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Zimbabwe Ruling Party sat on US$3 billion diamond money while population died of hunger

It is important to remember that it was only on the 26th January 2009, under the Commission Regulation (EC) Nº 77/2009, that EU sanctions were expanded to a comprehensive list of 203 people and 40 companies and parastatals.

(So) if it was only in February 2009 that these restrictive measures were extended to cover companies and parastatals, why did our GDP then shoot up afterwards? I’m truly overawed by some people’s stupidity. Please try to explain that away.

DUE to the debate generated by my previous article on sanctions, I have decided to write a follow up to dispel the myths and lies that have arisen around the issue. Details of our journey from the first economic crisis in 1998, to the hyperinflation period and total collapse in 2008-2009, are brilliantly summarized in the paper “Unbundling Zimbabwe’s journey to hyperinflation and official dollarization”, which can be found on this link (http://www.grips.ac.jp/r-center/wp-content/uploads/09-12.pdf). However, through further research on the issue of sanctions, I inadvertently stumbled on a piece of the jigsaw puzzle, which may explain how Zanu PF managed to hide US$4 billion of diamond exports in plain sight. I will elaborate on this interesting find further on in this article. But first, I have to dispel a few myths around sanctions.

Myth 1 – Suspension of credit lines and access to loans only started under sanctions in 2002.

Zimbabwe’s credit lines were temporarily withdrawn by the World Bank in 1997 and then suspended in the year 2000. There are a few critical junctures which are deliberately ignored when the sanctions debate arises. In August 1997, approximately 60,000 war veterans were granted about US$3,000 each (US$180 million in total, or 3% GDP), plus an unbudgeted monthly pension of approximately US$125 per month. This had the immediate effect of inflating the budget deficit at the end of 1997 by 55 percent from the 1996 levels. Foreign currency reserves fell from $760 million in January 1997 to a then all-time low of $255 million by November. The central bank could only underwrite one month’s worth of imports of all commodities by the end of the year, rather than the three months’ cover it could guarantee at the start. The World Bank raised objections to this one off payment. The World Bank also raised objections to the continued payments of subsidies to the loss making parastatals.

So even before 1997, when the economy was relatively well managed, the parastatals were loss-making entities. As a result, in September 1997 the World Bank temporarily withdrew a US$62.5 million standing credit line for balance of payments support, until the government had demonstrated, as a minimum, that the war vets payments would not result in a higher than the projected 8.9% budget deficit, in the 18 months leading to December 1998. To add insult to injury, the President Robert Mugabe agreed to send 11,000 troops to the DRC in September 1998. The precise costs of the ensuing war were estimated at US$600 million per year. This meant that there was no spare forex which meant the currency weakened, and had the knock on effect of affecting price stability. Combined with the drought of 1997-98, price controls, food riots, falling government popularity and the rise in corruption, 1998 was the year we started our downward spiral.

After the fast track land reform exercise began in 2000, there was an immediate fall in agricultural production, which dramatically exacerbated the acute forex shortage. The government could not service its multilateral debt obligations, and as a result, in October 2000 the World Bank suspended any extra lending to Zimbabwe under the IBRD and IDA facilities due to non-payment of over six months. These actions gave us a credit rating of “0” at the time, so it would have been difficult to secure loans and credit from other financial institutions either way. So now that we’ve established that Zimbabwean government’s lines of credit were first cut off in the year 2000, we can move on to the issue of clarifying what sanctions or restrictive measures implied.

Myth 2 – Sanctions were targeted travel restrictions on a few individuals

There needs to be a clear distinction here between ZIDERA (Zimbabwe Democracy & Recovery Act) on the one hand and the EU-UK restrictive measures on the other. ZIDERA was signed into law by George W. Bush on the 21st December 2001. It called for American officials in the IMF, World Bank and other multilateral development banks and agencies to “oppose and vote against any extensions by the respective institution of any loan, credit, or guarantee to the government of Zimbabwe”, and to vote against any reduction or cancellation of “indebtedness owed by the government of Zimbabwe”.

