gravely affected by the sanctions, which have been blamed for de-industrialisation since Zimbabwe embarked on the land reform programme, which torched Western hostility, at the turn of the millennium.

Since then, scores of agriculture, mining and manufacturing companies have been barred from selling their products to the United States and European Union markets.

Buttressing the effects of limited correspondent banks, Finance and Economic Development Deputy Minister Clemence Chiduwa told delegates at the recent Fourth Zimbabwe Annual Multi-Stakeholder Debt Conference in Bulawayo that limited intermediary banks brings huge cost to investors

“We are now left with only (few) intermediary banks, which can be very costly for the country. If these banks decide to leave us, it will negatively affect businesses so we will continue with re-engagement.  

“Before the coming in of Zidera, Zimbabwe had more than 105 correspondent banks, and now we have (a few),” he said.

“If we continue on that path where as a country, we have limited intermediary banks it’s a huge cost to our investors.”

Local companies and individuals have found it extremely difficult to effect payments through the international payment platforms as these transactions are intercepted and blocked in hostile countries, especially the US.

In this regard, economic analyst and senior Zimbabwe National Chamber of Commerce (ZNCC) member, Mr Golden Muoni, says the demise of Zimbabwean industries in the past years was a closely linked to sanctions.

He noted that since sanctions were imposed on Zimbabwe, the productive sector has struggled to secure financing, process key payments and access key markets or procure raw materials.

“There is no way and no any investor comes to the economy or a country, which is under sanctions. We also haven’t been able to access affordable loans from International Monetary Fund and World Bank because of debts, which could not be attended to because of sanctions,” says Mr Muoni.

“Sanctions are not good for the industry. Look, Bulawayo used to be the country’s industrial hub and a lot of industries are no longer functioning and the bulk of them and some warehouses have turned into churches now.”

Banking expert and BancABC Zimbabwe chief executive officer, Dr Lance Mambondiyani, concurs that banking sector operations have been severely crippled due to dwindling correspondent banks.

A correspondent bank refers to a financial institution that provides services to another one—usually in another country. It acts as an intermediary or agent, facilitating wire transfers, conducting business transactions, accepting deposits, and gathering documents on behalf of another bank.

However, in the past two decades, the illegal sanctions have seen international financial institutions withdrawing correspondent banking relationships to avoid the backlash from the US.

Before the Zidera came into force, the country had 105 correspondent banks, a situation that facilitated smooth business transactions. However, due to Zidera, commercial banks or any local firms are struggling to access and structure financial deals with any US company.

Any global company or financial institution that violates the provisions of the US heinous sanctions regime on Zimbabwe faces severe penalties.

“One of the challenges is opening correspondence banking relationships. Some of the currencies that we use such as the US dollar and pound transactions, I need a friendly bank in another country to clear those transactions,” said Dr Mambondiani in a recent interview with the private media.

“Corresponding banking licenses are extremely difficult for us to open because every country that we have been in partnership with are afraid of doing business with Zimbabwe because sanctions emanated from the US and the US dollar is the clearing market.

“They are going to put onerous requirements for those countries that are doing US dollar clearing. We have had a number of our corresponding banking relationships closed. It has also been hard for us to open new ones.” 

Today, President Mnangagwa will headline the fourth annual SADC Anti-Sanctions Day commemorations with a virtual address to the nation. SADC countries declared October 25 a day to demonstrate regional solidarity with Zimbabwe against the illegal sanctions.

This year’s commemorations are being held under the theme: “Enhancing Zimbabwe’s Resilience through Economic Development and Engagement and Re-engagement.”

Article Source: The Chronicle

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