From August 25th to 26th representatives from Egypt, The Republic of the Sudan, and Ethiopia met in Khartoum to discuss the development of Grand Ethiopian Renaissance Dam (GERD) and its potential impact on the flow of the Blue Nile. The meeting concluded with the announcement of an agreement to convene a team of experts to assess the dam’s impact and report its findings within six months. Thus far this summit has proven to be the most productive of recent meetings between these countries. Though Egypt has concerns about the dam’s construction (namely that the flow of the Nile will be reduced while the GERD's reservoir fills) it would appear that Cairo is resigned to the dam’s construction and is attempting to ensure that Egyptian concerns are taken into account in the management of the project. This cooperation could prove to be a positive step in the economic development of East Africa.
Prior to the Arab Spring Egypt's claim that it has a legal right to the majority of Nile’s water meant that the cooperation that we have seen in these meetings would have been unthinkable. Agreements reached in 1929 and 1959 between Egypt and the United Kingdom (representing their then East African Colonies) awarded the vast majority of the waters of the Nile to Egypt with a smaller portion reserved for Sudan. Ethiopia was not a party to the treaties despite the fact that the majority of the waters of the Nile originate in that country. Suffice it to say neither Ethiopia nor the other co-riparian countries willingly consented to these agreements but until recently there has been little that they could do about this arrangement as Egypt, though a poor country itself, was still much more powerful militarily and economically than its neighbors. The fact that many of these countries faced their own internal problems did not help the situation.
The internal instability that the Arab Spring has wrought in Egypt has weakened Cairo’s ability to bully its neighbors. One of the reasons that the military let then president Mohamed Morsi sack Field Marshal Tantawi in August of 2012 might have been the need to demonstrate to Egypt’s neighbors that their was a strong leader in Cairo. The idea may well have been that Tantawi's dismissal would send a message to parties, such as co-riparian countries that wanted more water, that Egypt could still protect its interests. Clearly, this tactic has not worked. Cairo now finds itself in a position where starting a conflict to prevent the development of GERD is too costly. Egypt appears to have accepted this reality and is now positioning itself so that Cairo can ensure that Egyptian interests are protected. On the surface statements such as “Egypt was never, and will never be against the development (of co-riparian countries)”...“as long as they are aiming to achieve mutual development,” (as well as) “the integrated management of water resources” might appear as rhetoric, however, the geopolitical realities of the region gives us reason to take such statements at face value.
The reality is that East African countries such as Ethiopia, Kenya, and Tanzania are developing quickly. We are seeing improvements in infrastructure that provide access to Central African minerals, the development of the region’s manufacturing capabilities, and significant investments in port facilities. These developments combined with a geographic location that allows for easy trade with East Asia, South Asia, and Europe bodes well for the region, however, regular access to electricity is key to ensuring this development. The GERD could help meet these energy needs. Hydrological cooperation in the region could help maximize water resources, improve food security, and ensure a more reliable energy supply while reducing the political risk that a conflict (be it formal e.g. military or informal e.g. chronic acts of sabotage) would inflict. Cooperation would allow the countries of East and Northeastern Africa to focus on putting their resources to productive purposes rather than trying to undermine one another. If the team of experts is able to do their job properly within the six month time frame we will know by the Spring of 2015 whether or not such cooperation is possible and what policies will need to be enacted to promote it as well as a having a better understanding of any potential agreement's impact on the economic development of East Africa.
Friday, August 29, 2014
Friday, August 15, 2014
Some Geopolitical Constraints That Marina Silva Would Face if She Ran in and Won Brazil's October Election
Wednesday’s plane crash that resulted in the death of Brazilian Presidential Candidate Eduardo Campos is a tragedy. Though Campos had been third in the polls there was some indication that his position was improving and even if he lost it was very likely that he would have ultimately become one of the more significant Brazilian politicians. As things stand now there is a great deal of speculation as to how his death will affect the race but the reality is that no one really knows. What we can do is develop scenarios that serve as models to help us predict what could come in a world that can change quickly. One possible scenario would be that Campos’s running mate Marina Silva will run. Though it would currently appear that Dilma Rousseff is favored to win reelection it does not hurt to question some of the challenges that Silva would face if she ran in and won October’s elections especially as she is viewed in some quarters as being unpredictable and some argue that the policies of a President Silva would be anti-business and negatively impact the economic development of the country. These concerns are not unjustified. That said, if she were to win the election it does not change the fact that she would be governing Brazil which is a landmass that has some developmental challenges that relate directly to geography.
