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Sanctions: A socio-economic perspective
The Sunday Mail, 29 January 2006
By Munyaradzi Huni
ON November 16 last year, I sent a couple of questions, focusing mainly on the relations between Harare and London, to the British Ambassador to Zimbabwe, Dr Roderick Pullen.
One of the questions I asked him was: Despite the defence that Zimbabwe is under "target sanctions" that are supposed to hurt only those closely linked to Zanu-PF and the Government, the sanctions imposed by Britain, the US and the EU have clearly caused a lot of suffering to the ordinary Zimbabweans. Don’’t you think Zimbabweans have suffered enough and it’’s time to lift the sanctions?
Dr Pullen thought this was an opportunity to do some public relations for his country and he expectedly responded saying: "There are no general economic sanctions against Zimbabwe, or the people of Zimbabwe, by Britain, or the European Union. Other than a general arms sales ban, the targeted measures agreed by all member states of the European Union, affect only about 120 named individuals.
"The measures consist of a ban on travel to the countries of the European Union and a freeze on the personal assets of those named individuals held in the European Union."
If The Sunday Mail was a paper from Mars, this sickening response that bordered on arrogance would have been splashed on its pages, but before becoming journalists, the people manning the paper are Zimbabweans and they know how the sanctions have caused untold suffering to the people in the country.
President Mugabe has said it on several occasions that the sanctions were hurting the ordinary people, but his statements have been dismissed by the imperialists, led by the US, as mere propaganda.
The ruling party, Zanu-PF, and the Government have made the same claims, but America and Britain have used their media to dismiss the claims, saying this was a ploy by the Government to win public sympathy.
Last week, the Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono, who all along had shied away from commenting on issues relating to the sanctions, gave a detailed and graphic economic explanation on how the sanctions have hurt the ordinary people in the country.
In his Supplement 7 of the Fourth Quarter 2005 Monetary Policy Review Statement, entitled "An Analysis of the Socio-Economic Impact of Sanctions against Zimbabwe", that he delivered last week, Dr Gono explained that the combined effect of declared and undeclared sanctions has been to worsen the country’’s balance of payment position.
He said in 1997, the country’’s BOP position deteriorated significantly from a deficit of US$21 million to US$740 million due to poor export performance, high import demand and reduced capital inflows, on the back of adverse publicity.
He added that the current account deficits and the reduced capital inflows severely constrained the country’’s capacity to meet foreign payment obligations and finance critical imports such as drugs, grain, fuel and electricity.
"Reflecting the shortages of foreign exchange, there has been a significant build-up in external payment arrears. At the end of 1999, total foreign payments arrears amounted to US$109 million and have since increased astronomically to US$2 073,7 million by end of 2005.
"This unfavourable development in the external sector has worsened the country’’s creditworthiness as the country’’s risk profile was heightened. This subsequently led to the drying up of traditional sources of external finance from the donor community.
"The withdrawal of the multilateral financial institutions from providing balance of payment support to Zimbabwe had a demonstration effect as some other bilateral creditors and donors also followed suit by either scaling down or suspending disbursements on existing loans for both Government and parastatal loans.
"Prior to these developments, the country had an impeccable record of prompt debt servicing and was highly rated in the international financial markets.
"The capital account, traditionally a surplus account, has been in deficit since 2000. This largely resulted from perceived high country risk by both multilateral and bilateral creditors. As such, international investors preferred other countries for investment, thus depriving Zimbabwe of the much-needed foreign direct investment," explained Dr Gono.
He further explained that the combined effect of arrears has been to worsen the country’’s relations with international creditors, "thus creating a vicious circle".
"The current wave of declared and undeclared sanctions is negatively affecting the image of the country, thereby distorting how financial markets assess the risk profile of Zimbabwe.
"As a result, Zimbabwean companies are finding it extremely difficult to access offshore lines of credit because of the perceived country risk. Against this background, Zimbabwean companies have, over the last five or so years been dealing with their international suppliers strictly on a cash-upfront basis, with very minimal credit terms.
"If the private companies manage to secure offshore financing it is usually at very high interest rates," he said. In short, this means local private companies are finding it too expensive to borrow money from the international finance market.
On the other hand, Zimbabwean exporters are asked to pay cash upfront, resulting in a significant squeeze on private sector cashflows.
"The sustained decline in the long-term capital inflows has had ripple effects on the country’’s employment levels, and its ability to provide basic goods and services to its people, ultimately leading to a decline in the standards of living.
"The result has been large-scale emigration, especially of skilled labour, thus further straining the economy’’s capacity to hasten the pace of economic turnaround and development," said Dr Gono.
He said sectors such as health, education and infrastructure development had been hit hard by the sanctions due to the reversal and cessation of donor funding.
Said Dr Gono: "The negative perception that has come with sanctions has negatively impacted on foreign direct investment coming into Zimbabwe, as investors tend to shy away from economies that are perceived as risky. In 1998, FDI inflows amounted to US$444,3 million and by 2003 the inflows had declined to a mere US$3,8 million.
"The low investment levels in the export sector have exacerbated foreign exchange shortages, leading to shortages of fuel and imported raw materials.
"Yes, it is true that the transitory effects of the land reform programme and inflationary pressures have contributed to a decline in output and hence underperformance of GDP but it is equally true that declared and undeclared sanctions have also resulted in the contraction in GDP."
He added: "The cumulative effects of declared and undeclared sanctions has also been to narrow the policy space for the country and authorities have had to realign policies, such as fiscal and monetary interventions to unlock more self-reliant instruments, as part of the turnaround programme . . .
"Under conditions of a tight external sector position, aggravated by lack of international balance of payment support, the applicability of orthodox or free market-based policy interventions becomes very limited."
He said some sections of the media have been used as a "penal tool" to portray Zimbabwe as a war zone and not surprisingly international tourist arrivals in the country declined over the past six years.
Dr Gono concluded his statement saying: "Whatever message the sanctions were meant to convey has been conveyed all these years and there are more serious issues for the world to deal with than continue to inflict pain and suffering on the Zimbabwean population."
The politicians have spoken, the Government has spoken, the ordinary people of Zimbabwe have spoken and now the monetary authorities have added their voice on the negative impact of the declared and undeclared sanctions —— who else should speak so that Britain, the US and the EU will listen? Zimbabweans have had enough!
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