This law meant “Zimbabwe”, not just Zanu PF, could not access lines of credit from the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the Inter-American Investment Corporation, the African Development Fund, the European Bank for Reconstruction and Development, the Multilateral Investment Guarantee Agency and, perhaps most surprisingly the African Development Bank (because the USA is the majority shareholder in the AfDB).

These sanctions were not very effective as they did not stop Zimbabwe’s land reform exercise and did very little to dissuade Zanu PF from deviating from undemocratic governance. So as a result, on the 18th February 2002, under the Council Regulation (EC) Nº 310/2002, the EU imposed restrictive measures on twenty (20) people in Zimbabwe. These restrictive measures prevented EU entities from doing business with these people, and also included asset freezes and denial of travel visas to the EU.

Some have argued that this was in retaliation to the land reform exercise, which would make perfect sense, as some of the farms repossessed under the fast track land reform exercise were protected under Bilateral Agreements. So when the Zimbabwe government did not protect these farms under bilateral agreements with Holland & Germany for example, the EU retaliated in kind. The EU restrictive measures were also in retaliation to having some EU election observers, and journalists, thrown out of Zimbabwe prior to the 2002 parliamentary election. So, it did not come as a surprise that when the political situation in Zimbabwe deteriorated even further, these EU sanctions were expanded to include a total of ninety five (95) people on the 19th February 2004, under the Council Regulation (EC) Nº 314/2004. It is worth noting that NO companies or parastatals were on this list made in 2004.

It is also important to remember that it was only on the 26th January 2009, under the Commission Regulation (EC) Nº 77/2009, that EU sanctions were expanded to a comprehensive list of 203 people and 40 companies and parastatals. This was of course after the total collapse of our economy, with hyperinflation in the quadrillions, the bloody and violent 2008 elections in which Tsvangirai won by 73% and was not allowed to form a government through blatant rigging. So in this context, these restrictive measures were a sort of face saver for the west. They knew they were largely ineffective which is why they tried to push through UN Security Council full sanctions which were vetoed by Russia and China. There was not much else they could do.

For the majority of Zimbabweans (73%), our dreams of a new, prosperous and truly democratic Zimbabwe that we deserved were deferred; our dreams were put on hold. The expansion of these restrictive measures was signed into law about three weeks before the GNU was formed on the 13th February 2009. So when you look at these timelines you will realize how stupid the sanctions argument is. If it was only in February 2009 that these restrictive measures were extended to cover companies and parastatals, why did our GDP then shoot up afterwards? I’m truly overawed by some people’s stupidity. Please try to explain that away.

Myth 3 – Sanctions were responsible for our economic collapse and held back our GDP growth

If you read the paper “Unbundling Zimbabwe’s journey to hyperinflation and official dollarization” mentioned earlier, and take into account the clear timeframes in which events occurred in Zimbabwe, you will come to the same conclusion that I did. That is, sanctions had absolutely no quantifiable effect on the Zimbabwean economy. Notwithstanding the above, I will again make reference to the graph of our GDP and cement my assertions.

Since 1980, our GDP would fell drastically whenever we experienced a severe drought (fall of 22%), or a normal drought (fall of 10%). The logic being that Zimbabwe is effectively an agro-based economy. Since agriculture makes up between 18-30% of the GDP at any one time, the ups and downs on the GDP graph coincide with the pattern of droughts we had between the years 1981-1982, 1991-92, 1994 and 1997-98, 2001-2002.

When I suggested we decouple our economy from agriculture so that we are not solely dependent on this sector, some readers mistakenly assumed I wanted to abandon agriculture. No. I’m saying let’s industrialize, based on our national resources. Agriculture has a low productivity rate and lower wages; one severe drought and we’re done for. If we want real economic growth and prosperity we need to industrialize. Simple.

Now, to put the supposed effect of sanctions in perspective, let’s assume for argument’s sake that the fast track land reform exercise had a 0% effect on the economy (which is like saying the sky is not blue). Let’s keep in mind the timelines i.e. ZIDERA December 2001, EU restrictive measures on twenty (20) people in February 2002, expansion of these EU restrictive measures to ninety five (95) people in February 2004.

