From March 30th until April 10th Myanmar will conduct its first census since 1983. On the surface this would appear to be a reasonable action as a great deal has changed in the last thirty plus years, not the least of which has been the country's emergence from isolation. The problem is that the census is likely to enflame ethnic tensions. The instability that the census could provoke will be one of the most significant challenges that Myanmar has encountered since it has begun re-engaging with the international community. Therefore, it is important to monitor how Naypyidaw handles this potential unrest. A good performance would send a very positive signal to investors. A poor handling of the situation could see investors hold back and would likely see the Chinese attempt to regain some of the leverage that Beijing has lost as the West has begun to reengage with Myanmar.
Ethnic insurgency has long been a key concern in Myanmar. After the assassination of independence hero Aung San many ethnic groups, such as the Karen, launched armed insurgencies. These struggles have been going on for decades and the census could potentially undo some of the progress that Naypyidaw has made in pursuing peace talks with the rebels. A key problem with the census is that significant ethnic minority groups such as the Karen, Shan and Chin were not consulted in the development of the census questions, thus, the census has a variety of subgroups for minorities, such as the Chin, which the groups in question do not recognize. The suspicion is that the format of the census will make these groups appear divided and thus undermine their interests. Though, census takers, especially those of mixed ethnicity, have the option of clarifying their background there are concerns that this will result in them being grouped under a catchall "foreigners" tag. In addition to this the Muslim minority Rohingyas of Rakhine State will not be included. Essentially, the census looks like it only supports the interests of the majority Burmens.
If the census results in heightened political instability it is likely that Beijing will try to exploit the situation to its advantage. China’s interests in Myanmar are both strategic and economic. The country provides Beijing with energy resources and access to the Indian Ocean, the latter of which is essential for the development of parts of China’s interior such as Yunnan Province. For this reason Beijing will invest in Myanmar even if the country is experiencing a degree of political instability. In fact China was Myanmar’s only significant investor from the 1980s until the country began reforms in 2011. Beijing feels that Washington is pursuing a containment strategy against China and will likely seize the opportunity to cement its interests in the country if the United States and other western powers temporarily back off due to political instability. For these reasons we should monitor both how Naypyidaw addresses the ethnic tensions which the census is likely to provoke as well as China’s (and to a lesser degree India’s) actions if political instability causes western powers to back off. The reality is that Myanmar is poor due to decades of poor governance not a lack of resources. The country could develop relatively quickly if given the chance. How it will develop will be influenced by foreign investors so knowing who is investing and what their interests are is essential for forecasting how Myanmar will develop.
Friday, March 28, 2014
Friday, March 14, 2014
Will Uganda's Anti-Gay Law Benefit Tanzania?
On February 24th, 2014 Uganda passed a law which included sentences of life in prison for certain homosexual acts (the original draft called for the death sentence) as well as prison terms for people who support the gay community. Not surprisingly the international community and global markets have not viewed this law favorably:
Though Tanzania has seen a great deal of investment in recent years (Chinese direct investment went from $700 million in 2011 to $2.1 billion in 2013) infrastructure in Kenya has historically attracted more capital than Tanzania. For example, in August of 2013 Kenya signed deals worth $5 billion from the Chinese in order to improve infrastructure with $2.5 being spent on the construction of railroads and $1.25 billion to be spent on trains. If Kenya and Uganda want to develop their manufacturing bases investments such as these are essential yet Uganda’s anti-gay law will impact investment in Uganda which in turn will impact Kenya as the two countries are key trading partners and Ugandan goods often pass through Kenya en route to the port of Mombassa (Ugandan infrastructure is heavily integrated with Kenyan infrastructure). Suffice it to say a variety of parties in both Kenya and Uganda want to see the law repealed or at least weakened as it goes against their economic interests.
Ultimately, two key things that many investors in East Africa want are access to Central African resources and commodities from the fertile lands around Lake Victoria. They do not necessarily need multiple routes to obtain these goods so if investment ends up in Tanzania Kenya and Uganda might struggle to attract capital at a later time and the funds that they might be able to raise could be on less favorable terms. As things stand now the Chinese are investing in the Tanzanian port of Bagamoyo with the intent of making into the largest and most modern port in Africa. We are also seeing the potential development of the Port of Maruhubi in Zanzibar. In February the China Harbour Engineering Company (CHEC) signed a Memorandum of Understanding pledging $230 million dollars to the develop the port (its is important to note that a Memorandum of Understanding is not a concrete deal so CHEC presumably has a way out of the agreement). These port developments combined with improvements in rail and customs procedures would likely result in major improvements to Tanzania's competitiveness. As of now railways only transport about 10% of Tanzanian goods despite the fact that moving goods by rail take half the time that road transport takes.
It is important to remember that there is a political element to this law. When President Yoweri Museveni signed the bill he made a point of stressing that his actions showed that Ugandans would not be bullied by foreign powers. This helped stoke nationalist sentiment which will be important if he is to run for re-election in Uganda’s 2016 election. For this reason Museveni is unlikely to weaken or repeal the law unless Nairobi and the Ugandan business community puts pressure on him and if he can back off in manner that saves face. Due to this reality it is important to monitor how forcefully Nairobi and the Ugandan business community lobbies against the law. Time could be of the essence as once significant investment has been put into Tanzanian infrastructure there is no guarantee that an investment in developing Uganda's roads, railways, and ports will be worthwhile.
- Since October 3rd, 2013 the Uganda Shilling has fallen from 2,553 to the dollar to 2,513 as of March 14th, 2014.
- Standard & Poor’s has reduced Uganda's credit rating to B.
- The World Bank has suspended a $90 Million loan to improve the country’s health system.
- Denmark and Norway have suspended aid. They likely will not be the last countries to do this.
Though Tanzania has seen a great deal of investment in recent years (Chinese direct investment went from $700 million in 2011 to $2.1 billion in 2013) infrastructure in Kenya has historically attracted more capital than Tanzania. For example, in August of 2013 Kenya signed deals worth $5 billion from the Chinese in order to improve infrastructure with $2.5 being spent on the construction of railroads and $1.25 billion to be spent on trains. If Kenya and Uganda want to develop their manufacturing bases investments such as these are essential yet Uganda’s anti-gay law will impact investment in Uganda which in turn will impact Kenya as the two countries are key trading partners and Ugandan goods often pass through Kenya en route to the port of Mombassa (Ugandan infrastructure is heavily integrated with Kenyan infrastructure). Suffice it to say a variety of parties in both Kenya and Uganda want to see the law repealed or at least weakened as it goes against their economic interests.
Ultimately, two key things that many investors in East Africa want are access to Central African resources and commodities from the fertile lands around Lake Victoria. They do not necessarily need multiple routes to obtain these goods so if investment ends up in Tanzania Kenya and Uganda might struggle to attract capital at a later time and the funds that they might be able to raise could be on less favorable terms. As things stand now the Chinese are investing in the Tanzanian port of Bagamoyo with the intent of making into the largest and most modern port in Africa. We are also seeing the potential development of the Port of Maruhubi in Zanzibar. In February the China Harbour Engineering Company (CHEC) signed a Memorandum of Understanding pledging $230 million dollars to the develop the port (its is important to note that a Memorandum of Understanding is not a concrete deal so CHEC presumably has a way out of the agreement). These port developments combined with improvements in rail and customs procedures would likely result in major improvements to Tanzania's competitiveness. As of now railways only transport about 10% of Tanzanian goods despite the fact that moving goods by rail take half the time that road transport takes.
