News Analysis: American corporates beneficiaries of sanctions review

Tichaona Zindoga
Review & Mail Head of Content

On Friday, the United States relaxed sanctions on two Zimbabwean entities, the Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe, as it published a Federal Register scrapping stringent conditions to deal with the banks by American citizens.


Andrea Gacki Director, Office of Foreign Assets Control, which enforces sanctions said in announcement: “The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Zimbabwe Sanctions Regulations to remove a general license that authorizes all transactions involving Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe as a result of these entities being removed from OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).”


The move, which represents a rare diplomatic gain by Zimbabwe which has been under American and European sanctions since 2000, is more fundamentally likely to benefit big American companies interested in agriculture and infrastructural projects in the southern African country.


John Deere, a big American agriculture equipment manufacturer has entered into a game changing deal to supply Zimbabwe with implements valued at over US$50 million. The second batch of tractors arrived recently.

John Deere tractor

On the other hand, General Electric is involved in the building of a $4bn hydropower project between Zimbabwe and Zambia, partnering Power Construction Corp. of China.
According to Bloomberg, the 2,400-megawatt Batoka Gorge plant had been planned for years by the two southern African nations, both of which are struggling with electricity shortages after a drought curbed hydropower output and the awarding of GE and the Chinese counterpart took place last year.


Both agriculture and infrastructure development represent massive potential for investors in Zimbabwe, and in particular prospects to revive the ailing economy.


However, two decades of sanctions have denied any funding to the sectors which should have gone through the banks – part of a fairly comprehensive embargoes on the Zimbabwean economy which is controlled by the State and interests linked to the ruling Zanu-PF.


The US imposed sanctions from the early 2000s in response to what it called the deliberate breakdown of the rule of law and undermining of human rights and democracy.

What sanctions?
The debate on sanctions imposed on Zimbabwe is one of the most polarising discourses in Zimbabwe, in part due to the politicisation of the subject.


Not least, the imposition of the sanctions by the US and other Western countries took place within the context of pitched differences with Harare under former President Robert Mugabe.


According to the Department of Treasury, “The Zimbabwe Sanctions represent the implementation of multiple legal authorities.”


“Some of these authorities are in the form of executive orders issued by the President,” explains Treasury.


“Other authorities are public laws (statutes) passed by The Congress. These authorities are further codified by OFAC in its regulations which are published the Code of Federal Regulations (CFR).”

Conditions for removal
The measures can be reviewed in line with economic interests of the US business interests either on the part of individuals or the state.


Treasury advises that, “It may be in your and the U.S. government’s interest to authorize particular economic activity related to the Zimbabwe Sanctions.”


This review could be carried in terms of authorization from OFAC to engage in a transaction that otherwise would be prohibited.


Authorities say, “Certain activities related to the Zimbabwe Sanctions may be allowed if they are licensed by OFAC.”

There are other procedures done by Congress or the President that could lead to the removal of embargoes.


The latest removal signalled an end to measures that are part of a complex processes in the US involved in the crafting and enforcement of measures by authorities.

Department of Treasury gave a voluminous background of the latest removals.


It said, on July 29, 2004, OFAC issued the Zimbabwe Sanctions Regulations, 31 CFR part 541 (69 FR 45246, July 29, 2004) (the “Regulations”) as an interim final rule to implement Executive Order (E.O.) 13288 of March 6, 2003 (“Blocking Property of Persons Undermining Democratic Processes or Institutions in Zimbabwe”).

Subsequently, E.O. 13391 of November 22, 2005 (“Blocking Property of Additional Persons Undermining Democratic Processes or Institutions in Zimbabwe”) and E.O. 13469 of July 25, 2008 (“Blocking Property of Additional Persons Undermining Democratic Processes or Institutions in Zimbabwe”) were issued pursuant to the national emergency declared in E.O. 13288.


On July 25, 2008, OFAC designated the Agricultural Development Bank of Zimbabwe and the Infrastructure Development Bank of Zimbabwe pursuant to E.O. 13469.

At that time, OFAC determined that these entities contributed to the undermining of democratic processes and institutions in Zimbabwe by providing support for Robert Mugabe’s regime.