There were no restrictive measures on parastatals or companies until 2009. So if these sanctions were debilitating, why did our GDP only fall from US$5.73 billion to US$5.29 billion from 2003 to 2008, a mere US$440 million over this 5 year period? Furthermore, the part which bamboozles me even more is that when the comprehensive EU-UK sanctions were slapped on a total of 203 people and 40 companies and parastatals in February 2009, why did the GDP then shoot upwards from the end of 2009 and onwards? Simply adopting the multi-currency regime may have been responsible for stopping the rot, stabilizing the economy, and bringing the GDP back to 1997 levels of US$8.4 billion, but how did the GDP then go on to increase to US$13 billion by 2013? Were real sanctions and restrictive measures good for the economy?

Of course, the ‘sanctions killed our economy’ delusion holds true if we conveniently ignore the axiomatic impacts of the fast-track land reform, which resulted in a dramatic fall in agricultural production, the hyperinflation period caused by money printing, price controls, raiding of foreign accounts, capital flight, institutionalized corruption – the list goes on and on. Let’s just say sanctions caused everything, which is exactly what Zanu PF are doing, and their gullible intellectually-limited followers swallow this faeces hook, line and sinker.

However, if we make a comparison between Zimbabwe and Iran for example, to see how sanctions have affected one or the other, a snapshot of both economies makes interesting reading. Iran, which is under real UN Security Council-backed sanctions (targeted specifically at their economic lifeline of oil, gas and petrochemicals) still has its own currency, has a GDP of US$367 billion and an unemployment rate of 10%. And Zimbabwe?! Well our GDP is currently US$13 billion, 75% of our population is living in extreme poverty earning less than US$200 per month, and our unemployment rate is at 90%, despite what some delusional entities might choose to define as “employed”. It would be nonsensical to try to compare Iran with Zimbabwe with regards to the effects of real sanctions.

Myth 4 – Sanctions prevented Zimbabwe from benefitting from the diamond trade.

Trying to evaluate the exact impact of corruption on our national economy is an impossible task, as those involved in such activities go to great lengths to hide their criminal activities, and you would have to differentiate between the effects of petty corruption and grand corruption. I would recommend the article penned by Ken Yamamoto which goes into detail on the notable corruption scandals we’ve experienced in Zimbabwe since independence. (http://www.newzimbabwe.com/news-15219-Mugabe+fighting+corruption+Forget+it!/news.aspx).

To name but a few, these include the Paweni scandal (1982), National Railways Housing Scandal (1986), Air Zimbabwe Fokker Plane Scandal worth $100 million (1987), Zisco Steel blast Furnace Scandal (1987), Willowgate Scandal (1988), ZRP Santana Scandal (1989),  War Victims Compensation Scandal (1994), GMB Grain Scandal (1995), VIP Housing Scandal (1996), Boka Banking Scandal (1998), ZESA YTL Soltran Scandal (1998), – Harare City Council Refuse Tender Scandal (1998), Housing Loan Scandal (1999),  Noczim Scandal (1999), – DRC timber and diamond UN reported scandals (1999), GMB Scandal (1999), – Ministry of water and rural development Chinese tender scandal (1999), Harare Airport Scandal (2001), pillaging and milking of Ziscosteel (2005-8), pillaging of diamonds in Chiadzwa (2006-present), the Airport Road Scandal (2008-2014), the perpetual milking of Zimbabwe and the pillaging of the central bank under Gideon Gono .

What I can add to Ken’s contribution is that in Zimbabwe’s case, grand corruption was experienced on a gargantuan scale during the hyperinflation period in 2008, which inevitably led to the decimation our currency and is best detailed in the following article (http://www.newzimbabwe.com/pages/inflation181.17413.html). In any other country the former governor of the central bank would now be languishing in prison, crossing off each year of his lifetime sentence on his jail cell wall. Only in Zimbabwe would this act of madness, which destroyed our economy and decimated our local currency, be considered as saving the economy. Madness!