It is important to remember that there is a political element to this law. When President Yoweri Museveni signed the bill he made a point of stressing that his actions showed that Ugandans would not be bullied by foreign powers. This helped stoke nationalist sentiment which will be important if he is to run for re-election in Uganda’s 2016 election. For this reason Museveni is unlikely to weaken or repeal the law unless Nairobi and the Ugandan business community puts pressure on him and if he can back off in manner that saves face. Due to this reality it is important to monitor how forcefully Nairobi and the Ugandan business community lobbies against the law. Time could be of the essence as once significant investment has been put into Tanzanian infrastructure there is no guarantee that an investment in developing Uganda's roads, railways, and ports will be worthwhile.
Friday, March 7, 2014
The Impact of Russian Demographics on the Crisis in Ukraine
There are numerous driving factors for Russia's involvement in Ukraine. These include the strategic imperative to retain a malleable border state, the need to ensure Russia's ability to maintain military bases in the country (especially the warm water naval base in Sevastopol), and the capcity to use Ukraine as a transit state for Russia oil and natural gas. A pro-Western administration in Kiev complicates these demands. All of these issues explain Moscow's actions, however, there is another factor in play here. The unfavorable demographic trajectory which Russia's faces and the need to make economic and security arrangements during at time when Moscow is relatively strong.
Russia is seeing a declining population. The CIA’s 2013 estimate for population growth was -0.02%. In fact population growth has usually been negative since the end of the Cold War and 1988 was the last time that the country has the replacement fertility rate of 2.1. These unfavorable trends will complicate Moscow's ability to project its authority in the future. Despite this challenge the country is relatively strong at the moment. For this reason it makes sense for the Moscow to try to cement deals while it is in a position of strength. The reality is that Crimea is of strategic importance to Russia and it is of much less significance to Europe and the Untied States. Of course Western leaders will condemn any effort to annex the territory of another country but they will not back their words with actions, as it is not in their interest. The United States has no stomach to become involved in another foreign conflict and forbidding US firms from conducting business in Russia is unlikely to say the least. Many European powers are dependent upon Russia for energy and trade and have made it clear that though they disapprove of Russia’s actions business will continue as normal. Moscow’s history of shutting off energy flows when it has a dispute has also demonstrated that Putin is willing to hurt the Russian economy in order to advance the country’s political and security interests. In short Russia knows that the West is all talk and no action and the West knows that Russia has no problem with acting on its threats.
By annexing Crimea Moscow will solve a potential security problem. Russia will presumably compensate Ukraine as such an action is necessary as it will add a degree of credibility to whatever form of treaty ends this impasse. The compensation would also make a Ukrainian default less likely. Though the Russian economy has taken a hit since the conflict began Moscow can afford the bill now far more easily than it might be able to in the future. Preventing Ukraine from defaulting is essential as it could lead to the spread of financial contagion into the European, Russian and global banking systems (this is also why the US offered Kiev a billion dollars in loans. That wasn’t altruism. That was self-interest). The situation in Ukraine also sends a message to country's in Russia's Near Abroad who harbor designs for greater integration with Europe. Moldova and Georgia certainly come to mind here. The likelihood of anymore countries in Russia’s Near Abroad joining NATO and the European Union is less likely. After all if Russia were to invade a member of NATO or the EU concrete action would need to be taken. Neither Brussels nor Moscow has a interest in allowing stakes to rise that high. Negotiations will continue between the EU and countries seeking greater integration but as long as Russia is capable of protecting its interests these talks will come to nothing.
The US has threatened consequences for Russian actions. Though military operations or bans on US businesses working in Russia are highly unlikely it is possible that the US will try to aid other powers in diversifying away from Russia energy. We might see increased activity in developing shale reserves in countries such as Poland where, after initial excitement, major energy firms pulled out as unfavorable geology made fracking uneconomical. Promoting Western interests by subsidizing such operations is not an impossible course of action, though it remains to be seen what form such a policy would take. The cooperation between Turkey, Georgia and Azerbaijan will likely be encouraged though that approach will encounter challenges due to Russian pressure on Georgia and Azerbaijan and current political tensions in Turkey. US-Iranian détente could also see the development of pipelines which transverse Iran. Russia of course understands these threats and for the time being is capable of countering them. In the long term unfavorable demographic trends will likely see Moscow lose a great deal of influence. However, for the time being we can expect Moscow to bully the weaker powers in its Near Abroad while trying to strike a more conciliatory tone with more powerful states. The intent will be to secure treaties which can help protect Russian interests while it is relatively weak. One way or another the situation in Crimea will be resolved in a manner which will be favorable to Russia. In the coming years it is likely that we will see some form of resolution to conflicting territorial claims in the Arctic between Russia and countries such as Norway and Canada. Moscow will also use a combination of threats and economic incentives to try and enlarge Russia’s Customs Union. In the meantime the political and social instability will continue in Ukraine while global markets remain vigilant of the financial contagion that could result if Kiev defaults on its debts.
Russia is seeing a declining population. The CIA’s 2013 estimate for population growth was -0.02%. In fact population growth has usually been negative since the end of the Cold War and 1988 was the last time that the country has the replacement fertility rate of 2.1. These unfavorable trends will complicate Moscow's ability to project its authority in the future. Despite this challenge the country is relatively strong at the moment. For this reason it makes sense for the Moscow to try to cement deals while it is in a position of strength. The reality is that Crimea is of strategic importance to Russia and it is of much less significance to Europe and the Untied States. Of course Western leaders will condemn any effort to annex the territory of another country but they will not back their words with actions, as it is not in their interest. The United States has no stomach to become involved in another foreign conflict and forbidding US firms from conducting business in Russia is unlikely to say the least. Many European powers are dependent upon Russia for energy and trade and have made it clear that though they disapprove of Russia’s actions business will continue as normal. Moscow’s history of shutting off energy flows when it has a dispute has also demonstrated that Putin is willing to hurt the Russian economy in order to advance the country’s political and security interests. In short Russia knows that the West is all talk and no action and the West knows that Russia has no problem with acting on its threats.
By annexing Crimea Moscow will solve a potential security problem. Russia will presumably compensate Ukraine as such an action is necessary as it will add a degree of credibility to whatever form of treaty ends this impasse. The compensation would also make a Ukrainian default less likely. Though the Russian economy has taken a hit since the conflict began Moscow can afford the bill now far more easily than it might be able to in the future. Preventing Ukraine from defaulting is essential as it could lead to the spread of financial contagion into the European, Russian and global banking systems (this is also why the US offered Kiev a billion dollars in loans. That wasn’t altruism. That was self-interest). The situation in Ukraine also sends a message to country's in Russia's Near Abroad who harbor designs for greater integration with Europe. Moldova and Georgia certainly come to mind here. The likelihood of anymore countries in Russia’s Near Abroad joining NATO and the European Union is less likely. After all if Russia were to invade a member of NATO or the EU concrete action would need to be taken. Neither Brussels nor Moscow has a interest in allowing stakes to rise that high. Negotiations will continue between the EU and countries seeking greater integration but as long as Russia is capable of protecting its interests these talks will come to nothing.
