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Zimbabwe’s economic woes: Sanctions or poor governance?

By Michelle Chifamba
Posted on Thursday, 21 October 2021 14:18

A man buys cooking oil at a market in Harare, Zimbabwe, 26 November 2020. REUTERS/Philimon Bulawayo

Since early 2000 to date, Zimbabwe’s economy has suffered distress and stagnation, undergoing periods of hyperinflation leading to the collapse of the national currency and the adoption of a multi-currency system in 2009. The government and its allies attribute this to sanctions, while others blame bad governance.

The rapid economic decline experienced in Zimbabwe has driven the majority of Zimbabweans into abysmal poverty, high cost of living and unemployment.

In Harare, thousands of its working population line up on the streets trading the local currency [Zimbabwe dollar] against the US dollar and the South African rand. Informal foreign currency trading and exchange has become the most common option for the country’s job seekers affected by years of economic decline.

Sanctions have made it difficult for Zimbabwe banks to have relations with international corresponding banks…”

The central bank say sanctions have had an impact on citizens and the economy. A country reeling under the effects of economic sanctions, as described by the Zimbabwe Reserve Bank economic report, is economically isolated, which affects trade, commerce and financial relations with international economic and banking institutions.

Sanctions for authoritarian regimes in Africa

Lance Mambondiyani, CEO for local bank BancABC Zimbabwe, is on the record saying: “Sanctions have made it difficult for Zimbabwe banks to have relations with international corresponding banks, because the US put onerous requirements with banks that would want to transact with Zimbabwe.”

President Emmerson Mnangagwa, like his predecessor Robert Mugabe, blames the country’s economic distress on sanctions from the United States government and the European Union.

A Reserve Bank of Zimbabwe report from 2012 describes the effects of sanctions against Zimbabwe, and in other countries, as a declaration of war that put the economy under siege, with negative effects on vulnerable groups and civilians.

The government’s land reform program, which was carried out in 2000 under Mugabe, disputed elections and gross human rights violations under his rule, put Zimbabwe under targeted sanctions by the West.

The UK says the EU’s restrictive measures target individuals and companies.

Professor Stephen Chan tells The Africa Report that although Zimbabwean officials blame the Western sanctions for its economic misery, they have had no direct effect on the macroeconomy, as they target a small number of individuals.

Righting the wrong

At the dawn of his administration, President Mnangagwa made a promise to address the country’s record on human rights, particularly targeting those that oppress political activists and opposition political party supporters during elections. He also said his government would introduce economic policies favouring foreign investment. His mantra was  ‘Zimbabwe is Open for Business’.

In its quest to kick-start itself to its former glory, the Zimbabwean government came up with economic policies such as the Look-East Policy, Indigenisation, but the policies failed to yield results.

“The non-performance of Zimbabwe’s economy is pinned on a myriad of factors that include agricultural and economic policies – introduced under Mugabe – that have had a domino effect, chasing away investors, coercing the economy into distress,” Chan says.

“There has been a disinclination on the part of foreign corporations to invest in Zimbabwe. The farm seizures orchestrated by Mugabe’s administration meant no one wanted to invest in agriculture, as there was no guarantee for security of tenure,” he tells The Africa Report.

“Then there was the indigenisation policy that wanted foreign investors to [offer] 50% of their assets [to indigenous Zimbabweans]. No one wanted to invest as half of the investment had to be immediately weighed towards Zimbabwe ownership even if the Zimbabwean side had invested nothing,” says Chan.

Ripple effects

Masimba Manyanya, an economic analyst, tells The Africa Report that Zimbabwe is under its own sanctions – which are in the form of poor governance, corruption and thieving by political and government leaders – not the Western imposed sanctions under the ZIDERA Act.

“The most damaging sanction in Zimbabwe is [a] governance crisis that has bred a kind of politically connected syndicate [that is] draining the economy through corruption and illicit financial flows,” Manyanya says.

The oligarchic class wants to acquire and not reinvest in a meaningful circulation of funds in the economy. The elite network is concerned with short-term gain, while the government has no long term plans, affecting economic growth.”

“We can complain about the outside authorities putting restrictions on the freedoms of Zimbabwe’s governing authorities and political leaders, but the first restriction on our collective freedom is the crisis of governance in the country. That is the single most damaging sanction that is draining money and resources from the country through illicit financial flows [gold and diamond smuggling] across the country’s borders without accountability,  draining and dragging the economy down,” Manyanya says.

Hiding under the guise of sanctions?

The ‘Cartel Power Dynamics in Zimbabwe’ report, published by South Africa’s Daily Maverick, is an exposé on corruption and how an elite network persists and thrives in Zimbabwe, while the economy remains on a downward trajectory in the mineral-rich country. The report details off-the-books networks worth billions that deal in gold, diamonds, cigarettes and fuel.

“No one wants to invest in a country where corruption is growing out of control. The oligarchic class wants to acquire and not reinvest in a meaningful circulation of funds in the economy. The elite network is concerned with short-term gain while the government has no long-term plans, affecting economic growth,” Chan tells The Africa Report.

Mnangagwa’s administration has been attempting to rally anti-sanctions sentiments, embarking on a re-engagement policy and ‘Zimbabwe is Open for Business’ mantra. Nevertheless, the sanctions have remained in place.

Those that imposed sanctions, are adopting a wait-and-see approach until problems linked to human rights, democracy, corruption and good governance are resolved.

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