The reality is that the richest counties in the world do not just have a surplus of natural resources and arable land which provide the wealth to develop substantial human capital and infrastructure. The richest countries also have favorable geography. By this I mean most of these states have well developed maritime and riverian port systems, are situated at latitudes that affords them enough of a growing season to feed their population, and have the bulk of their territory in temperate, relatively flat lands (1). Brazil does fairly well with the first two conditions but relatively poorly with the third.
It is usually more expensive to build and maintain infrastructure in the tropics. It is not a surprise that Northern Brazil has historically been the poorest part of the country as the cost of building the requisite infrastructure to promote economic development has caused that region to lag behind the more prosperous south. A wealth gap has resulted in northerners moving to seek opportunity in the south while a lack of facilities have caused many of these migrants to settle in favelas where they do not always find the opportunity that they sought. This has served as a cause of social unrest in the past. Developing the Northern states of Brazil (which is where Silva and the recently deceased Campos hail from) and the infrastructure of the country in general is a strategic imperative for Brasilia. In recent years we have seen significant investment in improving southern port facilities in Vitória and Santos while in April northern port complexes in Miritituba and Barcarena were opened. The latter will reduce traffic in southern ports and will benefit from the expansion of the Panama Canal and the eventual construction of the Nicaragua Canal. Developments such as these have environmental consequences which Silva opposes but, if managed properly, they could provide economic opportunities that could help poorer communities some of whom would be part of her constituency. Silva has been in politics too long to be ignorant of this reality and naïve enough about its implications.
The reality is that winning October’s Presidential Election will only give the victor the powers of the head of state of the Federative Republic of Brazil it will not give them the ability to overcome the geographic challenges which the country faces. The difference between the candidates will be how they respond to these obstacles given the political, social and economic constraints that they face. If Marina Silva were to run and was elected she would not be able to rule by decree. It is not unreasonable to think that if elected Silva would pursue more environmentally friendly policies than her opponents would and that she might not be as business friendly. That said, it also must be noted that as a democratically elected leader she would have to take into account the aspirations of the Brazilian population as whole if she wishes to stay in power and not see some of her potential accomplishments undone in the event that she was not reelected.
As things stand now economic development usually results in a degree of environmental degradation. This reality is something that Silva has raised concerns about. Would President Silva have luxury to be as vocal about such issues as she has been in the past? After all, it is a lot easier to be an opposition candidate than a head of state. There are countless examples of politicians who behaved very differently than people expected when they assumed office. Certainly, former Brazilian President Lula is such an example. As things stand now it is too early to know if Silva will run in let alone win October’s election. That said, if she were to win it needs to be understood that she would face the same geographic and economic constraints that her opponents would face as well as a variety of other limitations that political and social realities would impose upon her. This reality would influence how she responds. After all, there is often a huge difference between doing what you want to do and doing what you actually can do. Reconciling her environmental concerns, the economic challenges that Brazil’s geography imposes that can only be ameliorated with some environmental cost, and the aspiration of the Brazilian population for a higher standard of living which could result from such developments would be a major challenge for Silva. It is likely, that if elected, she would have to make compromises. What these compromises would be remains to be seen.
1. There are some exceptions here. For example, Singapore does not meet these requirements. However the state’s relatively small population, location near one of the most important shipping lanes in the world, and the fact that the city-state is small and thus requires less infrastructure than larger states makes it a unique case.
The reality is that the richest counties in the world do not just have a surplus of natural resources and arable land which provide the wealth to develop substantial human capital and infrastructure. The richest countries also have favorable geography. By this I mean most of these states have well developed maritime and riverian port systems, are situated at latitudes that affords them enough of a growing season to feed their population, and have the bulk of their territory in temperate, relatively flat lands (1). Brazil does fairly well with the first two conditions but relatively poorly with the third.
