The Impact of Sanctions

When the American government passed the Zidera Act 20 years ago, they argued that the Act was not intended to punish the people of Zimbabwe but to target those individuals and organisations that, in the view of the US government, were responsible for human rights and other violations of basic governance principles. Since that time, the Act has been reviewed and extended every year in March.

Other major Western countries, including the United Kingdom and the European Union have followed the US example with their own restrictions and sanctions on individuals and selected organisations. What is not recognized, nor widely understood, is that the impact of these measures has been much more widespread than was intended. In a sense, the wider economy and the people of Zimbabwe have become collateral damage because of the use of these mechanisms to try and secure compliance with international norms and practices.

To understand the implications of these measures on the economy of a country like Zimbabwe, requires a careful analysis of the way in which many countries in East Asia have successfully reduced poverty and raised the living standards of many hundreds of millions of people in the past century. There is nothing magical about the rapid growth of the Asian Tiger economies. this growth is founded on two main pillars: -

- The first pillar is unfettered access to international markets for both goods and services, created by the policies of the post Second World War era. Policies adopted by the international community, have fostered globalization and rapid growth in international trade. It should be noted that over the past 50 years, global trade has increased annually by more than 15 per cent per annum. Today, the strongest advocate for this system is China.

- The second pillar is the ability of these Asian States, including China and Japan, to borrow money on international markets, principally in the form of accumulated surpluses of western economies, such as the United States and Europe. Access to funds on this scale, have enabled these countries to not only build the necessary infrastructure required to take advantage of global trade but also to invest in their domestic economies and in technology and industrialization. In consequence, both China and Japan are today the most indebted States in the world.

By contrast, countries such as Zimbabwe, who have a form of sanctions imposed on them by Western States, find themselves isolated from international financial markets. In consequence, after 20 years, commercial banks in Zimbabwe have virtually no correspondent banks or bank relationships with the rest of the financial world. International banks, who either facilitate trade with Zimbabwe or who handle funds emanating from Zimbabwe, find themselves in a difficult position in that they must take care not to violate the US sanctions program.

it was in recognition of such a violation, that the CBZ bank in Zimbabwe, its largest bank, had a fine of nearly US$400 million imposed on it for using another bank to make international transactions on their behalf. Massive fines have been imposed on international banks for similar violations and understandably they are now almost universally very cautious in their dealings with any financial or other institutions in Zimbabwe.

The effect of such restrictions is to deny Zimbabwe access to international funds for investment purposes even though its private sector has an almost unblemished record. In addition, it makes it difficult for countries like Zimbabwe to service their international obligations and when the inevitable defaults occur, this simply further intensifies the countries financial isolation.

In addition to the above, countries like Zimbabwe, find it very difficult to make even routine and relatively small payments abroad. Individuals living in Zimbabwe cannot open overseas bank accounts. The U.S. dollar plays an overwhelming role in international settlements and probably commands over 80 per cent of all such transactions. Under the Swift system, these transactions are routinely monitored by the American authorities and any transfers above US$5000 are scrutinized. Should they suspect that the transaction involved a prescribed organization or individuals, then such transactions can be detained without consultation by international banks under instruction from Washington.

This increases the risk of investment in Zimbabwe and in some cases, has in fact resulted in plans for such investments being abandoned by the foreign investor. The economic implications of such incidents can be very far reaching. At the same time, such risks raise the cost of borrowing by increasing the influence of the so called 'country risk'.

Sanctions remain a popular form of pressure on governments which are perceived as being in violation of globally accepted norms and values. I do not want to get into the merits or otherwise of such policies but simply to state that when they are adopted, they have far reaching implications, beyond what their advocates intended. We must remain focused on the fundamentals in international affairs. All citizens of the world face a common enemy which is poverty and the potential for instability in their individual countries. What we have learned in the first quarter of the 22nd century is that instability can destroy any possibility of progress.

The second lesson is that a combination of instability and poverty will drive human migration from one part of the world to another. Zimbabwe has been no exception and during the period in which our economy collapsed from 2000 to 2008, millions left for greener pastures. Today 5 million Zimbabwe adults live and work in foreign countries. This creates problems both for the country from which they originate and the countries they choose to settle in. In our case we lose skills and educated individuals who would otherwise make a significant contribution to our own economy. In destination countries this movement of millions of people is creating serious political and social problems.

In these circumstances, the international community should take care to ensure that their foreign policies do not inhibit the capacity of countries like Zimbabwe to expand their domestic economies, provide jobs and lift their people out of poverty. This process can never be achieved using foreign aid which in most cases is simply a sinecure for meeting the human and welfare problems created by the very strategies that are being adopted. The seizure of billions of dollars of funds owned by the people of Afghanistan after the Taliban take over is just another example of such ill-considered action based on political considerations.

I am a great believer in humility and wisdom, and I think that those who control the levers of power in the world need a good measure of both when they take action to try and resolve the problems we all face. We would all like to live in countries which have a real democracy and where government is held to account for what they do and how they spend our money. But the stark realities of the situations that confronts the individual countries that we call home, dictate that we take a softer and more considered approach than that which is being exhibited in existing foreign policy.

Eddie Cross
8 October 2021