Now here’s and eye-opener. As mentioned earlier, I stumbled across some anomalies which led me to an interesting theory of how Zanu PF hid the illicit diamond export revenues in plain sight. If you look at Zimbabwe’s exports since about the year 2000, everything seems to be more or less normal, as would be expected when it comes to our imports and exports. However, come 2006, some figures jump out from the page which make no sense. See link: (http://wits.worldbank.org/CountryProfile/Country/ZWE/Year/2006/Summary).

As we all know, the Marange diamond fields came under government control in 2006. And surprisingly enough, at the end of 2006 we exported US$2.2 billion worth of “coal & coke exports”. At first glance nothing seems to be out of the ordinary, because obviously Zimbabwe does have coal and we do export it on a regular basis. But hold on a second, US$2.2 billion of coal exports in one year?! Let’s see if this figure holds up under closer scrutiny.

As we all know in 2006 Hwange Colliery was the main coal producer (before Makomo) and it has a production capacity of about 150,000 tonnes per month or 1.8 million tonnes per year. If you also look at the history of coal prices, you’ll see that in 2006 the price of coal was at an average of US$50.60 per tonne. So even if we assume a best case scenario in that Hwange Colliery had an exceptional year, where they were at full production, and all coal produced was all exported, this would translate to US$91 million in exports as a maximum figure.

However, the reality on the ground for Hwange Colliery was quite different back in 2006. Hwange could barely supply enough coal for ZISCO steel and only managed to export 217,000 tonnes (or about US$11 million) by the end of that year, see this article: (http://www.washingtonpost.com/wp-dyn/content/article/2006/09/23/AR2006092300600_pf.html)

So how in the world did our coal exports come out to US$2.2 billion at the end of 2006? Are you still with me or still confused dear reader? I’ll explain.

We all remember that during the whole Kimberley process talks, the rotund former mines minister Obert Mpofu boasted that Zimbabwe could earn US$2 billion a year in diamond sales, and that Zimbabwe would be financially self-sufficient with our economy rebounding on the back of diamond exports. Where did he get the US$2 billion figure from? He didn’t just pluck it from the air as some mistakenly thought, because the receipt he had in his pocket for diamond exports clearly showed US$2.2 billion.

How did the World Bank not see that US$2.2 billion reported for coal and coke exports did not add up? There is no way US$2.2 billion of diamond revenues could have been spirited away from Zimbabwe without the West’s knowledge and collusion in the whole affair. This is why I don’t buy into the whole anti-West rhetoric spewed out by Zanu PF. However, WHERE DID THE MONEY GO?! Well, unobvunza ani?

But I’m not finished yet. Interestingly enough, the following year in 2007 we had no notable “coal & coking” exports. Instead, one of our top 5 exports, believe it or not, was “Unused postage stamps” to the tune of US$368 million in 2007. In 2008 there were no notable anomalies in exports, of course that was the same year we had the hyper-inflation period, economic collapse, decimation of the local currency, and the violent elections which led to the GNU government. So what happened to the diamond proceeds in 2008?

Moving on, it should not have come as a surprise that the following year 2009 we once again exported “Unused postage stamps” with a value of US$435 million; then again “Unused postage stamps” of US$559 million in 2010, and the same “Unused postage stamps” exports of US$392 million in 2011. Someone out there must have quite a stamp collection worth US$2 billion. But, if you add up “coal” and “unused stamps” exports over the same years that the diamond fields were operating, it comes out to an eye-watering US$4 billion.

Then, surprise, surprise, in 2012 we were no longer exporting “Unused postage stamps”, instead one of our 5 largest exports was “industrial diamonds” at US$657 million. Of course we were legally exporting these, albeit with the ZMDC still under the ZIDERA sanctions and EU restrictive measures. Remember that restrictive measures on the ZMDC were only lifted in February 2013.

If all of what I’ve highlighted above is not enough to make your blood boil with anger, then to add insult to injury, as soon as the sanctions were lifted on ZMDC, we heard the sad news that the diamonds were now depleted and that exports had suddenly dropped to US$187 million in 2013. Oh sorry I forgot, sanctions are responsible for the sudden depletion of diamonds and subsequent fall of revenues. The truth of the matter is that the diamonds have not been depleted.