The US has threatened consequences for Russian actions. Though military operations or bans on US businesses working in Russia are highly unlikely it is possible that the US will try to aid other powers in diversifying away from Russia energy. We might see increased activity in developing shale reserves in countries such as Poland where, after initial excitement, major energy firms pulled out as unfavorable geology made fracking uneconomical. Promoting Western interests by subsidizing such operations is not an impossible course of action, though it remains to be seen what form such a policy would take. The cooperation between Turkey, Georgia and Azerbaijan will likely be encouraged though that approach will encounter challenges due to Russian pressure on Georgia and Azerbaijan and current political tensions in Turkey. US-Iranian détente could also see the development of pipelines which transverse Iran. Russia of course understands these threats and for the time being is capable of countering them. In the long term unfavorable demographic trends will likely see Moscow lose a great deal of influence. However, for the time being we can expect Moscow to bully the weaker powers in its Near Abroad while trying to strike a more conciliatory tone with more powerful states. The intent will be to secure treaties which can help protect Russian interests while it is relatively weak. One way or another the situation in Crimea will be resolved in a manner which will be favorable to Russia. In the coming years it is likely that we will see some form of resolution to conflicting territorial claims in the Arctic between Russia and countries such as Norway and Canada. Moscow will also use a combination of threats and economic incentives to try and enlarge Russia’s Customs Union. In the meantime the political and social instability will continue in Ukraine while global markets remain vigilant of the financial contagion that could result if Kiev defaults on its debts.
Friday, February 28, 2014
Is Bolivia One Step Closer to Becoming a Maritime Power?
Bolivian President Evo Morales traveled to Peru yesterday to meet with his Peruvian counterpart President Ollanta Humala. Bolivia’s access to the Port of Ilo and surrounding territory and the expansion of port facilities were presumably key issues to be discussed. In 1992 then Peruvian President Alberto Fujimori offered Bolivia access to this territory with a 99-year, potentially renewable lease. The understanding was that Bolivia would cover the cost of building the requisite infrastructure. Though the treaty was never ratified its status was of relatively little importance as La Paz lacked the funds to invest in the project. In recent years the Bolivian economy has improved to such a degree that it has the capital which it lacked in the past. For this reason the implementation of the agreement is a key geopolitical imperative for La Paz as it would functionally change Bolivia from a landlocked country to a maritime power.
Bolivia has been fairly successful in recent years. The country’s economy grew an estimated 6.5% in 2013, the budget is balanced, inflation is under control, and debts are manageable. Though the country's success has been aided by the high price of commodities in recent years and thus is subject to market fluctuations (it is already estimated that 2014’s growth will be lower than in 2013) the fact that La Paz has foreign reserves worth an estimated $14 Billion gives the country room to maneuver. Such a nest egg could help fund the expansions of Ilo’s port. Bolivia is also attempting to reduce its dependency on primary commodities. In August 2013 Bolivia and the Netherlands signed a letter of intent in which they agreed to cooperate in developing Bolivia’s substantial lithium deposits to manufacture batteries in Bolivian territory. Though a letter of intent is not a firm agreement, access to adequate port facilities would make Bolivian batteries more competitive thus the development of Ilo could help to transform this letter of intent into a legally binding document. The development of the port could also afford Bolivia the opportunity to set up Export Processing Zones and profit from the types of manufacturing that has helped countries, such as China, develop. Linking the port to the Interoceanic Highway (which connects Brazil to Peru) would also help Bolivia further expand its manufacturing industry and make the country’s exports more competitive.
Access to the sea has long been a contentious issue in Bolivia. The 1879-84 War of the Pacific saw a victorious Chile seizing Bolivia's coastal territory. Bolivia has long sought to address this issue. In April 2013 Bolivia filed a case against Chile with the International Court of Justice. Despite Peru's success in reclaiming land from Chile last month we must note that the cases are different so Peru’s victory is not a precedent which will see Bolivia reclaiming the territory that it lost during the war. Access to Ilo mitigates this issue. No matter what happens the combination of access to adequate port facilities, a well managed economy, developing infrastructure, positive growth, and valuable resources will go a long way towards restoring the investor confidence which Bolivia lost in 2006 when President Morales put the country’s energy sector under state control. Many investors are pulling out of emerging markets for a variety of reasons such as tapering. Exiting emerging markets without taking the time to differentiate between them is short sighted and could stop investors from putting their money in a place where it could contribute to economic development and provide impressive returns. Bolivia may very well be one of these places.
Bolivia has been fairly successful in recent years. The country’s economy grew an estimated 6.5% in 2013, the budget is balanced, inflation is under control, and debts are manageable. Though the country's success has been aided by the high price of commodities in recent years and thus is subject to market fluctuations (it is already estimated that 2014’s growth will be lower than in 2013) the fact that La Paz has foreign reserves worth an estimated $14 Billion gives the country room to maneuver. Such a nest egg could help fund the expansions of Ilo’s port. Bolivia is also attempting to reduce its dependency on primary commodities. In August 2013 Bolivia and the Netherlands signed a letter of intent in which they agreed to cooperate in developing Bolivia’s substantial lithium deposits to manufacture batteries in Bolivian territory. Though a letter of intent is not a firm agreement, access to adequate port facilities would make Bolivian batteries more competitive thus the development of Ilo could help to transform this letter of intent into a legally binding document. The development of the port could also afford Bolivia the opportunity to set up Export Processing Zones and profit from the types of manufacturing that has helped countries, such as China, develop. Linking the port to the Interoceanic Highway (which connects Brazil to Peru) would also help Bolivia further expand its manufacturing industry and make the country’s exports more competitive.
Access to the sea has long been a contentious issue in Bolivia. The 1879-84 War of the Pacific saw a victorious Chile seizing Bolivia's coastal territory. Bolivia has long sought to address this issue. In April 2013 Bolivia filed a case against Chile with the International Court of Justice. Despite Peru's success in reclaiming land from Chile last month we must note that the cases are different so Peru’s victory is not a precedent which will see Bolivia reclaiming the territory that it lost during the war. Access to Ilo mitigates this issue. No matter what happens the combination of access to adequate port facilities, a well managed economy, developing infrastructure, positive growth, and valuable resources will go a long way towards restoring the investor confidence which Bolivia lost in 2006 when President Morales put the country’s energy sector under state control. Many investors are pulling out of emerging markets for a variety of reasons such as tapering. Exiting emerging markets without taking the time to differentiate between them is short sighted and could stop investors from putting their money in a place where it could contribute to economic development and provide impressive returns. Bolivia may very well be one of these places.
Friday, February 21, 2014
The Impact of Turkish, Georgian and Azerbaijani Infrastructure Projects on European and Asian Markets
On Wednesday the foreign ministers of Turkey, Azerbaijan and Georgia met in Ganja, Azerbaijan to discuss regional cooperation. This is the most recent step in the ongoing integration of the three countries which, amongst other things, links Caspian energy resources to the Mediterranean. This development is occurring at a time when the instability in Ukraine calls into question the viability of that country as a transit state for energy that is intended for Europe. After all the deep divisions between Eastern and Western Ukraine and the reality that the opposition movement is highly fragmented makes it questionable that today’s concessions by the Yanukovych administration will lead to long term political stability in Ukraine. Existing and proposed infrastructure in the Azerbaijan, Georgia, Turkey corridor could help offset disruptions that instability in Ukraine might produce.