It is usually more expensive to build and maintain infrastructure in the tropics. It is not a surprise that Northern Brazil has historically been the poorest part of the country as the cost of building the requisite infrastructure to promote economic development has caused that region to lag behind the more prosperous south. A wealth gap has resulted in northerners moving to seek opportunity in the south while a lack of facilities have caused many of these migrants to settle in favelas where they do not always find the opportunity that they sought. This has served as a cause of social unrest in the past. Developing the Northern states of Brazil (which is where Silva and the recently deceased Campos hail from) and the infrastructure of the country in general is a strategic imperative for Brasilia. In recent years we have seen significant investment in improving southern port facilities in Vitória and Santos while in April northern port complexes in Miritituba and Barcarena were opened. The latter will reduce traffic in southern ports and will benefit from the expansion of the Panama Canal and the eventual construction of the Nicaragua Canal. Developments such as these have environmental consequences which Silva opposes but, if managed properly, they could provide economic opportunities that could help poorer communities some of whom would be part of her constituency. Silva has been in politics too long to be ignorant of this reality and naïve enough about its implications.
The reality is that winning October’s Presidential Election will only give the victor the powers of the head of state of the Federative Republic of Brazil it will not give them the ability to overcome the geographic challenges which the country faces. The difference between the candidates will be how they respond to these obstacles given the political, social and economic constraints that they face. If Marina Silva were to run and was elected she would not be able to rule by decree. It is not unreasonable to think that if elected Silva would pursue more environmentally friendly policies than her opponents would and that she might not be as business friendly. That said, it also must be noted that as a democratically elected leader she would have to take into account the aspirations of the Brazilian population as whole if she wishes to stay in power and not see some of her potential accomplishments undone in the event that she was not reelected.
As things stand now economic development usually results in a degree of environmental degradation. This reality is something that Silva has raised concerns about. Would President Silva have luxury to be as vocal about such issues as she has been in the past? After all, it is a lot easier to be an opposition candidate than a head of state. There are countless examples of politicians who behaved very differently than people expected when they assumed office. Certainly, former Brazilian President Lula is such an example. As things stand now it is too early to know if Silva will run in let alone win October’s election. That said, if she were to win it needs to be understood that she would face the same geographic and economic constraints that her opponents would face as well as a variety of other limitations that political and social realities would impose upon her. This reality would influence how she responds. After all, there is often a huge difference between doing what you want to do and doing what you actually can do. Reconciling her environmental concerns, the economic challenges that Brazil’s geography imposes that can only be ameliorated with some environmental cost, and the aspiration of the Brazilian population for a higher standard of living which could result from such developments would be a major challenge for Silva. It is likely, that if elected, she would have to make compromises. What these compromises would be remains to be seen.
1. There are some exceptions here. For example, Singapore does not meet these requirements. However the state’s relatively small population, location near one of the most important shipping lanes in the world, and the fact that the city-state is small and thus requires less infrastructure than larger states makes it a unique case.
Friday, August 1, 2014
Will the BRICS Development Bank Turn the Renminbi into a Reserve Currency?
On July 15th plans for a BRICS Development Bank were announced at the BRICS Summit in Fortaleza Brazil. It is likely that this bank could serve as a mechanism for China to transform the renminbi into a reserve currency while delaying the liberalization of the Chinese economy and protecting Beijing’s interests in regions such as Sub-Saharan Africa and Latin America. Though the bank will presumably pay lip service to the concept that all BRICS currencies are equal the fact that China is contributing $41 Billion of the $100 Billion capitalization for the bank means that this is not a partnerships of equals. In Beijing’s ideal world the bank would be viewed as democracy as this would demonstrate that China is not a hegemon, however, the reality is that the BRICS members have very different levels of economic development as well as conflicting interests. The fact that mutual opposition to the dominance of the World Bank and IMF united them does not mean that they will always find consensus. China will presumably dominant the BRICS Development Bank for the same reasons the United States dominates the Bretton Woods Organizations, namely, they provide more capital than other donors and can use these organizations to advance their own interests. One of Beijing’s goals is the internationalization of the renminbi. The bank could help China achieve this objective.
