eBusiness Weekly
Note from ZNCC
The recent (March 4, 2024) Executive Order (E.O.) by the President of the United States of America (US) Joe Biden terminating the National Emergency concerning the situation in Zimbabwe marks a significant shift in US policy towards the Southern African nation.
The move, which revokes previous E.O.s dating back to 2003, including sanctions on certain individuals and entities, opens up new possibilities for Zimbabwean businesses, investment, trade and international relations.
However, it also raises important questions about the future direction of Zimbabwean-US relations and the potential for Zimbabwe to emerge as a growth hub for Southern Africa.
In March 2022, the US Embassy in Zimbabwe released an Integrated Country Strategy (ICS) which spelled out four mission goals that envisioned a Zimbabwe with:
An improved, accountable, and democratic governance that serves an engaged citizenry and respects fundamental human rights;
A market-oriented economy that provides an opportunity for all Zimbabweans to prosper;
Citizens living longer, more productive and healthier; and
A greater responsibility as a member of the global community and standing as a reliable partner for addressing bilateral, regional and global challenges.
The US Integrated Country Strategy (ICS) for Zimbabwe highlights Zimbabwe’s strategic importance as a potential growth hub for Southern Africa.
This vision, however, is at odds with the country’s current economic and political realities, as Zimbabwe ranks near the bottom of the DHL Global Connectedness Index and is plagued by issues such as corruption and alleged human rights abuses according to the West.
The economic realities that Zimbabwe faces include macroeconomic stability, alleged lack of the rule of law, high levels of corruption, unsustainable debt levels and sub-par service delivery.
Addressing these challenges will foster an enabling environment for the private sector to flourish and accelerate the country’s strides towards attaining an upper-middle-income society.
The ICS attributes the prevalence of these challenges in the Zimbabwean economy as being man-made due to poor governance, corruption and major gaps in the rule of law.
For Zimbabwean businesses, the lifting of sanctions could mean increased access to international markets and financial services.
It could also signal a renewed interest from foreign investors looking to capitalise on the potential opportunities in Zimbabwe’s economy.
A question that is possibly on every economic agent’s mind is whether the restrictions were lifted enough to warrant unfettered access to international finance by the Zimbabwe business community, that is, making it easy for local companies to borrow from offshore capital markets in the European Union (EU) or the US Well, the ability to borrow from offshore capital markets depends on a varied number of risk factors that include perception risk, credit rating, and exchange risk.
Economic sanctions have a significant impact on perception risk and when supplemented with political instability (an unstable government and inconsistent policies) erodes the investor and creditor’s confidence.
Since restoring creditor and investor confidence would require time, access to offshore financial markets will remain under the purview of a few in the short to medium term.
However, the impact of the Executive Order on the ground is yet to be seen as the changes will begin to manifest in the medium-to long-term, and much will depend on how quickly and effectively the Zimbabwean Government can capitalise on this new opportunity.
The Zimbabwe Democracy and Economic Recovery Act (ZDERA) is still in force as this requires a US Congress resolution to remove the sanctions.
Under the Office of Foreign Assets Control (OFAC), Zimbabwean private sector companies were finding it difficult to perform transboundary transactions since funds were at risk of being intercepted.
Access to international financial services platforms such as PayPal and emerging technologies was also restricted as some local businesses had to resort to using South African addresses and bank accounts to access such services.
Thus, this move by the President of the US represents good news for the Zimbabwean business community going forward.
The Government of Zimbabwe’s chances of accessing finance from International Financial Institutions (IFIs) such as the World Bank and the International Monetary Fund (IMF) is still restricted given that the country still owes these institutions and is considered to be in debt distress.
The Total Public and Publicly Guaranteed Debt is 100 percent of GDP and this is way above the 70 percent threshold as prescribed by the Public Debt Management Act.
In terms of trade, the relaxation of the US stance on Zimbabwe could lead to a normalisation of trade relations between the two countries, particularly in sectors such as agriculture, mining, and tourism.
However, Chinese investors have been prominent in Zimbabwe’s trade and investment landscape, benefiting from the country’s Look East Policy following the enactment of the ZDERA in 2001.
From an international relations perspective, it is unlikely that the recent Executive Order will result in an immediate improvement in Zimbabwe’s global standing, as key figures like President Emerson Mnangagwa and Vice President Dr Constantino Chiwenga remain under targeted sanctions through the Magnitsky Act.
Nevertheless, the lifting of critical sanctions and the willingness to re-engage with the Zimbabwean Government signal US support for Zimbabwe’s efforts to improve governance and human rights.
The future of Zimbabwean-US relations holds promise, but it will require sustained efforts from both sides to address underlying challenges and realise the vision of Zimbabwe as a growth hub for Southern Africa.
Following the 2023 ZNCC Annual Congress resolutions, the delegates resolved that the National Executive Committee (NEC) members and the entire business community be actively engaged in the call for the removal of sanctions.
Accordingly, the chamber sees the recent Executive Order as a step in the right direction and is hopeful that the relations between the US and Zimbabwe will improve going forward.
This article was prepared by the Zimbabwe National Chamber of Commerce for Business Weekly
