Sanctions and survival: US-Zimbabwe interplay

This decision can be interpreted as a gesture of goodwill and an acknowledgement of the progress made by the Zimbabwean government in implementing political and economic reforms.

ON March 4, 2024, the United States (US) President Joe Biden announced the cancellation of economic and other sanctions that had been imposed on Zimbabwe since 2001 by previous administrations.

This decision can be interpreted as a gesture of goodwill and an acknowledgement of the progress made by the Zimbabwean government in implementing political and economic reforms.

However, there are certain important considerations to be made.

Firstly, this decision comes with a condition: Zimbabwe is not allowed to pursue any claims for reparations or compensation for damages caused by the sanctions that have been in place for two decades. Additionally, the United States will continue to impose sanctions on individuals and entities involved in human rights abuses, corruption, or undermining democracy in Zimbabwe.

It is also worth noting that the US Congress has not repealed the Zimbabwe Democracy and Economic Recovery Act (Zidera), which restricts US support for multilateral financing to Zimbabwe. This raises questions about the implications of this mixed signal for Zimbabwe and the region.

The sanctions on Zimbabwe were initially imposed in response to alleged violations of human rights, democracy, and the rule of law by former President Robert Mugabe and his ruling party, Zanu PF. The sanctions targeted individuals, entities, and sectors that were seen as supporting or benefiting from the Mugabe regime, including the security forces, mining industry, and state-owned enterprises.

These sanctions not only prohibited US persons from engaging in transactions with Zimbabwe or providing any assistance to the country but also affected all persons who intended to do business with or in the United States, except for humanitarian purposes. Violators faced the risk of criminal prosecution.

Given that the United States plays a central role in global transactions, including through exchanges and capital markets, these sanctions had a significant impact on Zimbabwe's economic prospects, hindering partnership growth, investments, foreign direct investment (FDI), and multilateral lending opportunities.

The sanctions were imposed through various instruments, including the Zimbabwe Democracy and Economic Recovery Act (Zidera) enacted by the US Congress in 2001.

Zidera authorised the US President to impose sanctions on Zimbabwe and use US influence in international financial institutions to block assistance or debt relief until certain conditions, such as the restoration of the rule of law, respect for human rights, and implementation of electoral reforms, were met. Repealing or modifying Zidera requires a legislative process within the United States, as the President does not have the power to unilaterally remove it. It would require an act of the American Congress, consisting of the House of Representatives and the Senate, to pass a bill to repeal or amend the law.

Executive Orders, on the other hand, fall within the President's power and have been utilised to impose and amend sanctions on Zimbabwe. Executive Order 13288, issued by President George W. Bush in 2003, declared a national emergency related to actions and policies undermining Zimbabwe's democratic processes.

It imposed travel bans, asset freezes, and transaction prohibitions on listed individuals and their associates.

Executive Order 13391, also issued by President George W. Bush in 2005, expanded the scope of sanctions to include entities owned or controlled by the listed individuals.

It authorised the designation of additional entities that provided support to those targeted by the sanctions.

Lastly, Executive Order 13469, issued by President George W. Bush in 2008, further expanded the scope of sanctions to include the Government of Zimbabwe and the Reserve Bank of Zimbabwe.

Understanding the history and complexities of these sanctions provides important context for analysing the recent decision by President Joe Biden to cancel certain sanctions.

It remains to be seen what the long-term implications of this decision will be for Zimbabwe and the region.

The difference between the executive order imposed sanctions and the Zidera is as follows: The executive order imposed sanctions are issued by the US President under the authority of the International Emergency Economic Powers Act (IEEPA), granting the President the power to declare a national emergency and impose sanctions on foreign countries or individuals deemed a threat to US national security, foreign policy, or economy.

In contrast, Zidera is enacted by the US Congress under the authority of the Foreign Assistance Act of 1961. It enables the US to provide or prevent foreign assistance and support or block multilateral financing to foreign countries.

Zidera applies to the entire country of Zimbabwe and affects the assistance and financing that the US and international financial institutions can provide to Zimbabwe.