In 2012 the Trabzon Declaration called for stronger economic, energy and political relations between Ankara, Tbilisi and Baku. This declaration formalized an existing pattern of relations between Turkey, Georgia and Azerbaijan which has resulted in several important infrastructure projects. The Baku-Tbilisi-Ceyhan (BTC) Pipeline transports crude oil from the Caspian Sea to the Turkish coast of the Mediterranean. This pipeline is complemented by the Baku-Tbilisi-Erzurum Gas Pipeline which aids the export of natural gas. The Baku-Tbilisi-Kars Railway is expected to be completed by the end of 2014. This corridor will connect Azerbaijan, Georgian and Turkish railways and will expand freight service which should make the export of raw material from Central Asia more economical. These projects can help develop the region and could serve as an important source of primary commodities for Asian and European markets.
Despite Turkey’s current political turmoil, the ability to serve as an energy corridor to the Mediterranean benefits whoever is in power in Ankara while the expansion of rail services would help Georgia and Azerbaijan’s exports. For these regions all parties have an incentive to cooperate. Though Russia will not want to see its control over energy exports to Europe lessened it is important to note that Moscow could benefit from these projects. For example, there are ongoing talks between Moscow and Baku to reverse the flow of oil through the Baku-Novorossiysk Pipeline with the intent of sending some of the oil through the Baku-Tbilisi-Ceyhan Pipeline which in theory could be a more economical manner for Russia to serve some of its European clients. There have also been proposals to link regional railways to Russian rail infrastructure which would aid Russian exports. Though it is likely that Russia would attempt to stop the development of an alternative energy source to Europe it is not unreasonable to think that the development of an alternative energy corridor in which Moscow has a degree of control would be allowed to progress without Russian interference. No matter what happens the development of pipelines and railways in the Azerbaijan, Georgia, Turkey corridor could lead to greater development in the region and serve as a reliable supply of raw materials to Asian and European (and potentially East and Southern African) markets.
In 2012 the Trabzon Declaration called for stronger economic, energy and political relations between Ankara, Tbilisi and Baku. This declaration formalized an existing pattern of relations between Turkey, Georgia and Azerbaijan which has resulted in several important infrastructure projects. The Baku-Tbilisi-Ceyhan (BTC) Pipeline transports crude oil from the Caspian Sea to the Turkish coast of the Mediterranean. This pipeline is complemented by the Baku-Tbilisi-Erzurum Gas Pipeline which aids the export of natural gas. The Baku-Tbilisi-Kars Railway is expected to be completed by the end of 2014. This corridor will connect Azerbaijan, Georgian and Turkish railways and will expand freight service which should make the export of raw material from Central Asia more economical. These projects can help develop the region and could serve as an important source of primary commodities for Asian and European markets.
Despite Turkey’s current political turmoil, the ability to serve as an energy corridor to the Mediterranean benefits whoever is in power in Ankara while the expansion of rail services would help Georgia and Azerbaijan’s exports. For these regions all parties have an incentive to cooperate. Though Russia will not want to see its control over energy exports to Europe lessened it is important to note that Moscow could benefit from these projects. For example, there are ongoing talks between Moscow and Baku to reverse the flow of oil through the Baku-Novorossiysk Pipeline with the intent of sending some of the oil through the Baku-Tbilisi-Ceyhan Pipeline which in theory could be a more economical manner for Russia to serve some of its European clients. There have also been proposals to link regional railways to Russian rail infrastructure which would aid Russian exports. Though it is likely that Russia would attempt to stop the development of an alternative energy source to Europe it is not unreasonable to think that the development of an alternative energy corridor in which Moscow has a degree of control would be allowed to progress without Russian interference. No matter what happens the development of pipelines and railways in the Azerbaijan, Georgia, Turkey corridor could lead to greater development in the region and serve as a reliable supply of raw materials to Asian and European (and potentially East and Southern African) markets.
Wednesday, February 12, 2014
Will Spain’s Anti-Abortion Law Increase the Number and Size of Protests in Europe?
Generally speaking I focus on tangible resources in these posts. These physical goods range from oil to infrastructure. That said, we must note that some resources are valuable yet intangible. A lack of a concrete form does not mean that they do not merit discussion. These abstract resources can take many forms such as obtaining a quality education, the ability to utilize a specific service, and an institutional structure that provides the vast majority of a population with the opportunity to provide for themselves and their family. A codified sets of rights also falls under the rubric of intangible resources as they guarantee the population specified rights and privileges. By limiting a woman’s right to an abortion Madrid may very well have added more fuel to the protest movements in Spain. As we have seen with the Arab Spring such a shift has the ability to spread far beyond the borders of one state impacting the political, social, economic, and security stability of an entire region.
Between alleged corruption in the royal family, an unpopular government, and a crippling economic crisis Spain's situation is terrible to say the least. This does not mean that things cannot get worse. When peoples’ rights are stripped from them they will often protest. It is likely that the demonstrations that have already occurred in response to the new abortion law will only become larger given that opinion polls are estimating that up to 80% of Spaniards, including practicing Catholics, feel that the proposed law was not necessary. (It is important to note that "opposing" and "not necessary" are not the same thing. That said, it is also safe to say that there is significant opposition to the law.). As we have seen with other protest movements, such as the Occupy Movement, protests attract protestors even if their personal cause is not the purpose of the protest. On one hand this hinders the development of effective leadership, as the demonstrations are not cohesive. On the other hand the increased turnout can lead to increased social instability.
Protest movements can start and spread due to unexpected incidents. Mohamed Bouazizi’s self-immolation quite literally sparked the Arab Spring. The causes of demonstrations can also be relatively unnecessary. The protests in Ukraine, which started when Kiev froze negotiations to further integrate with the EU, had diminished until President Yankuvych passed an anti-protest law that compromised Ukrainians' freedom to protest. Given many Ukrainians' response to the attempted removal of a right it is neither unreasonable to think that Spain’s new abortion law will provoke massive demonstrations nor is it unrealistic to think that Spaniards who have other grievances will use these protests to make their voices heard. If such incidents were to occur it is also possible that they could further provoke protest movements in other countries. These demonstration could help increase the power of political parties that want to limit European integration. Nationalist Parties such as Marine Le Pen’s National Front in France, Geert Wilders’s Freedom Party in the Netherlands, and Greece’s Golden Dawn are examples of political movements whose ideologies have historically been relatively fringe yet have become far more popular as the economic crisis has carried on in Europe. The increased protests that Spain’s recent actions might provoke could serve as an ideal fora for these groups to attract more support.
Europe will not see the sort of instability that we have seen in North Africa and Southwest Asia as Europe is democratic (and thus unpopular leaders can be voted out) and significantly richer. That said, an increase of protests is the last thing that Europe need during a crucial year in which May’s European Parliamentary Elections could see nationalist parties make political gains which would further limit Brussels ability to act decisively. The forthcoming stress tests for many European banks will also add a greater degree of economic instability to existing political, social and security concerns. Is Europe doomed in the long term? No. Even if the EU as we know it sees a fundamental institutional shift we are still looking at a region with a massive amount of financial and human capital as well as an important geographic location and the infrastructure to maximize its utility. Though a rising dependency ratio will cause problems in the coming decades and some countries of the European Periphery will remain poor the European Core will remain significant. That said, the potential for instability that Madrid has just unleashed is the last thing that Europe needs in 2014.
