Laying bare the effects of sanctions on businesses, individuals
Nevanji Munyaradzi Chiondegwa
The one thing that the West or rather those that imposed sanctions on Zimbabwe have successfully done is to make everyone think they are targeted on the political elite and have no real effect on private enterprise and individuals.
So successful have they been that despite evidence to the contrary, we have many of our people who still think it is not true that the country is under sanctions or embargo and it affects everyone and hampers economic development and growth.
Some foolishly think it is about human rights and that they are meant to make the opposition win elections and shows American support for it.
They may not be wrong in the intended effect, (remove ZANU PF from power) but they are certainly off on the human rights issue, Americans do not care a single fig about human rights.
In 2014, Techpreneur Takunda Chingonzo made an appeal to the then US President Barack Obama in a face to face interview.
Chingonzo said, “In our work we got to a point where we needed to import a bit of technology from the United States. And so we were engaging in conversation with these US based businesses, and the response we got time and time again was that unfortunately we cannot do business with you because you are from Zimbabwe. I was shocked. This doesn’t make sense,” he said.
To the untutored, this must have been the wake up call. It must have made them realise, ‘Oh, so sanctions affect individuals and private business and not just ZANU PF elites?’ But of course, many dismissed it all under a barrage of attacks on the young techpreneur.
Some even called him a CIO plant and of course a politically exposed person considering what he said had been the views of Harare Government on sanctions.
Sanctions affect a wide range of businesses. It costs more for Zimbabwean private businesses to raise capital offshore than it does for countries not under restrictions. To understand how this happens, one need to look at look at how sanctions affected banks such as ZB Financial Holdings and Agribank.
ZB Financial Holdings, in which the Government held 24 percent (NSSA being the biggest shareholder with 38 percent in 2018), was under sanctions until 2016 when it was good as collapsed.
While the bank was on the list, it could not access affordable lines of credit for its clients, most of whom are private enterprises.
With sanctions now off its back, then CEO Ron Mutangadayi said: “Having just come out of sanctions, we first had to get our correspondent accounts re-established. Now that our Euro, US and Rand accounts are operational we can now go out and court investors for new lines of credit we are speaking to regional investors at the moment for a US$20 million line of credit which we expect to conclude in the not too distant future.”
For handling ZB Bank transactions while it was under sanctions, CBZ incurred a US$385 million penalty from OFAC. The penalty was lifted in 2020.
(Government had to appoint Marc Holtzman as CBZ board chair, an American with three decades of political and public service in US for sanctions to be removed: see message below)
“As a result of the OFAC issues, CBZ has not had any correspondent relationships with any lenders in the western world,” Marc Holtzman, appointed Chair of the bank in 2019, said. “Management now will begin to re-engage with them.”
In April 2019, Standard Chartered Bank plc reported it was to pay US$18 million in fines to the US government for violating American sanctions on Zimbabwe by handling transactions for state-owned firms and sanctioned individuals.
Zimbabwe cut off from world banking system
All banks operate on the basis of relationships with other banks around the world. It is an arrangement called correspondent banking relationships (CBRs).
CBRs are important because they make it possible for a company in Zimbabwe, for instance, to pay for goods outside the country.
When a Zimbabwean customer uses their card to pay for a service, their local bank uses its relationship with a foreign bank to make the transaction go through. Without that relationship, companies cannot easily import goods, or even be paid for what they export.
According to RBZ data, Zimbabwe has lost at least 102 such relationships over the past decade. The loss of these CBRs is also one of the reasons why the cost of sending remittances is high, according to the IMF. The reason foreign banks cut off Zimbabwe is partly due to the fear of OFAC fines.
Because of the high-risk profile, Zimbabwean companies that borrow have to pay more for the loans they need to do business.
At the very least, it means that Zimbabweans have to pay more for goods and services. At most, high credit costs makes it harder for companies to remain in business, let alone expand.
Cut of credit lines
Agribank, the farmer lender, is also only now starting to secure foreign credit to fund agriculture. Agribank divisional director for strategy, marketing and business development Joseph Mverecha told New Ziana in 2017 that, now that they were off the sanctions list, “We are now able to deal directly with our clients and conducting transactions without going through third parties”. (Sanctions on Agribank were only removed when we signed a tractor deal with American John Deere, Agribank had to finance the loans for farmers to buy tractors on credit).
Strive Masiyiwa earlier in 2018 at a meeting of Afreximbank clients said, “When sanctions hit the country, every credit line disappeared. You could not talk to anyone, they were shutting down…For us as a business, there was one institution that remained and it was Afreximbank.” Masiyiwa later got loans from China to fund operations in Zimbabwe.
Until 2013, a Zimbabwea couldnot open a PayPal account from Zimbabwe. When trying to access the system, one got a message reading, “Error 3028: You have accessed your account from a sanctioned country”. While the PayPal barrier has been lowered, the user experience is still not full. Many other payment platforms and services are closed to Zimbabweans.
US companies are reluctant to deal with Zimbabweans, even those who are not connected to any of those on the sanctions list. Many Zimbabwean businesses often find themselves shut out from partnerships with American firms.
Energy entrepreneur Simba Mhuriro has reflected these frustrations on Twitter: “US firms generally stay clear of Zimbabwe, partly because of the fear of OFAC penalties. There are only 13 US companies in Zimbabwe and another 20 with “US affiliation”, according to data from US Embassy in 2018. This implies that investment from USA was cut.
There are other sanctions effects too, sometimes on ordinary people.
Zimbabweans often get passed over for opportunities simply because “your country does not qualify”.
This happened in 2017 to child rights campaigner Nyaradzayi Gumbonzvanda.
She was successfully nominated for a CNN Heroes Programme award for her work, but she was disqualified because Zimbabwe is listed among “voided countries” whose citizens don’t qualify for the CNN award.
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