Impact of sanctions on Zim, region

1.1  Zimbabwe’s Land Reform Programme of 2000 led the United States of America (USA) to impose illegal and unjustified sanctions under the so-called Zimbabwe Democracy and Economic Recovery Act (ZIDERA) of 2001. Supplementing the US’ legislative sanctions of ZIDERA are Executive Sanctions (Executive Order 13288) of March 2003 renewable on a yearly basis. The European Union (EU) also introduced its own sanctions in February, 2002.

1.2 While the EU lifted much of its sanctions in 2014, political sanctions against the former First Family, Senior Government officials, the country’s Service Chiefs and Zimbabwe Defence Industries are still in place. The sanctions also include travel bans and asset freeze for Zimbabwean officials and companies. The EU insists that it will maintain the sanctions under constant review in light of political and security developments in Zimbabwe.

1.3 Far from the claim that sanctions are ring-fenced and targeted on a few individuals, the reality on the ground is that the tight grip of the declared and undeclared sanctions is being felt throughout the whole economy.

1.4 These punitive measures have effectively hampered the Government’s efforts to implement its development agenda.


2.1 The sanctions generally have resulted in devastating effects on the whole economy of Zimbabwe.

Access to credit lines / Decline in BoP Support

2.2 Zimbabwe’s Balance of Payments (BoP) position has deteriorated significantly since the introduction of sanctions.

2.3 Zimbabwe’s access to international credit markets was blocked after the enactment of ZIDERA. The country has been forced to virtually operate on hand to mouth, and there has been a significant build-up of external debt arrears. This unfavourable development has worsened the country’s creditworthiness as the country’s international financial risk profile escalated.

2.4 This subsequently led to the drying up of traditional sources of external finance from the International Financial Institutions (IFIs), with the country receiving no support from the African Development Bank since 1998, the International Monetary Fund (IMF) since 1999 and the World Bank since 2001. In essence, the IFIs stopped their support to Zimbabwe by instituting a number of suspensions on Balance of Payments support, technical assistance, voting and related rights by the IMF, and declaration of illegibility to access fund resources.

Arrears Triggered Penalties

2.5 Due to Zimbabwe’s failure to honour its financial obligations to the IMF and World Bank since 1999, the Bretton Woods institutions suspended Balance of Payments support and technical assistance. Consequently, the country’s external payment arrears continually increased from US$109 million in 1999 to US$5,4 billion in 2017. The arrears have been rising, now at more than 70 percent of total public and publicly guaranteed external debt.

2.6 Regrettably, the lending programme from the World Bank is inactive due to accumulated arrears and sanctions. With effect from October 2000, the World Bank placed all its International Bank of Reconstruction and Development loans and International Development Association credits to, or guaranteed by, Zimbabwe in non-accrual status, resulting in the country being unable to access any loan.

2.7 The combined effect of the arrears situation and sanctions has resulted in Zimbabwean companies finding it extremely difficult to access offshore lending, thus, crippling their operations. Pre-sanctions era, loan inflows to Zimbabwean companies increased from US$134 million in 1980 to US$480 million in the 1990s but fell significantly to an average of US$80 million between 2000 and 2008. Currently, where the private sector manages to secure offshore financing it is usually at punitive and exorbitant interest rates.

2.8 Moreover, Zimbabwean importers are asked to pay cash upfront resulting in a significant squeeze on private sector cash flows. This has led to bigger challenges, including under capacity utilisation of Zimbabwean companies. Due to declining external budgetary support, Zimbabwe’s budget deficit has largely been financed from domestic borrowing which has triggered high inflation.

Sustained Decline in Long-Term Capital

2.9 The sustained decline in 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. This resulted in the country suffering from de-industrialisation and, subsequently, stagnation effects.

2.10  Consequently, there has been large-scale emigration, especially of skilled labour. Two to four million Zimbabweans are estimated to have emigrated to mainly South Africa, the UK, Botswana, the USA, Canada, Australia and New Zealand. This has further strained the human resource capacity to hasten the pace of economic turnaround and development through brain drain.

Impact on the Financial Sector

2.11 Due to the absence of Balance of Payments support, Zimbabwe’s Balance of Payments position has been deteriorating significantly since the imposition of sanctions. The sanctions have branded Zimbabwe and its entire financial linkages with the rest of the world as high risk, thereby making the country a compelling target for de-risking interventions by lending correspondent banks in the USA and Europe. In 2016 alone, 19 de-risking cases were recorded in 10 of the local banks.