Between alleged corruption in the royal family, an unpopular government, and a crippling economic crisis Spain's situation is terrible to say the least. This does not mean that things cannot get worse. When peoples’ rights are stripped from them they will often protest. It is likely that the demonstrations that have already occurred in response to the new abortion law will only become larger given that opinion polls are estimating that up to 80% of Spaniards, including practicing Catholics, feel that the proposed law was not necessary. (It is important to note that "opposing" and "not necessary" are not the same thing. That said, it is also safe to say that there is significant opposition to the law.). As we have seen with other protest movements, such as the Occupy Movement, protests attract protestors even if their personal cause is not the purpose of the protest. On one hand this hinders the development of effective leadership, as the demonstrations are not cohesive. On the other hand the increased turnout can lead to increased social instability.
Protest movements can start and spread due to unexpected incidents. Mohamed Bouazizi’s self-immolation quite literally sparked the Arab Spring. The causes of demonstrations can also be relatively unnecessary. The protests in Ukraine, which started when Kiev froze negotiations to further integrate with the EU, had diminished until President Yankuvych passed an anti-protest law that compromised Ukrainians' freedom to protest. Given many Ukrainians' response to the attempted removal of a right it is neither unreasonable to think that Spain’s new abortion law will provoke massive demonstrations nor is it unrealistic to think that Spaniards who have other grievances will use these protests to make their voices heard. If such incidents were to occur it is also possible that they could further provoke protest movements in other countries. These demonstration could help increase the power of political parties that want to limit European integration. Nationalist Parties such as Marine Le Pen’s National Front in France, Geert Wilders’s Freedom Party in the Netherlands, and Greece’s Golden Dawn are examples of political movements whose ideologies have historically been relatively fringe yet have become far more popular as the economic crisis has carried on in Europe. The increased protests that Spain’s recent actions might provoke could serve as an ideal fora for these groups to attract more support.
Europe will not see the sort of instability that we have seen in North Africa and Southwest Asia as Europe is democratic (and thus unpopular leaders can be voted out) and significantly richer. That said, an increase of protests is the last thing that Europe need during a crucial year in which May’s European Parliamentary Elections could see nationalist parties make political gains which would further limit Brussels ability to act decisively. The forthcoming stress tests for many European banks will also add a greater degree of economic instability to existing political, social and security concerns. Is Europe doomed in the long term? No. Even if the EU as we know it sees a fundamental institutional shift we are still looking at a region with a massive amount of financial and human capital as well as an important geographic location and the infrastructure to maximize its utility. Though a rising dependency ratio will cause problems in the coming decades and some countries of the European Periphery will remain poor the European Core will remain significant. That said, the potential for instability that Madrid has just unleashed is the last thing that Europe needs in 2014.
Friday, February 7, 2014
Will Shifts In East Asian Demographics Impact Reactions To North Korean Aggression?
Relations between Seoul and Pyongyang are especially tense this month due to the annual "Foal Eagle" joint military drill conducted by the US and South Korea that will be held at the end of February. North Korea views these exercises as a provocation and has already threatened to cancel the proposed family reunions scheduled for February 20th to the 25th stating that "Dialogue and exercises of war" are incompatible. This comes at a time when Kim Jong Un is trying to consolidate his power with the recent execution of his uncle Chang Song-thaek providing an example of the brutality of this process.
When we look at the current tensions on the Korean Peninsula it is important to remember that North Korea has a history of taking action when the US military is in the region. For example the attacks on Yeonpyeong Island on November 23rd, 2010 coincided with the Hoguk Exercises which were a joint Korean-US undertaking on the western shore of the Korean Peninsula. Last year’s drills were especially tense provoking North Korea to threaten pre-emptive nuclear strikes. Given the statements coming out of Pyongyang this year it is likely that tensions will be as bad if not worse. For these reasons some form of aggression from North Korea would not be unexpected. What is different this year is that the geopolitical climate of East Asia has shifted. This shift is attributed to numerous factors one of the most important of which is changing demographics.
Much of East Asia is facing a demographic crisis in which the population is aging rapidly while birth rates have fallen. Since 1978 China has had a one-child policy (which is now being reformed) and in the past few decades certain parts of Japan and South Korea have in many ways had a de facto one child policy due to a variety of reasons such as the high cost of raising children. 1984 was the last year that South Korea’s total fertility rate was 2.0. This metric has fluctuated between 1.1 and 1.2 for over a decade. Japan’s total fertility rate has not been 2.0 since 1974 and has ranged from 1.3 and 1.4 since 2002. From an economic standpoint this demographic shift is a challenge as the youth must provide more support to the elderly than in previous decades and the percentage of the population that can be classified as elderly is becoming much larger. This change is also forcing countries to stake territorial claims and make security arrangements now when they are in a position of relative strength.
From a security standpoint declining populations will mean a significant decrease in the number of people who are fit for military duty (immigration could mitigate this issue but at the present none of the countries in question are particularly keen on welcoming large numbers of foreigners). This dynamic combined with the reality that the US will not guarantee security in the manner that it has in the past are forcing China, South Korea, and Japan to shift their policies in a more aggressive manner. This change takes numerous forms such as the establishment of China’s Air Defense Identification Zone over a significant portion of the East China Sea and Japan’s efforts to build up its military. Such a situation increases the chance for conflict. In the past North Korea has been able to get away with a high degree of brinkmanship. Given the current geopolitical shift and evidence that Beijing is beginning to lose patience with Pyongyang it is not impossible that acts of aggression that in the past would only provoke condemnation might now produce more concrete action. For these reason we must be particularly concerned with East Asia this February. History provides us with countless examples of incidents that usually would have stayed minor but have become amplified due to social, political and economic changes such as a major shift in the demographics of a country. Though it can be a challenge to predict the exact form that a potential conflict will take we do know that major structural shift will usually increase tensions. Understanding the nature of these shifts better equips us to address these challenges.
When we look at the current tensions on the Korean Peninsula it is important to remember that North Korea has a history of taking action when the US military is in the region. For example the attacks on Yeonpyeong Island on November 23rd, 2010 coincided with the Hoguk Exercises which were a joint Korean-US undertaking on the western shore of the Korean Peninsula. Last year’s drills were especially tense provoking North Korea to threaten pre-emptive nuclear strikes. Given the statements coming out of Pyongyang this year it is likely that tensions will be as bad if not worse. For these reasons some form of aggression from North Korea would not be unexpected. What is different this year is that the geopolitical climate of East Asia has shifted. This shift is attributed to numerous factors one of the most important of which is changing demographics.
Much of East Asia is facing a demographic crisis in which the population is aging rapidly while birth rates have fallen. Since 1978 China has had a one-child policy (which is now being reformed) and in the past few decades certain parts of Japan and South Korea have in many ways had a de facto one child policy due to a variety of reasons such as the high cost of raising children. 1984 was the last year that South Korea’s total fertility rate was 2.0. This metric has fluctuated between 1.1 and 1.2 for over a decade. Japan’s total fertility rate has not been 2.0 since 1974 and has ranged from 1.3 and 1.4 since 2002. From an economic standpoint this demographic shift is a challenge as the youth must provide more support to the elderly than in previous decades and the percentage of the population that can be classified as elderly is becoming much larger. This change is also forcing countries to stake territorial claims and make security arrangements now when they are in a position of relative strength.
