The Myth that is Economic Sanction

9 July 2007

THE MYTH THAT IS ECONOMIC SANCTIONS

The Zimbabwe government media and propaganda machinery has been on full blast about the reasons for the country's economic meltdown. The suffering people of Zimbabwe have been served with a variety of dishes from the propaganda manufacturing machine. The one that has been on the menu over and over again is the claim that the international community declared economic sanctions against Zimbabwe. However, economic sanctions are economic penalties applied by one country (or group of countries) on another for a variety of reasons. Such sanctions can include tariffs, trade barriers, import duties, import or export quotas, and other monetarily damaging penalties.

It is known, though, that the American, European and other western governments such as the Australian government took action to freeze the assets of the ZANU (PF) leadership including travel restrictions on the country's leaders and an arms embargo. Some commentators may want to argue that restricting movements of individuals is considered economic sanctions. Can one equate actions against a few greedy individuals as sanctions against the whole country?

As if to prove that this whole issue was personal rather than national, the Zimbabwean president launched a blistering attack on the American President George W. Bush and the outgoing UK Prime Minister Tony Blair, branding them imperialists who wanted to impose a new form of colonialism on developing countries.

In a statement by the White House spokesman Ari Fleischer, however, it was stated that "This action is aimed not at the people of Zimbabwe, but rather at those most responsible for their current plight. The US is acutely aware of the hardships and frustrations which the Zimbabwean people are enduring."

It is easy for President Robert Mugabe and his propagandists to lay blame of Zimbabwe's economic crisis on white commercial farmers, the opposition MDC, "Western conspiracies" or British Premier Tony Blair. The economic problems are self-inflicted thanks to the government's wisdom to deploy troops, tanks and jets in the DRC. The country's hard cash earnings, already sapped by the poor performance of the export sector, were literally burnt in the Congolese jungle while the over-taxed people of Zimbabwe have to make do not only with the galloping inflation but also soaring unemployment.

It is true that some aid programmes have been discontinued, and others reduced. This occurred because the donors were made unwelcome by President Mugabe himself who told them "to go to hell", and in other cases where the aid had been abused, diverted to non-approved purposes, or hindered by interventions of the government, the ruling party and war veterans. Whilst some aid programmes had ceased or been scaled down, others had been pursued and extended, e. g. the food aid that continues to be forthcoming from the very countries whom the government sought to blame. Britain on October 23 2003 donated £6.88 million (US$11.6 million) to buy food for Zimbabwe's famished population and vaccines against potentially fatal childhood illnesses, The Herald reported on 24 October 2003.

The Market Assistance Pilot Program funded by USAid to reduce urban vulnerability in Bulawayo was bringing in 20,000 metric tonnes of sorghum into the country and on December 31 2003 USAid announced a donation of 30,000 metric tonnes of sorghum, valued at US$12 million, for distribution by the World Food Programme. In fact, not only had the US continued to give assistance to Zimbabwe, for humanitarian purposes, but it had markedly increased that assistance. In 2000, the extent of assistance was US$13.6 million, which increased to US$21.3 million in 2001, and then increased dramatically in 2002 to US$148.3 million, whilst 2003 commitments were only marginally less, at US$138.4 million.

The European Commission (EC) announced at the end of November 2003 that it would make available some €7 million (US$8 million) in additional funding for WFP food aid efforts in Zimbabwe. On 20 January 2004, the EC donated €20 million (US$25 million). The fresh donation brought to €52 million (US$60.5 million) the commission's contribution to alleviate food shortages in Zimbabwe since July 2003. This was sufficient to procure, deliver and distribute almost 160,000 tons of food to millions of Zimbabweans in need, and represented some 57% of tonnage requirements committed so far to the WFP food pipeline.

However, the government happily exaggerates ‘smart' sanctions in an effort to hoodwink the populace not to realise the very real extent that the country's numerous economic calamities are almost entirely attributable to the ZANU (PF) government's years of corruption and maladministration.