If China wants to be a super power the renminbi must be a reserve currency like the US Dollar and the Euro. Thus far the Chinese have been reluctant to liberalize their economy as it would weaken the Communist Party as well as other powerful interests, such as the heads of state owned industries and governmental ministries, all of whom would lose wealth and influence. Though Chinese President Xi Jinping has been launching an aggressive anti-corruption campaign many large state owned companies and their supporters in the upper echelons of the Chinese Communist Party still remain influential. The corruption crackdown is unlikely to completely change this reality. Liberalization would also likely encourage greater transparency which would raise further questions about the validity of Chinese economic indicators, the sustainability of the country’s shadow banking sector, and the reality that China’s property bubble could be bursting. All of these questions would run contrary to Beijing’s interests. By making the BRICS Development Bank denominate loans in renminbi China could start the transformation of its currency into a reserve currency without necessarily making politically difficult reforms at home. The internationalization of the renminbi could also help China in its dealings abroad as it would no longer have to exchange renminbis for US Dollars or Euros to conduct transactions thus making Beijing less dependent upon the monetary policies of foreign powers. Such a shift would be helpful in China’s dealings abroad.
In recent decades China’s interests have expanded far beyond East and Southeast Asia. China has loaned and invested billions of dollars in Sub-Saharan Africa to develop infrastructure and the extractive industries. There is no indication that this trend will slow. In July Xi Jinping made a tour of Latin America where he proposed a $20 Billion dollar infrastructure fund and $5 Billion Chinese-Latin American cooperation fund to facilitate investment in Latin America. Creating a context where it is easier to conduct business using the renminbi is clearly in China’s interest as well as countries that China is investing in especially as trade with these countries is likely to grow.
In recent decades much talk has been made about China’s rise. The reality is that China is not becoming abnormally strong. The country has in fact been abnormally weak and is in the process of attaining the status that a country with its population, resource base, and geographic location should have. We have already seen Beijing increase its military spending and investment in other regions of the world. If China wants to be a great power (which it does) internationalizing its currency is a crucial step. The BRICS Development Bank could be a game changer even if it does not live up to its full potential. The bank’s ability to provide funding for infrastructure in the developing world will be crucial to economic development and global trade. The BRICS Development Bank will also be a symbolic reminder that the Post World War II construct of international organizations, such as the United Nations and the Bretton Woods Organizations, does not reflect the current world order. These factors are important but the emergence of a new reserve currency of global significance would be no less of a game changer.
If China wants to be a super power the renminbi must be a reserve currency like the US Dollar and the Euro. Thus far the Chinese have been reluctant to liberalize their economy as it would weaken the Communist Party as well as other powerful interests, such as the heads of state owned industries and governmental ministries, all of whom would lose wealth and influence. Though Chinese President Xi Jinping has been launching an aggressive anti-corruption campaign many large state owned companies and their supporters in the upper echelons of the Chinese Communist Party still remain influential. The corruption crackdown is unlikely to completely change this reality. Liberalization would also likely encourage greater transparency which would raise further questions about the validity of Chinese economic indicators, the sustainability of the country’s shadow banking sector, and the reality that China’s property bubble could be bursting. All of these questions would run contrary to Beijing’s interests. By making the BRICS Development Bank denominate loans in renminbi China could start the transformation of its currency into a reserve currency without necessarily making politically difficult reforms at home. The internationalization of the renminbi could also help China in its dealings abroad as it would no longer have to exchange renminbis for US Dollars or Euros to conduct transactions thus making Beijing less dependent upon the monetary policies of foreign powers. Such a shift would be helpful in China’s dealings abroad.
In recent decades China’s interests have expanded far beyond East and Southeast Asia. China has loaned and invested billions of dollars in Sub-Saharan Africa to develop infrastructure and the extractive industries. There is no indication that this trend will slow. In July Xi Jinping made a tour of Latin America where he proposed a $20 Billion dollar infrastructure fund and $5 Billion Chinese-Latin American cooperation fund to facilitate investment in Latin America. Creating a context where it is easier to conduct business using the renminbi is clearly in China’s interest as well as countries that China is investing in especially as trade with these countries is likely to grow.
In recent decades much talk has been made about China’s rise. The reality is that China is not becoming abnormally strong. The country has in fact been abnormally weak and is in the process of attaining the status that a country with its population, resource base, and geographic location should have. We have already seen Beijing increase its military spending and investment in other regions of the world. If China wants to be a great power (which it does) internationalizing its currency is a crucial step. The BRICS Development Bank could be a game changer even if it does not live up to its full potential. The bank’s ability to provide funding for infrastructure in the developing world will be crucial to economic development and global trade. The BRICS Development Bank will also be a symbolic reminder that the Post World War II construct of international organizations, such as the United Nations and the Bretton Woods Organizations, does not reflect the current world order. These factors are important but the emergence of a new reserve currency of global significance would be no less of a game changer.
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