On April 24, 2013, OFAC issued Zimbabwe General License No. 1, authorizing all transactions involving the Agricultural Development Bank of Zimbabwe and the Infrastructure Development Bank of Zimbabwe, subject to certain limitations, and published this general license on its website (www.treasury.gov/ofac). On July 9, 2013, OFAC also published this general license in the Federal Register.


On July 10, 2014, OFAC amended the Regulations to adopt as a final rule the interim final rule originally issued on July 29, 2004, with changes to implement E.O.

13391 and E.O. 13469, and to incorporate Zimbabwe General License No. 1 into § 541.510 of the Regulations (79 FR 39312, July 10, 2014).
On February 3, 2016, OFAC removed the Agricultural Development Bank of Zimbabwe and the Infrastructure Development Bank of Zimbabwe from the SDN List.

This rule amends the Regulations to remove the general license that was located in § 541.510, as authorization is no longer required to engage in transactions with these entities.

Who remains?
The relaxing of sanctions regarding the two entities is just a slight change to a list of over 100 names of Zimbabwean individuals, companies, banks, farms, mines and other ventures that are blacklisted by Washington.


Top ranking officials of the ruling Zanu-PF, including some currently exiled, make the majority of individuals that are sanctioned.


Financial institutions such as ZB Bank, Interfin, Scotfin and Zimre Holdings remain on sanctions while Minerals Marketing Corporation of Zimbabwe, Ziscosteel are some parastatals sanctioned.


Security linked enterprises such as Zimbabwe Defence Industries and OSLEG are also embargoed while scores of farm businesses are blacklisted.

Reaction
There was massive sense of relief in Harare following the removal of the two institutions.


Finance Minister Mthuli Ncube on Thursday said, “the removal of any institution, especially a financial one, is very positive indeed.”
“This will help the bank access credit lines and remove any restrictions that pertain to Know-Your-Customer challenges, which is really what happens when a bank is in the spotlight,” he said.
“Now that they (sanctions) have been lifted, the banks will find it easier to do business going forward. So this is a very welcome development indeed.”

Relief…Mthuli Ncube on Twitter


He followed up with a Tweet Friday, underscoring benefits of removal of sanctions.
It was also a rare succour for the administration of Emmerson Mnangagwa, at a time when it was largely expected that the regime could be isolated further following condemnations of the country’s alleged human rights violations by Western countries including the US.


Zimbabwe’s reengagement with the West, anchored in part on “economic diplomacy” has been fantastically fruitless for a country that was expected to utilize the removal of Mugabe in 2017 to reset relations and chart a new trajectory.


Is this a sanctions removal blueprint?
In a way, the removal of sanctions with respect to the two banks represents a blueprint for the removal of sanctions.


Nations are driven by self-interest, in particular economic interests. This was the thinking of the Harare administration when it adopted “economic diplomacy” championed by Foreign Minister Sibusiso SB Moyo.

Mnangagwa adopted the slogan, “Zimbabwe is Open for Business” as a quick bait to the West after replacing Mugabe. He went further to dismantle nationalistic indigenisation laws that had demanded majority equity for blacks in enterprises in the country. Cheekily, Mnangagwa even once offered American President Donald J Trump to come and build a gopf course in Victoria Falls, Zimbabwe’s premier tourist resort.


A number of ease-of-doing-business measures have also been implemented while the country has welcomed marginal global ratings in the regard.


All these measures appear to have not been quite attractive, something that is partly due to an all round comprehensiveness in working on the image of the country which is fragile and often takes battering during episodes of political issues at home.


Zimbabwe is not Rwanda.
Its lobbying and PR, which cost millions of dollars paid to foreign firms, have not been as successful as in Rwanda, which is enjoying a good image after transitioning from a troubled past.


Still, Zimbabwe has the opportunity to use economic opportunities in areas such as diamond mining – which the US is said to be keen on since around 2006 when there was a discovery of alluvial diamonds in the East of the country.


Other mining opportunities in Platinum as well as infrastructure development and agriculture value chains could leverage economic diplomacy that could lead to removal of more sanctions.

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