US economic embargo weighing on local banks

Zimbabwe says the economic embargo imposed on the country at the turn of the millennium, has incapacitated the domestic financial system as only six out of 27 Zimbabwean banks are able to transact internationally.

The United States imposed sanctions against Zimbabwe in 2001 via the Zimbabwe Democracy and Economic Recovery Act (ZDERA) while the European Union followed suit in 2002.

This came amid allegations of violation of property and human rights after the country’s contested land reform programme, which was executed since 2000.

The restrictive measures continue to weigh on the country’s financial system and economy.

The principal director in the Ministry of Foreign Affairs and International Trade, Dr Charles Chishiri, told delegates during the SADC Anti-Sanctions Solidarity Summit in Mutoko this week that local banks had lost nearly all correspondent banking relationships after most international banks severed ties with Zimbabwe.

The Sadc anti-sanctions commemorations are held on October 25 every year to show support by regional countries for the negative impact the economic embargo has had on Zimbabwe’s economy and its people since being imposed at the turn of the millennium, following the country’s land reform programme.

Chishiri said beyond crippling the country’s international banking relationships, the sanctions had wiped an estimated US$20 billion off the country’s gross domestic product over 23 years due to their impact on trade, investment and tourism inflows.

He said the sanctions had resulted in the suspension of balance of payment support, and ineligibility to any form of financial support by institutions such as the International Monetary Fund and the World Bank.

“ZDERA expressly directs any US representative at any such financial institution to oppose or vote against any request by Zimbabwe for such access or any form of debt relief, restructuring etcetera,” he said.

He said only “6 out of 27 commercial banks are able to transact internationally” after “international banks severed all correspondent banking relationships”.

Correspondent banking is an arrangement whereby one bank (correspondent) holds deposits owned by other banks (respondents) and provides those banks with payment and other services. Correspondent banking networks are critical for firms and households that conduct business or send payments internationally.

Cross-border payments are vital for economic development in a globalised economy. The bulk of payments flows through correspondent banks that operate a vast network of bank relationships. These critical linkages facilitate the cross-border payments that underpin global trade, finance and remittances.

Globally, the number of correspondent banks fell by 20 percent between 2011 and 2018, even as the value of payments increased.

“The cumulative effect of 23 years of sanctions has been immense, impacting very negatively on all sectors of the Zimbabwean economy, and its people as a whole and severely undermining progress towards attainment of UN Sustainable Development Goals,” he said.

The measures, Chishiri said, also provided for the seizure and interception of all mineral revenue, sanctioning of key infrastructural and agricultural financing institutions as well as suspension of direct bilateral development co-operation.

In 2017, the US Office of Foreign Assets Control (OFAC) imposed a US$385 million fine on CBZ, Zimbabwe’s largest banking group, which was lifted in 2020, but after crippling the bank’s operations for more than two years.

OFAC is the US Department of Treasury responsible for administering and enforcing economic and trade sanctions based on the US’ foreign policy and national security goals.

Chishiri also said Zimbabweans based outside the country could also not use formal channels to send money back home due to the impact of sanctions while the embargo caused high premiums for commercial loans and related facilities.

But Bankers Association of Zimbabwe president Lawrence Nyazema, confining the challenge of loss of correspondent banking services to 16 commercial banks, said most had ways to go around the hurdle posed by sanctions by using third parties, noting however that this was a longer and more expensive alternative.

“Most of the 16 banks have ways of doing international transactions, indirectly, by having a correspondent in the State. If I am not mistaken, there is one or two banks that have a direct relationship with a bank in New York,” Nyazema said.

The rest of the banks, such as CBZ, which uses a South African bank, go indirectly.

“The impact of that is obviously that it slows down the movement of money going through a third party, ideally, we would all want to go to New York straight.

“It makes it expensive; it takes more time. So the ideal situation is we want to go directly, but we are generally managing but it could be better,” Nyazema said.

-ebusinessweekly