Sanctions: The EU, US and post-Mugabe Zim: Part 3

Derek Matyszak

Implementation and effects

Through the Zimbabwe Democracy and Economic Recovery Act (Zdera), the US Congress “has the sense” (that is, suggests but does not require) that the US President should consult with the governments of European Union (EU) member states, Canada, the United Kingdom and Australia and other appropriate foreign countries when listing Specially Designated Nationals (SDNs) and locating their assets held outside Zimbabwe; to implement travel and economic sanctions against those individuals and their associates and families; and provide for the eventual removal or amendment of the sanctions.

This does not appear to have happened and, as noted, the US SND list has not been regularly updated and revised in the manner of that of the EU. The lists of Canada, Switzerland, News Zealand and Australia generally named the same key individuals and entities as the EU.

EU sanctions post-Mugabe

As noted, only Grace Mugabe effectively remains subject to the EU’s assets and travel ban, with the commanders of the defence forces remaining on the list, but with the measures against them suspended.

The arms embargo and measures against the Zimbabwe Defence Industries remains.The EU’s National Indicative Programme funding has resumed and dialogue under Article 8 of Cotonou is again taking place (following concerns around the violence in mid-January 2019), launched on June 5, 2019 “to create greater understanding between Zimbabwe and the EU.”

The number of people and entities currently on the US SDN list is variously reported, as often the same people or entities are listed more than once with different names, or holding companies and subsidiaries are both listed, causing some difficulty.

Controversial Chinese businessperson Sam Pa, for example, is listed more than a dozen times under each of his aliases.However, there appear to be 53 entities presently on the SDN list. Of these, 21 are farms held by companies whose beneficial owners are some of the listed individuals. 17 of the remaining 32 companies are linked to John Bredencamp and were probably listed on account of the Zimbabwean entrepreneur’s involvement in controversial and government/military linked mining deals in the Democratic Republic of Congo (DRC))and arms dealing.

l Gécamines’s DRC-based Kababankola Mining Company and Operation Sovereign Legitimacy (Osleg) Pvt Ltd are also part of the last 15 listed, for similar reasons.
l Four of these 15 are companies where the beneficial owner is an SDN — Comoil (Pvt) Ltd (Saviour Kasukuwere); Famba Safaris (Webster Shamu) and Divine Homes (Pvt) Ltd (Edmore Veterai) and Sino-Zim, believed to be a joint venture between Sam Pa and the Central Intelligence Organisation (CIO) and involved in exploiting Marange diamonds.

l Similarly, three companies are listed, probably on account of human rights abuses and corrupt practices linked to the Zimbabwean military’s involvement in the exploitation of Marange diamonds — Block Wood Mining (also known as Marange Resources) Condurango Investments Pvt Ltd aka Mbada Diamond Mining and Zimbabwe Defence Industries (Pvt) Ltd. The last is listed by all countries with designated Zimbabwean entities on account of the arms embargo.

l Two Zanu PF party companies are listed — M & S Syndicate (Pvt) Ltd and ZIDCO Holdings (Pvt) Ltd. Companies in the Zidco stable are FBC Bank; Jongwe Printing & Publishing Company; Treger Holdings; Catercraft; Zidlee Enterprises; Ottawa (a property management firm); Oryx Diamonds; Southern Africa Reinsurance (Sare) and NDH Holdings (Pvt) Ltd. These companies only fall under the OFAC regulations if 50% or more of the beneficial ownership is that of ZIDCO. Jongwe Printing is listed separately as a designated entity but this is unnecessary if Zidco has a 50% or more holding in the company.

l The last three entities are the moribund (and plundered ) Zimbabwe Iron and Steel Company (Zisco) Zimbabwe Mining Development Corporation (ZMDC) Minerals Marketing Corporation of Zimbabwe (MMCZ).

l The inclusion of the MMCZ as an SDN is sometimes presented by government officials as evidence that sanctions apply against Zimbabwe itself and not merely individuals and specified entities. The basis of the argument arises from the fact that section 42 of the Minerals Marketing Corporation of Zimbabwe Act requires that all minerals (except silver and gold) are marketed and sold through the MMCZ. The MMCZ must be paid a commission of 0,875% sales.

