US congress’ influence on Zim economic revival

The budget process has come and gone, yet there is nothing concrete contained in the statement to suggest an economic turnaround is around the corner. Sifting through the budget document, one gets an impression that government, the finance minister to be precise, is trying to railroad reforms that the previous government found unpalatable.

The budget statement contains phrases like respect of the rule of law, property rights, freedom of association etc. Times have really moved, one can be forgiven for thinking that this budget statement borrowed a few lines from an opposition or civil society position paper. 

Previously, government never gave weight to these issues yet in this budget, they appear to be central to Finance Minister Mthuli Ncube’s strategy of rescuing the economy. 

Incidentally, the same points have been the longstanding demands of the European Union, the United States and their allies. Zimbabwe must be seen to be conforming to these if it is to be welcomed back into the international fold. The United States has gone as far as to promulgate a sanctions law, ZIDERA, which calls on the government to implement a series of reforms, before it can get access to funding from financial institutions that it controls or influences.

It is this law that stands out as one obstacle that minister Ncube is attempting to deal with through his statements on the reforms, which are also comprehensively outlined in the budget statement. Sadly for Ncube, it is not going to be local Zimbabweans who will certify if the prescribed reforms have achieved the intended objectives, a group of American lawmakers will have the final say.

The US congress which shares foreign policy control with the White House, will be the final and the crucial arbiter of Zimbabwe’s progress with respect to the prescribed reforms.

Perhaps that is why Professor Ncube completely ignored the currency reforms issue when he presented his budget, maybe he understood that anything else he does now will only work temporarily. In fact, the success of everything from TSP to the so-called Vision 2030, will depend in part on how quickly Ncube eases US government concerns.

If Americans are satisfied (and thats a big IF), that would be the green-light most would-be investors and financiers will need to start engaging Zimbabwe productively.

Until now, the threat posed by the Office of Foreign Assets Control (OFAC) has meant that not even Zimbabwe’s so-called friends are willing to commit anything tangible. There is no financial bailout coming because the process of lending money to Zimbabwe would entail using the financial system that is essentially controlled by the US government. The only way to circumvent this threat would be to use another currency but this has hardly worked.

 The US treasury department, under which OFAC falls, is known to punish financial institutions and businesses including non-US institutions for violating its financial restrictions policies. For example, South Africa’s MTN was hit with a heavy penalty for violating US sanctions against Iran a few years ago. The renewed sanctions against Iran mean MTN faces another threat of OFAC penalties if it tries to repatriate dividends from its operations in that country.

Such is the overreach of OFAC which gives the US government unmatched hegemonic power. In fact, when Commerzbank of Germany decided to stop clearing Zimbabwe transactions, it was understood that this was motivated by the threat of OFAC sanctions. 

Similarly when Barclays Bank of United Kingdom decided to separate Zimbabwe operations from the rest of its portfolio, this was also seen in the context of US sanctions. When international companies are forced to choose doing business with Zimbabwe and carry a sanctions risk or to completely pullout, many will choose the latter.

Professor Ncube seems to recognize this hence his repeated emphasis on reforms that might potentially create better prospects for the economy. He is not overly worried about how ordinary Zimbabweans are reacting to his budget or events thereafter, he believes that if the country successfully reforms, money will flow, he will get the bailout he wants.

However, the only problem with US sanctions law is that such laws are notoriously difficult to repeal. Cuban sanctions have remained in place for more than 50 years even as officials in the US agree that they no longer serve the initial purpose. The divisive nature of American politics means getting a consensus for the repeal of laws will prove difficult. Former US President Barack Obama attempted to remove sanctions but this was rebuffed by congress.

Nelson Mandela was on terrorist watch-list until 2008 when the US congress finally acted to have the name removed. This was some 14 years after the end of Apartheid and 9 years after he left the South Africa presidency. This is problem that comes with being sanctioned by the US in the first place, getting off the sanctions list is very difficult. 

Zimbabwe could well undertake all the reforms needed to pass the US congress test, but deep divisions between American politicians who are far removed from the realities on ground, might result in an outcome which does not serve the interests of Zimbabwe.

In the next few years, Professor Ncube and the rest of Zimbabwe will learn if the US congress is going to act differently this time, provided of course reforms are carried out. As finance minister Ncube has said, these reforms are necessary for Zimbabweans themselves without having to wait for outsiders to point this out. In that context, minister Ncube might have to tamper his optimism that once his prescribed reforms are complete, manna will fall from heaven.