From a security standpoint declining populations will mean a significant decrease in the number of people who are fit for military duty (immigration could mitigate this issue but at the present none of the countries in question are particularly keen on welcoming large numbers of foreigners). This dynamic combined with the reality that the US will not guarantee security in the manner that it has in the past are forcing China, South Korea, and Japan to shift their policies in a more aggressive manner. This change takes numerous forms such as the establishment of China’s Air Defense Identification Zone over a significant portion of the East China Sea and Japan’s efforts to build up its military. Such a situation increases the chance for conflict. In the past North Korea has been able to get away with a high degree of brinkmanship. Given the current geopolitical shift and evidence that Beijing is beginning to lose patience with Pyongyang it is not impossible that acts of aggression that in the past would only provoke condemnation might now produce more concrete action. For these reason we must be particularly concerned with East Asia this February. History provides us with countless examples of incidents that usually would have stayed minor but have become amplified due to social, political and economic changes such as a major shift in the demographics of a country. Though it can be a challenge to predict the exact form that a potential conflict will take we do know that major structural shift will usually increase tensions. Understanding the nature of these shifts better equips us to address these challenges.
Friday, January 31, 2014
Will Improvements in Brazilian Infrastructure Marginalize Argentina?
Argentina is a country that is relatively poor due to policy rather than a lack of resources and easy access to global markets. Though the 2015 presidential election could bring an administration with more pro business policies to power it is important to note that such a shift will not necessarily result in a major influx of capital as issues related to the development of infrastructure could still hinder the country’s development. Infrastructure and investment go hand in hand as capital is less likely to flow into countries that lack adequate facilities. The 2001-2002 Argentine default and the seizure of Repsol’s majority stake in YPF (a settlement may have been reached but a precedent has also been set) will also make investors wary of financing construction. This is not to say that there will be no investment. After all there is some foreign investment aimed at developing the Vaca Muerta shale reserves and Argentina’s hydropower resources. The reality though is that risk increases the cost of capital so the projects that do get funded will likely be on terms that are less favorable to the Argentines than they otherwise would be thus reducing the total funds that can be put towards development.
Improved infrastructure in other parts of the Americas could make Argentine exports less competitive. Argentina is the third largest soy producer in the world after the Brazil and the United States. The expansion of the Panama Canal could make the later two exporters more competitive when shipping soybeans to Asian markets. In addition to this Brazil is attempting to invest $27 billion to improve its infrastructure with the goal of quadrupling Brazilian exports by 2030. Brazil became the largest exporter of soy in 2013 despite its poor infrastructure. Projects such as the development of the Amazonian port of Santarem would make the country even more competitive. Though Brazil has its own share of political and economic issues we have seen that auctions privatizing Brazilian highways, airports and ports are proving to be fairly effective in attracting capital to the country. If Brazil continues to develop and Argentina continues to stagnate it will be difficult for the later to develop infrastructure that is competitive with Brazil. The Argentines could find themselves in a position where they might have to ship some of their goods via Brazilian ports. This would eat into Argentina's profits resulting in less capital for the country to invest in itself.
To truly develop countries have to move beyond being exporters of raw commodities whose prices fluctuate dramatically. Such as shift requires investment and the development of infrastructure such as power plants, adequate port facilities, and internal transport network. Funding such projects is challenging given Argentina’s track record and economic policies. As we have seen competition and the need to rely on foreign ports could further weaken the country and limit the amounts of capital that it can bring to develop its infrastructure. This vicious cycle is a situation that will need to be monitored closely. The increasing demand for agricultural commodities and Argentina’s geographic location will allow it to profit from its resources. That said, a country profiting off of its resources and a country developing to its full potential is not the same thing.
Improved infrastructure in other parts of the Americas could make Argentine exports less competitive. Argentina is the third largest soy producer in the world after the Brazil and the United States. The expansion of the Panama Canal could make the later two exporters more competitive when shipping soybeans to Asian markets. In addition to this Brazil is attempting to invest $27 billion to improve its infrastructure with the goal of quadrupling Brazilian exports by 2030. Brazil became the largest exporter of soy in 2013 despite its poor infrastructure. Projects such as the development of the Amazonian port of Santarem would make the country even more competitive. Though Brazil has its own share of political and economic issues we have seen that auctions privatizing Brazilian highways, airports and ports are proving to be fairly effective in attracting capital to the country. If Brazil continues to develop and Argentina continues to stagnate it will be difficult for the later to develop infrastructure that is competitive with Brazil. The Argentines could find themselves in a position where they might have to ship some of their goods via Brazilian ports. This would eat into Argentina's profits resulting in less capital for the country to invest in itself.
To truly develop countries have to move beyond being exporters of raw commodities whose prices fluctuate dramatically. Such as shift requires investment and the development of infrastructure such as power plants, adequate port facilities, and internal transport network. Funding such projects is challenging given Argentina’s track record and economic policies. As we have seen competition and the need to rely on foreign ports could further weaken the country and limit the amounts of capital that it can bring to develop its infrastructure. This vicious cycle is a situation that will need to be monitored closely. The increasing demand for agricultural commodities and Argentina’s geographic location will allow it to profit from its resources. That said, a country profiting off of its resources and a country developing to its full potential is not the same thing.
Friday, January 24, 2014
The Challenges of Attracting Capital to a Post-Mugabe Zimbabwe
A business delegation from Zimbabwe is visiting Belgium from January 26th to the 31st in an attempt to attract capital to the country and to assuage the concerns of European business leaders of how Harare’s policies would impact any potential investment in the country. In the short term these meeting are unlikely to result in any significant influxes of capital. This is due to Zimbabwe’s Indigenization Law (which gives Zimbabweans the right to take over and control many foreign owned companies), corruption, poor infrastructure, regulatory issues, policy uncertainty, a large external debt, and high employment. Despite these problems, the types of investments that are discussed during the visit and the relations that are established between Zimbabwe’s business elite and European investors should be monitored as Zimbabwe’s economy is damaged due to poor policy not geographic location. The country was once one of the most affluent African states. Though its governance has become worse its resource base is still strong. This reality combined with improved regional infrastructure and increased world demand for agricultural production could mean an improved standard of living for Zimbabweans in the coming years and investment opportunities as the country develops key sectors of its economy.
Historically, Zimbabwe was the "Breadbasket of Africa" however policy decisions from the late 90’s on dramatically impacted the country's agricultural output and economic performance. From 1998-2002 Zimbabwe involvement in the war in the Democratic Republic of the Congo cost the country hundreds of millions of dollars. In 2000 the Fast Track Process of Land Redistribution allowed the government to acquire commercial farms without offering compensation. The reforms essentially transferred land from white farmers to black ZANU-PF party loyalists. They were poorly implemented resulting in violence and they ultimately turned Zimbabwe into a net importer of food products. The sanctions from western countries that resulted from this are estimated to have cost Zimbabwe $42 billion. The county’s problems continued as the Reserve Bank of Zimbabwe printed so much money to fund its deficit that it caused hyperinflation. In 2009 the use of foreign currencies, such as the US Dollar and South African Rand, was implemented. This ended hyperinflation and reduced inflation to approximately 10% however structural issues still remain.
Despite these challenges there have been some potential improvements to the economy. On September 17th, 2013 the European Union announced that the sanctions against the Zimbabwe Mining Development Corporation would be lifted. This was a result of many western observers agreeing that the 2013 Election in Zimbabwe was free and fair. Given the reports of voter intimidation it is unlikely that the elections were fair though they might have appeared this way because the real repression had taken effect before the population went to the polls. Whether the elections were really free though is not the question. Western powers recognize that if they want to have any form of influence in Mugabe’s inevitable succession they need to take a less confrontational approach to relations with Harare. This would account for statements saying that the election was free as well as the EU lifting the sanctions. Mugabe and high ranking members of Zanu-PF did profit from diamond sales while the sanctions were in place however the removal of these barriers will likely result in higher profits.