The executive order imposed sanctions are punitive and coercive, aiming to punish and pressure the targeted individuals and entities. They can be adjusted and amended according to changes in their behaviour.

Zidera, on the other hand, is conditional and incentive-based. It can be suspended or terminated based on compliance with specific conditions and benchmarks set by the US Congress.

The executive order sanctions have a direct and immediate impact on the targeted individuals and entities, affecting their assets, interests, and activities in the US or under the possession or control of US persons.

They also have indirect effects on the Zimbabwean economy and society by deterring foreign investment, and trade, and isolating the country. Zidera has an indirect and long-term impact on the Zimbabwean government and public sector, affecting their access to international financial assistance, debt relief, and development cooperation.

It directly impacts the Zimbabwean economy and society by limiting the resources and expertise necessary for recovery and development.

Regarding the recent decision to lift executive order sanctions, a quid pro quo clause has been introduced. Zimbabwe cannot pursue claims for reparations or compensation for damages caused by the sanctions, and the US will continue to sanction individuals and entities involved in human rights abuses, corruption, or undermining democracy in Zimbabwe.

The legality and legitimacy of the US sanctions on Zimbabwe have been contested and challenged by various actors and institutions, both within and outside the US. The United Nations, African Union, and other regional and international organisations have repeatedly called for the lifting of sanctions and supporting the recovery and development of Zimbabwe and the region.

The decision to lift executive order sanctions on Zimbabwe is seen as a step influenced by the desire to shift to a more targeted and selective approach while addressing human rights violations and corruption concerns. However, the broader implications and effectiveness of this decision remain to be seen.

An economy is influenced by key actors, including political and industry leaders. Restricting these individuals and entities economically will inevitably have repercussions for the overall economy.

However, there are arguments suggesting that this group is draining the lifeblood of the Zimbabwean economy itself. Thus, if their activities are curtailed, the economy may benefit in the long term.

The true impact of these dynamics will only become clear with time, as the accuracy of each viewpoint unfolds.

In the meantime, the designations placed on these individuals and entities subject them to US sanctions. Any property or interests they have in the US or under the control of US persons are blocked and must be reported to the US Treasury Department.

Additionally, any transactions or dealings involving their property or interests are prohibited for US individuals or within the US.

Undoubtedly, the US sanctions on Zimbabwe have had a significant negative impact on the country's economy and society. They have limited Zimbabwe's access to international markets, capital, technology, and skills.

Foreign investment, trade, and tourism have been deterred, despite the country's considerable potential in those areas.

These sanctions have also contributed to Zimbabwe's isolation from the international community and regional integration processes. Estimations suggest that over the past two decades, the sanctions have cost Zimbabwe more than US$100 billion in lost revenue, investment, and development opportunities. This is a substantial figure for a country with a national budget of under US$7 billion.

Reducing foreign currency inflows and reserves necessary for importing goods and services, servicing external debt, and maintaining exchange rate stability.  The sanctions have impacted the nostro accounts of Zimbabwean banks, making it difficult for them to access and use these accounts, leading to liquidity shortages and delays in international payments. Isolating the Zimbabwean financial sector from the global financial system, limiting access to credit, investment, and trade finance.

International banks have been deterred from engaging with Zimbabwean banks due to reputational risks and potential legal consequences. This has increased borrowing costs and hindered business for Zimbabwean banks and their customers.

Constraining the growth and diversification of productive sectors, such as agriculture, mining, manufacturing, and tourism. These sectors are crucial for income, employment, and exports in Zimbabwe. The sanctions have impeded access to markets, technology, skills, and inputs, negatively affecting competitiveness and profitability.

They have also discouraged foreign direct investment and hindered private-sector development in these sectors.

Worsening poverty and inequality, particularly among vulnerable groups, such as women, children, and rural communities. The sanctions have reduced government revenue and affected the provision and quality of public services, such as healthcare, education, and social protection. The additional US$100 billion lost due to the sanctions could have made a substantial difference in such a troubled economy. The question of whether the sanctions have fueled political polarisation and human rights violations in Zimbabwe or were imposed as a response to political polarization and human rights violations is hotly debated.