It is thus suggested that no Zimbabwean minerals can be exported to American buyers and non-American buyers are also placed in a difficult position as sanctions prohibit the payment of the commission to the MMCZ. This claim does not withstand scrutiny.

Under section 43 of the MMCZ Act, the MMCZ may grant exporters permission to deal directly with buyers, which may then include buyers in the United States. This system appears to be in place with regard most of Zimbabwe’s major exporters, such as those exporting platinum group metals. Buyers pay for these exports directly into sellers’ Zimbabwean nostro accounts, and the MMCZ commission is then paid from these accounts. They are thus unaffected by the listing of MMCZ as an SDN. In any event the obvious solution to the problem, if it were such, would be to remove the MMCZ’s monopoly over mineral marketing, which may be of dubious constitutionality in any event.

l The claim that the SDN list imposes sanctions against Zimbabwe has some cogency in relation to the Zimbabwe Mining Development Corporation (ZMDC). This 100% state-owned entity does not merely develop mining in Zimbabwe, as the name of the Act implies, but conducts its own mining activities. A complete list of ZMDC mines and the extent of its ownership in these mines is difficult to determine. The ZMDC website has not been updated since 2015 and the last annual report appearing there is from 2012.

Nonetheless, ZMDC has, or previously had mines, in the following areas: Gold – Bar-20 Mine, Kimberworth Investments (Pvt) Ltd trading as Sabi Gold Mine; Jena Gold Mines and Elvington Gold Mine, (all 100% ZMDC owned); Emeralds — Sandawana Mines (Pvt) Ltd (90%); Tin — Kamtivi Tin Mines (40%); Copper – Copper Queen, Lomagundi Smelting and Mining (Alaska Mine), Sanyati Copper Mines and Mhangura Copper Mine (all 100%?); Zimbabwe Germany Graphite Mines (Pvt) Limited (50%); Platinum — ZMDC has been linked in reports to joint ventures in platinum mining on the Great Dyke with Global Platinum Resources, Todal Mining and Sino-Zim Global.

ZMDC’s share in these proposed joint ventures appears to be less than 50%; Diamonds — Marange Resources (Pvt) Ltd (100%), Mbada Diamonds (Pvt) Ltd (50% – with Grandwell Holdings), Diamond Mining Corporation (Pvt) Ltd (50%); Anjin Investments (Pvt) Ltd (10%).

l However, most of these ZMDC mines are dormant or have been shut down. In 2016 most diamond mining in Marange (including Mbada and Marange Resources) was consolidated under the government’s Zimbabwe Consolidated Diamond Company (Pvt) Ltd, leading to protracted litigation and then unbundling/demergers in the post-Mugabe era. Of all 23 wholly-owned government mines nationally, only three are running. Government’s attempts to sell off its mines under the Mnangagwa administration has failed to date, mainly due to the indebtedness of the companies.

l In order to demonstrate a loss of revenue to the state on account of sanctions against the ZMDC, it is necessary to show either that mining operations were affected by the inability to obtain capital equipment and inputs due to sanctions or that this could only be obtained at a significantly higher price from countries that had not imposed sanctions on these entities and/or the inability to sell outputs to sanctioning counties meant that the product could not be sold at all, or only at significantly reduced prices elsewhere.

There do not appear to be any studies which have undertaken analysis of this nature. Zanu PF’s 2013 election manifesto stated that sanctions had cost the country US$42 billion in lost revenue of which US$3,4 billion was held to be reduced GDP. In 2017 government awarded a US$150 000 tender to a group of academics for research to be conducted to show how the supposed US$42 billion loss had arisen.

The subsequent report has never been published. There appears to have been only one genuine attempt to analyse the effect of the measures, undertaken by a South African-based non-governmental organisation, IDASA, in 2010.