From the above I’ve highlighted the “semi-legal” inflows of diamond revenues; the exact amount from illegal exports is open to speculation, but is probably at about US$2 billion a year over the past 8 years as was first estimated. So you see the figure of US$16 billion in total is not a farfetched guestimate. And what does the country in general have to show for it?

Myth 5 – Sanctions affected our overall economy, as most of it is controlled by Zanu PF

When certain sectors in our society claim that sanctions affected the whole Zimbabwean economy because most of our economy is controlled by Zanu PF, this is an unfortunate case of confusing timeframes and forgetting which sanctions were applied when and for what reason.

Who controlled the Zimbabwean economy prior to Sanctions in 2002? Prior to the economic crisis of 1998, it is a well-known fact that only a few black Zimbabweans had managed to break into the upper echelons of the economy. This fact was magnified with the economic crisis of 1998 which caused foreigners to disinvest by about 30% from the Zimbabwe Stock Exchange, leading to the ZSE crashing. We also conveniently forget, that until the land reform exercise began in the year 2000, more than 80% of the prime agricultural land (and agricultural production) was controlled by about 4,500 white commercial farmers. And of course the industries which relied on agriculture, along with most mining companies, small and medium businesses, were also predominantly owned, and run, by the white minority community and foreigners. It was only after about 2002, around the height of the land reform exercise, that the majority of the land was transferred to indigenous Zimbabweans. It was not until about 2006 that most foreign entities had disinvested in Zimbabwe and it was only from then onwards that the economy began to come under Zanu PF’s control.

So when ZIDERA was signed on 21-Dec-2001, the main economy was not yet as firmly in the hands of Zanu PF as it is today in 2015 (14 years later). Even back then, the EU sanctions, which took effect from the 15-Feb-2002, were initially targeted at 20 people only. We also need to remember that Gideon Gono was appointed governor of RBZ on the 1st December 2003, a year after ZIDERA sanctions and the EU restrictive measures on twenty (20) people were passed. It was at this critical point that Zanu PF threw away all democratic pretenses and became a political entrepreneurship, firmly founded on corruption and patronage, aided and abetted by Gono’s quasi-fiscal (money printing) activities. It was only then that these land barons emerged and parastatals became militarized.

So sanctions provided the perfect cover for Zanu PF to effectively take over the economy. When you confuse timeframes you confuse facts, and we also forget that it was only in February 2009, when the economy had effectively imploded, that EU-UK sanctions were expanded to include 203 people and 40 associated companies and parastatals. So as mentioned before, it is extremely misleading to assume that when these sanctions were applied in 2002, they would have had an impact on the general economy as it was not yet controlled by Zanu PF.

Myth 6 – Zimbabwe’s country perception is a result of sanctions

We need to draw a distinct line between how our country is perceived by the outside world and the supposed effects of sanctions on our economy. Zanu PF seems to be conveniently blurring this line between country perception and sanctions, and making it seem as though they are mutually inclusive. Sanctions and restrictive measures were a direct result of how our country was perceived by the outside world and not the other way around. At the height of the land reforms, who didn’t watch the BBC, CNN or Al Jazeera gleaming images of some of our Zimbabwean compatriots toy-toying, smashing down doors, burning homes, with the now infamous “Zimbabwe is for blacks we don’t want whites here”. Are these the same white people that you expect to come visit our beautiful Zimbabwe as tourists? Are these the same white people that you expect to invest in Zimbabwe?

Thanks to mass media, gory photos of bloody and bruised faces, plastic burnt backs, chunks of meat missing from buttocks from beatings, broken limbs, dead bodies, funeral processions, these were the images and sound bites which have been seared in the minds of the outside world of what Zimbabwe was between 2000 and 2008. What we conveniently forget is that, sanctions or no sanctions, to the outside world Zimbabwe looked like a country in a civil war. Are Iraq or Syria among the top tourist destinations at the moment? This is the power of perception, and we have no one else to blame but ourselves in this regard. The fact that we brought ourselves down to the same level of barbarism and savageness of our erstwhile colonizers during the fast track land reform is what lost us any sympathy from the outside world, for what was in essence a just cause.