Meanwhile, trading relations between Zimbabwe and the European Union remain strong. It is known that the EU takes more than 30% of Zimbabwe's exports. In 2004, Zimbabwe had a trade surplus of €261 million with states in the European Union. Apart from these commercial links, the EU is also the largest source of humanitarian aid to Zimbabwe, amounting to €70 million in 2005. Furthermore, the EC made available €22.8 million in 2001 towards micro projects for rural community programmes right across Zimbabwe. Since the inception of the programmes in 2000, 132 projects have been completed and are benefiting the various communities. It was expected that by 2004 145 projects would be available to the communities. The EC is also implementing an education programme that is largely biased towards the girl in eight rural districts of Beitbridge, Binga, Bindura Rural, Buhera, Chegutu Rural, Chirumanzu, Mudzi and Mwenezi. For this purpose, it made €11.4 million.

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. Thus, Zimbabwe, in common with other developing countries, is benefiting from the Generalised System of Preferences (GSP), which is offered by a number of developed counties. The GSP is a system that provides reduced Most Favoured Nation (MFN) rates of duty or duty free access to products from the developing countries. Zimbabwe cannot claim to be under sanctions from the WTO.

Zimbabwe's problem with the International Monetary Fund and the World Bank cannot be interpreted as economic sanctions. It is the default on payment of Zimbabwe's external debt that forced the Bretton Woods institutions to suspend dealings with the country. This eroded the very limited creditworthiness and repute that still attached to Zimbabwe. In such circumstances, lines of credit from international bankers are reduced evermore, and finally withdrawn. Suppliers decline to provide credit; investors seek alternative investment locations. It is understood that like any banker and any other money lender, the IMF requires, not only to be satisfied that its loans and advances are properly utilised, but it also needs to know that its borrowers can service their debts, and imposes conditions designed to make that possible.

In February 2007, the IMF maintained its suspension of financial and technical assistance to Zimbabwe, saying the government had failed to clear its arrears and address a worsening economic and social crisis. The southern African country again averted expulsion from the Washington-based IMF by making small payments towards clearing its arrears, which currently amount to US$129 million. Bodies such as the European Union and its investment bank, the European Investment Bank, the African Development Bank, PTA Bank and many other international financial institutions are influenced in their assessments of Zimbabwe by the country's standing with the IMF.

Zimbabwe lost a key beef export contract to the European Union in 2001 following an outbreak of foot and mouth disease in the country. The spread of foot and mouth disease was caused by the cutting of fences by the war veterans during the farm occupations. This situation did not occur as a political or trade sanction. This month (July 2007) the country ran out of vaccines for the treatment of anthrax and foot-and-mouth diseases. This shortage of vaccines could also scuttle lucrative deals clinched in 2006 to export beef to Hong Kong, the Democratic Republic of Congo and Angola as most governments ban beef imports from countries affected by the especially contagious foot-and-mouth in order to protect domestic herds.

Before the advent of the so-called Third Chimurenga in 2000, Zimbabwe was a major exporter of beef to the EU, with 9,100 tonnes of top quality meat going to the European market every year and generating much needed foreign currency.

Nonetheless, ZANU (PF) propaganda machinery makes it their policy to reflect this as the result of alleged economic sanctions. Statistics at hand show Zimbabwe's national herd has dramatically fallen from an estimated six million cattle in 2001 to four million chiefly because of the government's chaotic and often violent programme to seize white-owned farms to give to blacks. The farm seizures saw militant government supporters slaughter for meat whole herds, including special breeding cattle, left behind by fleeing white farmers.

By legislating bad laws, the ZANU (PF) government is committing economic sanctions upon itself. If anybody is doubtful and is trying to look for evidence as to how that is being done, they need look no further than the Indigenisation and Empowerment Bill which will sabotage any efforts to attract foreign investment. Indigenisation and Empowerment minister, Paul Mangwana, says that foreign investors will need to cede 51% of their shares to "appropriate" business people under the provisions of the new Empowerment Bill. With accusations of cronyisms flying all over, Mangwana fortified people's suspicions by saying that if the investor fails to identify "an appropriate partner", the government would provide the investor with a "database" of business people from which it could select a "partner". It is not difficult to guess who the potential "partners" are before one even looks at the database. The list has already been drawn up.

The Minister of Indigenisation and Empowerment will be empowered to review and approve all indigenisation arrangements, and can order a licensing authority of any business to cancel the licence if he is not happy with the empowerment transaction, or the beneficiaries of the transaction. Zimbabweans have not forgotten the beneficiaries of tractors recently allocated to farmers.