2.12 In the same year, the US’ Treasury Office of Foreign Assets Control (OFAC) fined a Zimbabwean commercial bank US$2,48 million to resolve potential civil liability for 159 alleged violations of the sanctions regulations for transactions that took place between July 2008 and September 2013.

2.13 In 2017, another commercial bank was slapped with a staggering US$3,8 billion fine by OFAC for facilitating transactions on behalf of a bank which was then specified institution under ZIDERA. The penalty was only reduced to US$385 million after mitigation and negotiations.

2.14 Another bank had funds in all foreign bank accounts and in transit from or to clients frozen, while all contracts and business relationships with US citizens and corporates were abrogated.



Its US$ 5,8 million was blocked, contracts for various provisions terminated, licensing for core banking systems proscribed, support agreements discontinued and correspondent banking relationships terminated. Hence, the bank could not receive or send money outside the country while credit lines immediately dried up. Dealings with credit card issuers such as VISA and Master card were prohibited. The Group was immediately considered as risky and its going concern status became questionable.

2.15 Furthermore one agricultural bank, a leading provider of financial services for agriculture development in the country, and another infrastructural development bank were placed under sanctions. In 2016, the then CEO of the agricultural bank said the reputational damage caused by sanctions meant that the bank struggled to find an equity partner and had lost a USD98 million line of credit. Since being placed on sanctions, the bank could not open new correspondent relationships as many international banks could not risk being fined by the US.

2.16 In addition, the Small and Medium Enterprises Development Corporation had its USD 3 million blocked by OFAC.

2.17 Today, Zimbabwean Banks and money transfer agencies are facing problems in meeting their customers’ obligations owing to the termination of correspondent bank arrangements between local banks and international financial institutions.

Impact on International Financial Transactions

2.18 Zimbabwean companies and individuals have found it extremely difficult to effect payments through the international payment platforms as these transactions are intercepted and blocked in the hostile countries especially the US.

2.19 A state-owned company lost over US$20 million to the OFAC, while its the fertilizer subsidiary company still has its US$5 million frozen to date. A total of USD2 million belonging to another chemicals company was also intercepted.

2.20 Another state-owned company responsible for marketing the country’s minerals lost over US$30 million in revenue to OFAC. A private company lost US$2 million it had secured from the PTA Bank to recapitalise and the firm is currently struggling to produce some of its basic household products.

Impact on Diaspora Remittances

2.21 The Diaspora community was also not spared and this had adverse effects on diaspora remittances into the country. Some money transfer companies cannot transact with some Zimbabwean financial entities through money transfers. Funds are intercepted and money transfer companies become victims of long tedious investigations on specific transactions emanating from individuals in the diaspora.

2.22 The sanctions regime reduces access to both consumptive and productive remittances from the Zimbabwean Diaspora communities. This impacts negatively on the Zimbabwean financial outlook because the sanctions obstruct capital and financial flows. Resultantly, this counters the efforts by Government to harness Diaspora participations and contributions into the country’s national development agenda.

Impact on Investment and Growth

2.23 Foreign Direct Investment (FDI) stimulates economic growth and employment creation in any economy. FDI also positively impacts on the country’s balance of payment position. The negative perception that has come with sanctions has negatively impacted on FDI inflows as investors tend to shy away from economies that are perceived as risky.

2.24 Foreign direct inflows increased significantly from an average of US$8 million per year in the 1980s to an average of US$95 million in the 1990s, but declined to about US$20 million per year after 2000.

Impact on the Agriculture sector

2.25 Agriculture was the backbone of Zimbabwe’s economy; providing employment and income to over 60 percent of the population, supplying 60 percent of raw materials required by the manufacturing sector and contributing 40 percent of the total export earnings.

2.26 However, several key institutions with direct influence to the agricultural sector were placed under sanctions, while other financial services providers were slapped with huge fines.

2.27 The unilateral sanctions brought a myriad of challenges to the agriculture sector. Specifically, they have made it extremely difficult to access agriculture lines of credit and attract investment.

This resulted in lack of development, rehabilitation, modernisation and deterioration of production and marketing infrastructure, ultimately reducing productivity and access to markets.

The sanctions affected the livelihood of households owing to lower agricultural yields and this derailed Zimbabwe’s quest to attain the United Nations Sustainable Development Goals (SDGs) against poverty and hunger.

In essence, these unjustified and illegal sanctions have violated basic human rights by directly perpetuating hunger and poverty in Zimbabwe and working against the SDGs.

2.28 The number of functional tractors declined from 14,000 before sanctions to 6,000 against a national requirement of 40,000 units. The combined capacity declined from 300 units to 130 functional units against a national requirement of 400 units. There is a shortage of cold storage infrastructure around the country. The state of the art packing houses, which are required to facilitate exports to European markets are also limited.