How our country was “perceived” during the fast track land reform programme is what killed the tourism industry in particular, and not sanctions. Did we expect the war vets to stage peaceful sit-ins on farms, flowers in their hands, singing Kumbaya? Probably not, but it could have been done differently. Reputations that take years to build can be destroyed in seconds, and reputations are built on perceptions. Does your average foreign business person actually know that Zimbabwe is under sanctions, or are they more aware of the land reform exercise, disregard for property rights, the indigenization law, the high level of corruption, the economic collapse of 2008, human rights abuse, Zimbabwe’s infamous record of not paying back loans or honouring signed agreements?

The first port of call for any investor is the data on economic indicators for Zimbabwe, and just a glimpse of these will dissuade any reputable investor. Just look at our global ranking for the main indicators – Ease of doing business (171 out of 175), Corruption Perceptions Index (156 out of 175), Freedom of Press (161 out of 195), Ease of Paying Tax (142 out of 189), Global Competitiveness Report (131 out of 148), Global Enabling Trade Report (133 out of 148), Index of Economic Freedom (176 out of 178), International Logistics Performance (137 out of 160), Inward FDI Potential (141 out of 141), KOF Index of Globalization (111 out of 187), Management Index (116 out of 129), Network Readiness Index (113 out of 145), Open Budget Index (75 out of 100), Status Index (108 out of 129), Credit Rating (we have none). With the exception of China that virtually owns Zimbabwe, who in their right mind would want to do business with us or the Zimbabwean government, sanctions or no sanctions?

Conclusion

Whilst I don’t expect the average staunch brainwashed Zanu PF supporter to understand the obvious as highlighted above, this article is aimed directly at the intellectual prostitutes who purport to be Zanu PF, who know better and choose self-preservation over the common good of Zimbabwe as a whole. You are the main reason why Zimbabwe is where it is. In 2008 when the economy collapsed, with thousands of people dying from cholera, schools closed, hospitals closed with no medication, there were queues for money at banks, queues for fuel, no food in the shops; there were 5 million people starving in the rural areas who needed food aid, and yet those in Zanu PF who control the diamond trade sat on about US$3 billion of diamond proceeds, folded their arms and just watched as the general populace suffered.

What had Zimbabweans done to deserve this? There’s only one word for that, hutsinye. Denial is not a river in Africa. What’s needed in our current political dispensation is a sober analysis and viable solutions. Zimbabwe needs an intervention. This may be similar to the Alcoholics Anonymous twelve step programme, the first step is for our inept Zanu PF-led government to admit that they cannot control their kleptocratic corrupt tendencies, as this is an addiction or compulsion.

The second step is to recognize that they cannot rig their way out of our impending economic collapse, and they need a competent team that can restore some sanity to governance and economic issues. The third step is to examine past errors with the help of others, making amends for these errors, learning to live a new life with a new code of behaviour but away from politics altogether. And most importantly, once they themselves have recovered from these addictions, to help others who suffer from the same kleptocratic corrupt tendencies, addiction and compulsion.

Economic mismanagement and bad governance caused our economic collapse; no amount of sloganeering or blaming sanctions will ever make us forget these past misdeeds. When I’m asked to quantify the effect of sanctions, I’m being asked to quantify something whose effects I cannot see in the numbers or data that I have in front of me. How am I supposed to do that? I cannot base arguments on improbable “what-ifs”.

We ludicrously assume that Zanu PF knew how to run an economy before the sanctions were imposed, and had it not been for sanctions we would now be one of the most prosperous countries in Africa. That’s just madness. There seems to be a total disconnect from this reality, which is why the insanity of blaming sanctions seems to be the appropriate response.  If our vadzimu of Zimbabwe as a whole are listening, I plead with you to let Nehanda’s bones rise again and deliver us from this evil.

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