On Sunday 16 June, President Uhuru Kenyatta told a religious gathering at a stadium in Nairobi: “When they see me remain silent, they should not think they are threatening me. I will flush them out from where they are.”
Finance: Corresponding damage
Western countries say that their sanctions on Zimbabwe are targeted so as to not hurt the average citizen, but their impact on the financial sector is raising costs across the board as the economy continues to struggle. Sanctions were imposed during the regime of former president Robert Mugabe to protest at human rights abuses, political strong-arming and controversial land reforms. The European Union removed most of its sanctions in 2014, while the United States retains its travel and economic embargo on several Zanu-PF officials, senior members of the military and state-owned companies. Bankers says the sanctions have caused the loss of correspondent banking relationships, hindering the flow of remittances and making facilitation of international trade very difficult.
Evidence on the ground suggests the measures have affected citizens and untargeted businesses such as Steward Bank, a subsidiary of businessman Strive Masiyiwa’s Econet Wireless family. Steward Bank’s chief executive officer, Lance Mambondiani, tells The Africa Report that all banks have been struggling to open correspondent banking accounts with foreign banks for all types of international payments because of Washington’s Zimbabwe Democracy and Economic Recovery Act of 2001.
“Our nostro account with Commerce Bank was closed last year. Most international banks are cutting correspondent banking ties with local banks because of the increased scrutiny over US dollar transactions from Zimbabwe. No correspondent bank wants to risk their reputation and the hefty fine that comes with assisting an errant transaction,” Mambondiani says.
Correspondent banking is an arrangement between two banks where one bank (the correspondent bank) provides services to another bank (the respondent bank) through a nostro account permitting access to products and services in foreign markets.
Correspondent banking plays an important role in the global payments system by facilitating cross-border transactions and trade. But lately, banks around the world are revising their correspondent banking relationships through derisking, a process where a correspondent bank cuts ties with a respondent bank due to perceived financial risks. According to the Reserve Bank of Zimbabwe, at least 102 correspondent banking relationships have been ended over the past 10 years because of the high country-risk due to economic sanctions.
Mombondiani continues: “The sanctions increase country risk, and a negative country risk affects everyone. As a nation, we can’t attract foreign direct investment […]. Institutions like us can’t access banking transactions or credit lines to boost our business growth and we can’t trade with the US market. We have had to trade via third-tier financial institutions, who charge us huge premiums, and we pass on that cost to our customers.”
Busisa Moyo, an industrialist, and the immediate past president of the Confederation of Zimbabwe Industries, argues that sanctions have caused as much suffering to many Zimbabweans as economic mismanagement and corruption. “They have trebled the suffering of ordinary people, and we raised this with the US government on an outward private-sector mission to Washington in 2015,” he tells The Africa Report.
Moyo says many rural farmers still cannot access cheap funding to support their businesses because banks like ZB Bank, state-owned Agribank and fertiliser company Chemplex were under sanctions. The US delisted both these banks in October 2016, along with the Infrastructure Development Bank of Zimbabwe (IDBZ), but the stigma of having been under sanctions remains.
Agribank chief executive Sam Malaba says the reputational damage caused by the sanctions means the bank has struggled to find an equity partner and has lost a $98m line of credit. Malaba says Agribank is finding it challenging to open new correspondent bank relationships as many international banks are derisking.
“Derisking has become a major issue affecting trade for Third World countries. International trade has become tightened. One must invest a lot now in anti-money-laundering toolkits to monitor transactions and to know your customer. It’s much more difficult because many international banks are cutting back correspondent banking services. There is much stricter monitoring now. In the past we could use third-party banks, but it’s no longer simple because of close monitoring on transactions.”
Moyo adds: “Private sector companies have had funds held for long periods in the US clearing system leading to inefficiencies and sometimes losses. While this has improved, it is still a concern to the private sector.”
Another prominent industrialist, who leads an influential company in the agricultural value chain, says: “No trader and bank want to do business with a company that was once on the sanction list.”
To compensate for the loss of nostro accounts and to alleviate the impact of sanctions, Zimbabwe’s banks are making payments through other, friendlier regional and international banks, and trading in alternative currencies like the euro.
From the March 2018 print edition