2.29 Functional irrigation schemes also declined from 275,000 hectares to less than 206,000 hectares due to lack of repair and maintenance, rehabilitation and modernisation.

Zimbabwe has potential to irrigate up to two million hectares. However, the lack of FDI has made Zimbabwe unable to develop this irrigation potential utilising existing water bodies, underground water and trans-boundary water bodies such as Zambezi River and Limpopo River which can make a significant contribution to food security and agricultural growth in the country, especially in drought periods. The available 1,000 small, medium and large water bodies remain under-utilised, mainly due to lack of investment and foreign direct investment in irrigation development, rehabilitation and modernisation.

2.30 Zimbabwe used to have a well-developed input support, manufacturing and processing industries. However, the lack of investment and lines of credit made it difficult for these industries to retool and invest in better plant and machinery. Plants to produce agricultural inputs such as fertiliser and seed are operating below capacity due to dilapidation and lack of repair and maintenance. This has resulted in high cost of inputs leading Zimbabwe to be uncompetitive on the regional and international market.

2.31 With limited capacity for irrigation and investment in climate smart agriculture, Zimbabwe remains vulnerable to climate change. The country has not been able to develop its Early Warning system, resulting in the country failing to predict disasters and risks such as Cyclone IDAI which hit hard the eastern part of the country.

2.32 An Agricultural Bank was under sanctions up to February 2016 and could not finance the agriculture sector properly due to lack of lines of credit. The bank ended up getting higher interest rates of about 15 percent instead of the usual four (4) percent from off shore banks because it was considered high risk to deal with. Furthermore, the bank could not partner with international organisations and donors, and ended up losing a number of customers and opportunities from the outside world.

2.33 The market access for horticulture, sugar, beef and cotton, among other crops was negatively affected. Horticulture was the fastest growing sector and generated significant amounts of foreign exchange, and at one point becoming the second largest foreign exchange earner after tobacco. The horticulture export industry grew from US$32 million in 1990/91 to a value of about US$143 million in the 1998/99 season.

2.34 However, due to sanctions the country lost most of its niche and lucrative markets for horticulture products. Previously, farmers used to export horticulture produce to the Netherlands and the UK. However, these markets were closed due to sanctions, resulting in a significant decline in the horticulture industry. By 2005, horticulture exports had gone down to about US$72 million, with the value further tumbling to US$40 million by 2009. The horticultural industry’s contribution to the Gross Domestic Product (GDP) fell from about 4.5 percent before sanctions to the current 0.8 percent.

2.35 Under the Convention on Beef and Veal Protocol, Zimbabwe had a preferential tariff quota which allowed it to export 9,100 metric tonnes of beef into the EU annually. Under the Sugar Protocol, Zimbabwe’s preferential tariff quota stood at 30,225 metric tonnes annually. It could increase its sugar quota by a further 25,000 metric tonnes under the variable Special Preference. All the quotas were lost due to sanctions imposed on Zimbabwe.

2.36 The short supply of vaccines and other drugs indicate how sanctions affected animal health in Zimbabwe. This resulted in failure by the relevant department to control diseases like foot and mouth and this in turn affects the country’s beef export. Given that 70 percent of funding for animal health programmes were through collaborative work, the withdrawal of funds hard hit the sector. Since 2001, there has been huge shortages in vaccines, dipping chemicals and antibiotics, unlike from 1980 to 1990 where there were no recorded shortages.

2.37 The cotton industry is failing to access the EU markets directly, but only through middlemen, resulting in the loss of between 5 to 10 percent of the value of produce. The cotton industry is failing to pay for inputs, spare parts and machinery to companies outside the country. Payments are blocked, foreign companies demand first class bank guarantors and funds take long to process.

2.38 Due to sanctions a number of agricultural programmes and projects were terminated. The Danish International Development Agency’s (DANIDA) support to Zimbabwe’s agriculture sector in 1998 was about USD15.4 million. The International Fund for Agricultural Development (IFAD) was supporting five projects in Zimbabwe to the tune of US$215,700; namely the National Agricultural Extension and Research Project (US$39.4 million), Agricultural Credit and Export Promotion Project (US$116.9 million), Small Dry Areas Resource Management Project (US$19.8 million), South Eastern Dry Areas Project (US$20.3 million) and the Smallholder Irrigation Support Programme (US$19.3 million). All these projects were stopped after the imposition of sanctions.