One of the key issues facing Zimbabwe right now is the question of who will succeed President Robert Mugabe. Mugabe has not officially chosen a successor as such an action could reduce some of his influence. As things stand now the most probable successors are Justice Minister Emmerson Mnangagwa, who headed the Defense Ministry until the elections last July, and Vice President Joyce Mujuru.
Due to his past and current posting Mnangagwa has a great deal of influence with both the military and the police/internal security services. He also will benefits economically from the lifting of diamond sanctions due to his influence in the Marange Diamond Fields. Mnangagwa is perceived as the more hard-line candidate who would likely carry on with Mugabe’s policy. Though he does not have the popular support that Mujuru has he does have strong ties with the security forces.
Mujuru, has strong political credentials as she participated in the struggle for independence against Ian Smith’s Rhodesian regime. She benefits politically as her late husband, Gen. Solomon Mujuru, was a popular freedom fighter, who commanded the Zimbabwean army after independence. Mujuru also faired better than Mnangagwa in 2013’s provincial elections. She is perceived as more business friendly and takes a less hard line stance than Mnangagwa which would make her the reformist candidate by default (reformist is relative here).
It is important to note that given the strength of both factions there will likely be tension in Zimbabwe no matter who is chosen as Mugabe’s successor. This does not mean that a comprise cannot be reached but it is still a cause for concern. As of now ZANU-PF will continue to receive regional support from parties like South Africa’s ANC as Southern African independence parties view opposition labor parties, such as Zimbabwe’s MDC, as a threat to their power.
Clearly, there are significant political and economic challenges for Zimbabwe to overcome and it is unlikely that they will be effectively addressed in the current political climate. That said, the country has significant room to develop as its poverty is a result of policy not geography. If and when the Zimbabwe has a less maligned government and more predictable politics its economy will see a resurgence due to the demand for its resources base and access to ports such as Durban (South Africa) and Beira (Mozambique).
Historically, Zimbabwe was the "Breadbasket of Africa" however policy decisions from the late 90’s on dramatically impacted the country's agricultural output and economic performance. From 1998-2002 Zimbabwe involvement in the war in the Democratic Republic of the Congo cost the country hundreds of millions of dollars. In 2000 the Fast Track Process of Land Redistribution allowed the government to acquire commercial farms without offering compensation. The reforms essentially transferred land from white farmers to black ZANU-PF party loyalists. They were poorly implemented resulting in violence and they ultimately turned Zimbabwe into a net importer of food products. The sanctions from western countries that resulted from this are estimated to have cost Zimbabwe $42 billion. The county’s problems continued as the Reserve Bank of Zimbabwe printed so much money to fund its deficit that it caused hyperinflation. In 2009 the use of foreign currencies, such as the US Dollar and South African Rand, was implemented. This ended hyperinflation and reduced inflation to approximately 10% however structural issues still remain.
Despite these challenges there have been some potential improvements to the economy. On September 17th, 2013 the European Union announced that the sanctions against the Zimbabwe Mining Development Corporation would be lifted. This was a result of many western observers agreeing that the 2013 Election in Zimbabwe was free and fair. Given the reports of voter intimidation it is unlikely that the elections were fair though they might have appeared this way because the real repression had taken effect before the population went to the polls. Whether the elections were really free though is not the question. Western powers recognize that if they want to have any form of influence in Mugabe’s inevitable succession they need to take a less confrontational approach to relations with Harare. This would account for statements saying that the election was free as well as the EU lifting the sanctions. Mugabe and high ranking members of Zanu-PF did profit from diamond sales while the sanctions were in place however the removal of these barriers will likely result in higher profits.
One of the key issues facing Zimbabwe right now is the question of who will succeed President Robert Mugabe. Mugabe has not officially chosen a successor as such an action could reduce some of his influence. As things stand now the most probable successors are Justice Minister Emmerson Mnangagwa, who headed the Defense Ministry until the elections last July, and Vice President Joyce Mujuru.
Due to his past and current posting Mnangagwa has a great deal of influence with both the military and the police/internal security services. He also will benefits economically from the lifting of diamond sanctions due to his influence in the Marange Diamond Fields. Mnangagwa is perceived as the more hard-line candidate who would likely carry on with Mugabe’s policy. Though he does not have the popular support that Mujuru has he does have strong ties with the security forces.
Mujuru, has strong political credentials as she participated in the struggle for independence against Ian Smith’s Rhodesian regime. She benefits politically as her late husband, Gen. Solomon Mujuru, was a popular freedom fighter, who commanded the Zimbabwean army after independence. Mujuru also faired better than Mnangagwa in 2013’s provincial elections. She is perceived as more business friendly and takes a less hard line stance than Mnangagwa which would make her the reformist candidate by default (reformist is relative here).
It is important to note that given the strength of both factions there will likely be tension in Zimbabwe no matter who is chosen as Mugabe’s successor. This does not mean that a comprise cannot be reached but it is still a cause for concern. As of now ZANU-PF will continue to receive regional support from parties like South Africa’s ANC as Southern African independence parties view opposition labor parties, such as Zimbabwe’s MDC, as a threat to their power.
Clearly, there are significant political and economic challenges for Zimbabwe to overcome and it is unlikely that they will be effectively addressed in the current political climate. That said, the country has significant room to develop as its poverty is a result of policy not geography. If and when the Zimbabwe has a less maligned government and more predictable politics its economy will see a resurgence due to the demand for its resources base and access to ports such as Durban (South Africa) and Beira (Mozambique).
Friday, January 10, 2014
Is Foreign Investment Helping to Undermine the Stability of Mozambique?
This week Japanese President Shinzo Abe will visit Mozambique to discuss a variety of issues related to energy and agriculture. The trip, the first African visit from a Japanese premier in eight years, highlights the growing importance of Africa to Tokyo as Japan competes with China for influence on the continent. Abe is expected to announce $577 in loans for road construction which will help further develop the Mozambican mining industry. Mozambique has developed rapidly since the 1992 Peace Treaty which ended years of civil war. The country now has the potential to be an important exporter of agricultural goods and LNG. Mozambique’s location on the Indian Ocean also situates it in an area where it can easily service Asian markets whose demands for food and energy are ever increasing. Ensuring access to these resources is one of the primary purposes of Abe’s visit. What Japan, and the world, needs to understand is that Mozambique is facing increased internal instability and some of the agricultural deals that Abe will likely be discussing have the potential to further exacerbate tensions.
Mozambique attained independence in 1974 and almost immediately fell into a state of civil war which pitted the Marxist Frelimo against the anti-Communist Renamo. A peace deal was brokered in 1992. Since this time a great deal of development has occurred in the country, however, in October 2013 Renamo renounced the 1992 Peace Treaty. This action clearly endangers political stability. On Wednesday January 9th Renamo killed six members of the Mozambican Riot Police. In addition to this they have also reestablished a base in Nhamunde in the Southeast of the country. Renamo’s activity in Northern Mozambique has also disrupted mining operations for companies such as Rio Tinto. It is unlikely that they will cease their activities anytime soon. In fact if October’s general election is unfavorable to Renamo further instability could result. If they can generate support from the local population the situation could deteriorate further.