However, it is evident that the same political party remains in power, and the initial conditions set for lifting the sanctions, such as political and election reforms, have not been implemented. This raises questions about the motivations behind their recent repeal.

This discussion takes a macroeconomic and geopolitical perspective, highlighting the costs (economic, social, financial, etc.) of the sanctions and their link to the poor performance of the Zimbabwean economy. The political aspects of the issue are left to politicians and legal experts.

Zimbabwe's gross domestic product (GDP) growth has fluctuated between positive and negative values, with an average annual rate below 0 from 2001 to 2020. This growth has been lower than the sub-Saharan Africa region's average annual rate of 4,4% over the same period.

However, in the past four years, the economy has shown an upward trajectory, with an average annual growth rate of 5,8% and a nominal GDP exceeding US$35 billion.

Zimbabwe's GDP per capita has declined from US$1 376 in 2001 to US$1 271 in 2020. In comparison, the sub-Saharan Africa region's average increased from US$1 036 to US$1 570 over the same period, and the Sadc countries' average rose from US$1 348 to US$2 057.

Regarding the increase in individuals subject to sanctions, the US decision to lift sanctions on Zimbabwe is paradoxical. It coincides with the US Office of Foreign Assets Control (OFAC) designating additional individuals and entities under sanctions.

These designations are intended to target those deemed responsible for human rights abuses, corruption, and undermining democratic processes in Zimbabwe. While it is true that the removal of sanctions on some individuals and entities can potentially lead to increased economic activity and engagement, it is important to consider the broader context. The impact of sanctions on an economy is complex and multifaceted.

The removal of sanctions on specific individuals and entities does not necessarily guarantee immediate positive outcomes for the overall economy.

The effectiveness of sanctions and their impact on economic growth and development is a subject of debate among economists and policymakers.

Some argue that sanctions can be an effective tool to pressure governments to change their behaviour, while others contend that they often lead to unintended consequences and harm the general population.

In the case of Zimbabwe, the lifting of sanctions on certain individuals and entities may provide opportunities for engagement and investment, but broader structural challenges in the economy, such as weak institutions, policy uncertainty, corruption, and a lack of infrastructure, need to be addressed to unlock the country's full economic potential.

It is also crucial to ensure that the removal of sanctions is accompanied by measures to promote transparency, accountability, and good governance. This will help prevent a situation where the lifting of sanctions benefits a few individuals at the expense of the broader population.

Ultimately, the long-term impact of the removal of sanctions on Zimbabwe's economy will depend on a range of factors, including the country's ability to implement meaningful reforms, attract investment, and foster inclusive economic growth.

In conclusion, the United States' approach towards Zimbabwe appears to be a delicate balancing act between its interests and values. On one hand, the US is rewarding the Zimbabwean government while punishing individuals and entities that it deems as spoilers or violators of its principles and standards. This suggests a strategy of exerting pressure and leverage on the Zimbabwean government while maintaining the ability to sanction and isolate undesirable elements.

There is also a possibility that the U.S. is fomenting disagreements within the Zimbabwe ruling party itself through a "divide and rule" approach or shifting blame onto the opposition.

This could be aimed at weakening the current administration or advancing its interests. Additionally, the US may be attempting to appease different factions and constituencies within its political system, as well as courting African countries, regional organisations, and institutions.

Despite the challenges and constraints, Zimbabwe has implemented several mitigation measures to cope with the adverse environment. These measures include adopting a multi-currency system to restore macroeconomic stability, re-engaging with international financial institutions to clear arrears and access resources, diversifying exports and partners to reduce dependence on a few commodities and markets, and leveraging its abundant natural and human resources, as well as its geopolitical position and relations.

It is important to note that the impact and outcome of the US's actions will depend on how both the US and Zimbabwe interpret and respond to them, as well as how the situation evolves in the coming days, weeks, and months.

The US's inconsistent and incoherent signals may undermine its credibility and legitimacy in the eyes of Zimbabwe and the region.

  • Equity Axis is a financial media firm offering business intelligence, economic and equity research. The article was first published in its latest weekly newsletter, The Axis. 

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