2.39 As aptly put by the United Nations Food and Agriculture Organisation, “sustainable development goals offer a vision of a fair more prosperous, peaceful and sustainable world in which no one is left behind”. Regrettably, the unjustified and illegal sanctions imposed on Zimbabwe by the US and its allies run counter to this noble vision, impacting negatively on the country’s agriculture sector.

Impact on Industry/Manufacturing sector

2.40 The sector has been heavily affected by sanctions through its effects of high cost of borrowing, tight liquidity conditions, outdated technology, continued use of antiquated plant and machinery, declining agriculture output, low aggregate demand and power outages. The sanctions affected the manufacturing sector through lack of long term financing which precluded the sector from accessing the much-needed capital injections for retooling. This eroded the viability and competitiveness of the sector.

2.41 The unfavourable development was exacerbated by combined effects of poor export performance, high import demand, and reduced capital inflows, on the back of adverse publicity. The withdrawal of the multilateral financial institutions from providing balance of payment support to Zimbabwe had a ripple effect as some other bilateral creditors and donors also followed suit by either scaling down or suspending disbursements on existing loans.

2.42 Industry’s capacity utilization fell from 76 percent in the 1980s to an all-time-low of 10 percent in 2008. The sector rebounded from 2009 to 2011 to about 60 percent before deteriorating again in 2015 with another rebound in 2016 to about 48 percent which was attributed to import restrictions under the Statutory Instrument 64 of 2016.

2.43 Due to sanctions, Zimbabwe lost some of its overseas international markets for its manufactured goods. This was due to cancellation of contracts to the EU and US markets. Manufacturing businesses were also affected through reduced exports, reduced markets and international credit lines.

Impact on the Mining sector

2.44               The mining sector was negatively affected by the sanctions resulting in:

  • Limited funding to recapitalize as most financiers stopped providing lines of credit to the industry;
  • Failure to receive proceeds from minerals sales especially those associated with the Minerals Marketing Corporation of Zimbabwe (MMCZ); and
  • Reduced ability to access new markets.

2.45 Of particular concern are the negative effects on the minerals marketing and the diamond companies.

2.46 Two minerals marketing companies were designated by the US and the EU as some entities against which sanctions were imposed in 2008 and 2012 respectively, with the American and EU citizens and entities, and other entities outside these two jurisdictions prohibited from doing business with or providing financial and technical assistance to these organisations. Assets belonging to these marketing companies within the USA and the EU were immediately frozen and could not be withdrawn or liquidated. In essence, the marketing companies could not deal with US and EU persons and entities because anyone who violated these measures was liable for prosecution. Potential buyers of Zimbabwean minerals risked losing the minerals or proceeds thereof.

2.47 After selling the minerals on behalf of producers, marketing companies are supposed to receive all monies for sales outside the country. However due to sanctions, the two companies were incapacitated to carry out this mandate and this affected the Corporation’s receipts of funds.

2.48 On its part, one of the marketing companies has failed to implement its turnaround strategy due to the failure to attract investors, high cost of capital and/or inability to recapitalize, inaccessible lines of credit, and inability to trade in any USD denominated currency.

2.49 From a marketing perspective the sanctions have led to:

  • Reduced ability to access new markets and market share as it eliminated the US and the EU as its markets;
  • Reduced negotiation clout, competitiveness and choice as it could not access essential services like banking, logistics, and marketing journals from the USA and the EU;
  • Loss of customers/clients as major corporations were unwilling to deal with the minerals marketing companies;
  • Compromised monitoring role as the corporation is no longer involved in logistics and movement of products to the market; and
  • Forced to sell on an ex-works basis instead of free-on-board or delivered basis, thus significantly reducing potential revenue to the government.

2.50  From a financial perspective, the sanctions have affected all the foreign currency transactions with the companies unable to directly transact in foreign currency. To date, a total of USD1.2 million in producer funds and government royalties have been blocked by the US government. Producers are now receiving their funds directly from customers outside Zimbabwe creating a problem for the government as some producers tend to evade paying taxes and royalties. It is never guaranteed that Zimbabwe will recover its blocked funds.

2.51 Concerning the diamond companies, the sanctions made it difficult for them to effectively market and trade their diamonds at competitive prices, forcing them to sell the precious mineral at discounted prices of more than 25 percent below the normal prices. The companies traded their diamonds through unconventional means because major international banks, insurance companies and couriers did not want to be associated with diamonds from Chiadzwa. Furthermore, some global diamond players could not trade and deal directly with Chidzwa diamond companies under their normal banners/names for fear of retribution. They had to find other entities to trade with, a process that had serious business and cost implications…



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