The Minister also suggested that the bill was aimed at foreign-owned banking institutions, which remain the dominant players in a sector that has witnessed robust competition from black-owned financial institutions created after the government opened the sector to more participants in the early 1990s. Foreign-owned banks operating in the country include British banks Standard Chartered and Barclays, Stanbic Bank and MBCA Bank both owned by South African financial institutions Standard Bank and Nedbank, respectively. Mangwana said the Bill would "refer to both public and private companies" and banks and mining companies would be specifically targeted.

"Yes, this includes mining companies and banks, which will be impacted like everyone else," Mangwana said.

That this will probably cause a collapse of mining, industry, commerce, and other economic sectors commensurate with that experienced by agriculture is contemptuously dismissed as naught by the propaganda machinery. The people are told that this is self-centred endeavours by the private sector to frustrate the government's intents in order to promote "regime change". The reality is that no companies are willing to invest (be they domestic or foreign) if they are going to be dispossessed of much of that investment.

Market analysts said the Bill would effectively seal Zimbabwe's fate as a pariah to international capital. It is logical that no companies will be investing in Zimbabwe any time soon because they will not want to share their capital with business predators linked to the ruling party. Just as developing countries in the rest of the world are opening up their economies to investment on attractive terms, Zimbabwe is doing the opposite.

Parliament put a final nail into the coffin of the agricultural sector by adopting an amendment [Amendment (No. 17) Bill] into the constitution that allows for the nationalisation of virtually all land in the country and ban landowners from appealing against seizure of their land by the state and prohibits courts from hearing such appeals. This makes it impossible for Zimbabwe's crumbling economy to recover as agriculture, the mainstay, will no longer be attractive to financial institutions.

Furthermore, the Constitution of Zimbabwe Amendment (No. 17) Bill blatantly abridged the rights of Zimbabweans laid down in the constitution's Bill of Rights by depriving them of the right to judicial appeal in the event of seizure of their property by the state. Now investors will not risk their capital in a society where, in the event of a dispute with the government or powerful rivals, there is no provision for appeal to the courts.

Already Bilateral Investment Promotion and Protection Agreements (BIPPAs), which had been entered into, subsequent to independence, with Belgium, Denmark, Germany, Italy, Mauritius the Netherlands, South Africa and Sweden, have been violated by the ruling party's supporters with impunity, sending a clearly negative signal to other investors. There are even instances wherein the courts (prior to the amendment of the constitution) have ordered that unauthorised settlers on certain BIPPA-protected lands be evicted, but in virtual contempt of court, the authorities have failed to evict them, or even to attempt to do so.

Tourism was bringing in a large chunk of foreign currency but because of political violence, no tourists are interested in coming to the country. Foreign currency receipts spiralled from less than US$50 million in 1980 to US$232 million in 1996, but began to plunge, reaching US$61 million in 2003 in response to the assault and murders of white commercial farmers and political opponents of the state. It is obvious this is self-inflicted and not because of economic sanctions.

Tobacco production has fallen from 237 million kg in 2000 to 85 million kg in 2005. There was rampant vandalism of infrastructure and destruction of tobacco barns during the commercial farm occupations. Earnings from tobacco dwindled from US$663 million in 1999 to US$240 million in 2004 and US$181.3 million in 2005. Tobacco production, once the country's major foreign currency earner, has gone down by nearly 60%.

A consequence of all these catastrophic government policies has been progressively to lessen the desirability of the Zimbabwean environment for investment, whether foreign or domestic. Investors seek to invest where they consider that their capital will be secure, and where they can anticipate a fair return on that capital. They wish to invest where the success, or failure, of the investment is primarily due to their own endeavours, and not impacted upon by dictatorial actions of governments.

To claim that "the sanctions imposed on the country have worsened the economic environment" is baseless and spurious. The facts are that no economic sanctions have been imposed upon Zimbabwe, as a country, by the international community. Even those who have withdrawn aid because of the factors mentioned above have continued to provide humanitarian aid such as the provision of food and of funding to combat HIV/Aids. However, none have discontinued or barred trade with Zimbabwe, and the few who have imposed constraints upon investment in Zimbabwe, have only done so because the current Zimbabwean economic environment renders Zimbabwe an unattractive investment destination and, thus, with or without sanctions, little investment is, or will be forthcoming.