ZDERA repeal signal excites, but economists warn Harare

LIVINGSTONE MARUFU

Economists have warned Harare not to get carried away by Washington’s plans to repeal the Zimbabwe Democracy and Economic Recovery Act (ZDERA) sanctions, noting the tough conditions the country must meet before the restrictions can be lifted.

Zimbabwe has battled ZDERA for 24 years, a sanction regime that has deprived Harare of long-term funding and foreign direct investment (FDI). While the potential repeal is seen as a diplomatic victory and a major breakthrough, economists stress that Zimbabwe must first satisfy the requirements set by the United States.

Under the proposed conditions, Zimbabwe would be required to commit, within 12 months of approval for any new or expanded funding, to remit all outstanding arrears owed under the Global Compensation Deed, adjusted for inflation to the date of enactment. Compensation cannot be in the form of Zimbabwe-issued securities.

Failure to comply would result in an immediate cessation of U.S. support for further funding from multilateral institutions.

The Zimbabwe National Chamber of Commerce (ZNCC) CEO and economist Christopher Mugaga told Business Times that Harare still has a long way to go to meet Washington’s expectations.

“The ZDERA removal can only, to a certain extent, send a goodwill message to investors who will see Zimbabwe as a safe investment destination, but to expect ZDERA to push up numbers in terms of foreign direct investment in the short term might be asking for too much. Zimbabwe has to still work on many issues with the European Union, as its stance on Harare remains tough. We need a holistic and well-coordinated removal of sanctions by the Transatlantic zone for us to celebrate the opening of the borders. This is not the right time for Zimbabweans to celebrate,” Mugaga said.

He urged the country to focus on delivering results before celebrating.

“With the removal of sanctions under the Trump administration, the impact will be limited because of the aggressive stance of Trump towards African countries, especially with the visa situation Zimbabwe faces with the U.S. government. It might be what we call a de facto sanction regime. But what is refreshing is that some companies that had been threatened with sanctions—whether to work with the government, private sector, or corresponding banks that had been closed due to ZDERA—are expected to be restored,” Mugaga added.

“It will be a wait-and-see attitude first, especially with Harare playing around with the constitution amendments. I know the U.S. government will be watching closely, and any misstep can have repercussions. It’s not time to celebrate but a time to watch what Americans are trying to do by repealing ZDERA.”

One of the U.S. conditions is for Harare to compensate former farm owners under the Global Compensation Deed to the tune of US$3.5 billion. Since the agreement was signed in 2020, Zimbabwe has paid less than US$50 million. Given this, many economists doubt the country can meet the requirement within 12 months.

Economist Vince Musewe expressed skepticism about Zimbabwe’s ability to comply amid current fiscal constraints.

“The condition is that Zimbabwe settles farmer compensation—where will the $3.5 bn come from? So let’s not get excited because that is an onerous, if not impossible, condition,” Musewe said.

According to the U.S. government, Washington will not support any new or expanded funding from the IMF or the International Bank for Reconstruction and Development (World Bank) unless Harare fulfills these requirements.

Despite some pessimism, other economists see the potential repeal as a major breakthrough.

Another economist Dr. Prosper Chitambara described the development as one of Zimbabwe’s greatest diplomatic victories in years.

“That will be a very positive development because it removes the stigma attached to Zimbabwe on account of ZDERA, which made it difficult for Zimbabwe to efficiently and effectively trade with the rest of the world, especially due to the loss of traditional correspondent banking relationships. With that influence out of the way, it normalises relations and makes it easier for Zimbabwe to trade and attract foreign direct investment and other capital inflows into the country. This means high-risk premiums will be lowered. It means access to multilateral financial institutions is improved. One of the reasons Zimbabwe was unable to get support, apart from our arrears, is that executive directors from the U.S. would veto any support to Zimbabwe by multilateral institutions because of ZEDERA,” Dr. Chitambara said.

“I think it will be an important development which will have far-reaching positive externalities on our economy.”

Zimbabwe Economics Society vice-president Misheck Ugaro also welcomed the potential repeal.

“This is a massive step and achievement for this second republic. The condition specified is not onerous at all. The repeal calls for a ‘commitment’ to clearing arrears (to the former farmers). It’s not the same as paying the arrears off. In any case, by entering the GCA the government already committed. This is great. Business should expect to benefit from the perishing of the country and the establishment of credit lines boosting trade finance. Fortunately, Zimbabwe does not now owe anything to the IMF. We only owe the World Bank and other multilateral lenders. It’s a good development,” Ugaro said.