Sanctions on SOEs, a crippling blow to economy.

Sanctions on SOEs, a crippling blow to economy.

 

Nevanji Munyaradzi Chiondegwa

 

 

Talking about Chemplex, SinoZim, Zimphos, GD Haulgae, Willowvale Mazda Motor Industries, Sable Chemicals, Allied Timbers, Zimbabwe Fertilizer Company, Deven Engineering, Surface Wilmar, and many other companies sounds like a roll of honour right?

 

 

Alas, the above list is not a roll of honour but just some of the companies that fall under the State Owned Enterprises hit by the expanded USA sanctions under ZIDERA, OFAC and AGOA. They fall under Industrial Development Corporation of Zimbabwe which has footprints in agriculture, manufacturing, construction, packaging, insurance, transport, food processing, mining and many other value chains. One does not need to be a genius to understand how the sanctioning of these entities impacted the country’s GDP.

 

 

A State Owned Enterprise (SOE) is a legal persona body formed by the government so that it can take part in activities of a commercial nature, while serving the people. Essentially, SOEs are created to undertake commercial activities on behalf of the government.

 

 

The State owned enterprises traditionally contribute significantly to SADC economies including that of Zimbabwe. At the peak of the Zimbabwean economy, state owned enterprises contributed close to 40 percent of the Zimbabwean economy, while at present they still contribute up to 14 percent of Zimbabwe’s GDP, making these entities a key part of the economy.

 

 

The United States of America sanctioned 10 such SOEs in Zimbabwe thus crippling the wider economic value chain. The prevailing sanctions on Zimbabwe, including the unlawful restrictions on multilateral financing and business dealings with US companies, have negatively impacted on the strategic economic sectors of Zimbabwe and thus presents barriers to innovation, investment and growth.

 

 

Sanctions on these entities directly impact on employment and income generation opportunities, and thus the livelihoods of the ordinary Zimbabweans. The imposition of sanctions therefore, have had significant spill over effects on a number of sectors that have had serious ramifications on growth and development, and therefore on the livelihoods and social well-being of ordinary Zimbabwean citizens as follows:

 

 

Since 2001, International Financing Institutions (IFIs) such as the World Bank, International Monetary Fund and the African Development Bank are barred from extending financial support to Zimbabwe and have instituted a number of suspensions on balance of payments and technical assistance support, including declaring Zimbabwe as ineligible to access fund resources.

 

 

Despite the accumulation of arrears on the part of Zimbabwe, the IFIs have deliberately avoided to enrol Zimbabwe on special recovery programmes (like other countries in similar circumstances). The suspension of multilateral financing support is more linked to sanctions than failure by Zimbabwe to honour loan servicing obligations.

 

 

Beyond multilateral financing, the sanctions over the years have extended to the strategic economic sectors of Zimbabwe, as follows:

 

 

Agriculture Sector:

 

The Agricultural Bank of Zimbabwe, an entity entrusted with providing financing for smallholder farmers was put under sanctions until February 2016. This development, coupled with the lack of external financing support, and the lack of foreign direct investment have negatively impacted on expansion programmes and investment in agriculture, hence the deterioration in production capacity.

 

 

Industry and Manufacturing Sector:

 

The cancellation of business ties with US-based and US linked firms and companies negatively impacted Industry and Manufacturing Sector, as the sourcing of industrial technologies and raw material supplies was disrupted, including loss of supply and market contracts in the international markets. These developments have also affected, and continue to affect the performance of the extractive sectors (agriculture and mining) and the competitiveness of the industry sector.

 

 

Infrastructure investments

 

Sanctions on the Infrastructure Bank of Zimbabwe, an entity mandated to provide long and medium-term funding for key infrastructure projects in the transportation, housing, energy, ICT, and water and sanitation sectors, has resulted in the loss of credit lines worth $100 million and equity partnerships. This has affected targeted infrastructure investments in the related sectors, especially capital intensive ones

 

 

Aviation industry and the tourism sector

 

As a result of sanctions, most European Airlines have left the Zimbabwean aviation industry since 2003, affecting not only the aviation industry, but also the tourism sector. The tourism sector is further constrained by the stringent Visa requirements for Zimbabwean nationals, bad publicity and negative travel advices given to tourists as part of the calculated sanctions against Zimbabwe.

 

 

Barriers to innovation, growth, profitability and investment.

 

It is evident that the strategic sectors of the Zimbabwean economy are constrained by the imposition of the sanctions (targeted or not targeted) as they are a barrier to innovation, growth, profitability and investment. Sustained sanctions will imply continued lack of access to multilateral financing and therefore no prospects for economic resuscitation.

 

 

Instead the economy will continue to grapple with public debt, inflation, unemployment, low FDI stock and limited supply of goods and services, with negative and devastating impacts on the lives of ordinary Zimbabweans.

 

 

As such it is folly for anyone to believe that there are no sanctions on the country as the above mentioned restrictions affect the daily lives of ordinary citizens.