The study found that “the primary blame for the downward spiral of the national economy undoubtedly has more to do with Zanu PF’s misgovernance and its penchant for self-destructive economic policies”, giving the post-2000 land policies and resource nationalism through an attempted forced “indigenisation” of business, industry and mining, as examples.

Spillover effects

The sanctions regime of the US does, however, have some spill-over effects. Disapprobative measures highlight Zimbabwe’s democratic deficits to the investor community and particularly past failures to respect property rights, which will be of considerable concern.

The result is that Zimbabwe obtains something of a pariah status such that, all else being equal, investors may prefer a different investment destination.

Ease of doing business

The extent to which this obtains in practice is unknown as all else is not equal and other factors render Zimbabwe a singularly unattractive investment destination.

Despite frequent claims that Zimbabwe is “blessed with abundant mineral sources” viable investment opportunities in mining (and anywhere else) are far from obvious.

International banking

A major spillover effect related to the ease of doing business arises from the need for those sending US dollars to and from Zimbabwe to use US-based correspondent banks to effect the transfers. These banks cannot make transfers to or on behalf of SDNs and doing so attracts a hefty fine equivalent to the greater of US$250 000 or twice the amount of the underlying transaction. Some banks have fallen foul of these provisions and money in transit to Zimbabwean entities confiscated en route. The consequence is that many more people and entities are affected than just SDNs. A correspondent bank asked to process a transfer to Zimbabwe will rarely be prepared to peel away the sometimes onion-like layers of the receiving entity to determine the ultimate beneficial shareholder of the entity, determine whether that owner is a SDN, and whether the US Office of Foreign Assets Control (Ofac) regulations apply, which may require legal counsel. It is easier and less risky to simply decline to deal with Zimbabwe related transactions.

Undue Caution

There is anecdotal evidence that some companies, particularly those based in the US, aware that there is some sort of sanctions programme against Zimbabwe, but without bothering to determine what it is, have declined to do business with Zimbabwean companies to avoid any risk of falling foul of OFAC regulations.

The government narratives

The government of Zimbabwe maintains that the sanctions were imposed as a response to its redistributive land policies and not as a result of misgovernance, state engendered violence and human rights violations.

It has also consistently stated that the sanctions are against Zimbabwe and not against targeted individuals. The sanctions, it is claimed, hurts “ordinary Zimbabweans” the most, causing “untold misery”. Almost invariably, a supposed quote from Chester Crocker, former US Assistant Secretary of State for African Affairs, to the following effect is deployed for this purpose:

“[t]o separate the Zimbabwean people from Zanu-PF, we are going to have to make their economy scream, and I hope you, Senators, have the stomach for what you have to do.”

The quote is fabricated. As was cogently demonstrated several years ago through the presentation of the transcript of the hearing before the Subcommittee on Africa of the Committee on International Relations House of Representatives in June, 2000 where the statement was allegedly made, Crocker said nothing of the sort or even words that could be construed to mean this.

Furthermore, almost all these articles fail to show how sanctions are “effecting ordinary Zimbabweans”. Instead they show the hardships experienced by ordinary Zimbabweans on account of Zimbabwe’s difficult economic circumstances and economic decline over the last two decades.

This is not in dispute. There is rarely any attempt to show the economic decline as attributable to sanctions. However, the point that Zimbabwe used to be an agro-based economy is well made. At the height of the land redistribution exercise Zanu PF’s own slogan was that “Land is the economy and the economy is land”. The economy was then dependent on large scale commercial agricultural production.

That Zimbabwe’s steep economic decline after 2000 was mainly due to the loss of its agro-base seems obvious to all except those ideologically opposed to attributing the fall to Zimbabwe’s land policies. To date, the Mnangagwa government has been unable to climb out of the economic hole dug for it — a hole dug by president Robert Mugabe and successive Zanu PF administrations, and not by “illegal western sanctions.”

Matyszak is a senior lawyer and research consultant at the Institute for Security Studies in South Africa.

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