In theory Renamo could exploit discontent against agricultural deals which have deprived local populations of their land. This action is of course subject to how they treat the local people. Renamo has a history of recruiting child soldiers and committing atrocities against local populations. Neither action is the sort of policy that wins the hearts and minds of a population nor do people forget groups that have subjected them to such abuse. Due to past precedent it would be dangerous to assume that Renamo would be able to gain local support, however, projecting what might happen if they pursued such a plan (and were relatively successful) is a worthwhile undertaking. After all, there is a great deal of discontent against deals that benefit foreigners and Maputo at the expense of the locals. One such program is ProSavana. This program will likely be discussed during Abe’s visit as the Japanese have invested a great deal in it.
ProSavana is a joint undertaking between the Ministry of Agriculture of Mozambique (MINAG) and Local Government, the Japan International Cooperation Agency (JICA), and the Brazilian Cooperation Agency (ABC). Per ProSavana’s website the organization seeks to:
Vision
Improve the livelihood of inhabitants of Nacala Corridor through inclusive and sustainable agricultural and regional development.
Missions
1. Improve and modernise agriculture to increase productivity and production, and diversify agricultural production.
2. Create employment through agricultural investment and establishment of a supply chain.
Objective
Create new agricultural development models, taking into account the natural environment and socio-economic aspects, and seeking market-orientated agricultural/rural/regional development with a competitive edge.
Essentially, ProSavana is trying to replicate the success that Brazil had in increasing agricultural output in its Cerrado region. The Cerrado is similar to Northern Mozambique’s Nacala Corridor in terms of agricultural potential. On the surface this intent sounds positive, however, the program has led to the displacement of local farmers. There is also evidence that people who have official land usage certificates are being displaced by agribusiness. There is little evidence that their complaints have led to any real resolution. A key factor that differentiates the Nacala Corridor from Brazil’s Cerrado region is that the population density is significantly higher in the Nacala Corridor thus more people are impacted by development. This means that there could be a larger pool of individuals who feel that they have no other course of action than insurgency.
In theory foreign investment could be positive for the populations of places such as the Nacala Corridor. For example, if a company comes in and dramatically increases agricultural yield while providing jobs and training the firm could contribute to local food security and provide economic opportunity while turning a profit and exporting the extra food to countries with less agricultural output. This is a win-win situation and there certainly are cases where this model is being effectively employed. The problem is that there are other situations where displacement and the concomitant removal of livelihoods are the norm. Cases like these generate distrust and make it more difficult to negotiate positive land deals. On one hand governments are in part to blame. For example, there have been cases where companies have negotiated a deal for unoccupied land only to find villages complete with postal service (a pretty clear indication that the government knew that the settlement existed). One the other hand businesses have a responsibility to understand the local conditions in place in which they intend to invest. After all, the failure to understand local conditions can harm businesses.
Anyone investing in agriculture needs to recognize that if land is arable it is safe to assume that someone is occupying it. If no settlements exist there probably is a very good reason for this. This reason needs to be determined in order to ensure that it can not come back to harm the company. Such damages can take numerous forms. For example, sabotage can be an issue. The negative PR that depriving a people of their livelihoods is also never welcome. Security concerns can also impact production. In some cases a situation occurs in which a political group can turn the discontent of the broader population to their advantage at the expense of the private sector. This is the exact circumstance that Renamo could theoretically exploit. The potential for any of these problems is something that companies need to gauge. After all, the negative PR that results from taking peoples’ land combined with lost profits due to suspended operations is not good for business?
Mozambique attained independence in 1974 and almost immediately fell into a state of civil war which pitted the Marxist Frelimo against the anti-Communist Renamo. A peace deal was brokered in 1992. Since this time a great deal of development has occurred in the country, however, in October 2013 Renamo renounced the 1992 Peace Treaty. This action clearly endangers political stability. On Wednesday January 9th Renamo killed six members of the Mozambican Riot Police. In addition to this they have also reestablished a base in Nhamunde in the Southeast of the country. Renamo’s activity in Northern Mozambique has also disrupted mining operations for companies such as Rio Tinto. It is unlikely that they will cease their activities anytime soon. In fact if October’s general election is unfavorable to Renamo further instability could result. If they can generate support from the local population the situation could deteriorate further.
In theory Renamo could exploit discontent against agricultural deals which have deprived local populations of their land. This action is of course subject to how they treat the local people. Renamo has a history of recruiting child soldiers and committing atrocities against local populations. Neither action is the sort of policy that wins the hearts and minds of a population nor do people forget groups that have subjected them to such abuse. Due to past precedent it would be dangerous to assume that Renamo would be able to gain local support, however, projecting what might happen if they pursued such a plan (and were relatively successful) is a worthwhile undertaking. After all, there is a great deal of discontent against deals that benefit foreigners and Maputo at the expense of the locals. One such program is ProSavana. This program will likely be discussed during Abe’s visit as the Japanese have invested a great deal in it.
ProSavana is a joint undertaking between the Ministry of Agriculture of Mozambique (MINAG) and Local Government, the Japan International Cooperation Agency (JICA), and the Brazilian Cooperation Agency (ABC). Per ProSavana’s website the organization seeks to:
Improve the livelihood of inhabitants of Nacala Corridor through inclusive and sustainable agricultural and regional development.
Missions
1. Improve and modernise agriculture to increase productivity and production, and diversify agricultural production.
2. Create employment through agricultural investment and establishment of a supply chain.
Objective
Create new agricultural development models, taking into account the natural environment and socio-economic aspects, and seeking market-orientated agricultural/rural/regional development with a competitive edge.
Essentially, ProSavana is trying to replicate the success that Brazil had in increasing agricultural output in its Cerrado region. The Cerrado is similar to Northern Mozambique’s Nacala Corridor in terms of agricultural potential. On the surface this intent sounds positive, however, the program has led to the displacement of local farmers. There is also evidence that people who have official land usage certificates are being displaced by agribusiness. There is little evidence that their complaints have led to any real resolution. A key factor that differentiates the Nacala Corridor from Brazil’s Cerrado region is that the population density is significantly higher in the Nacala Corridor thus more people are impacted by development. This means that there could be a larger pool of individuals who feel that they have no other course of action than insurgency.
In theory foreign investment could be positive for the populations of places such as the Nacala Corridor. For example, if a company comes in and dramatically increases agricultural yield while providing jobs and training the firm could contribute to local food security and provide economic opportunity while turning a profit and exporting the extra food to countries with less agricultural output. This is a win-win situation and there certainly are cases where this model is being effectively employed. The problem is that there are other situations where displacement and the concomitant removal of livelihoods are the norm. Cases like these generate distrust and make it more difficult to negotiate positive land deals. On one hand governments are in part to blame. For example, there have been cases where companies have negotiated a deal for unoccupied land only to find villages complete with postal service (a pretty clear indication that the government knew that the settlement existed). One the other hand businesses have a responsibility to understand the local conditions in place in which they intend to invest. After all, the failure to understand local conditions can harm businesses.
Anyone investing in agriculture needs to recognize that if land is arable it is safe to assume that someone is occupying it. If no settlements exist there probably is a very good reason for this. This reason needs to be determined in order to ensure that it can not come back to harm the company. Such damages can take numerous forms. For example, sabotage can be an issue. The negative PR that depriving a people of their livelihoods is also never welcome. Security concerns can also impact production. In some cases a situation occurs in which a political group can turn the discontent of the broader population to their advantage at the expense of the private sector. This is the exact circumstance that Renamo could theoretically exploit. The potential for any of these problems is something that companies need to gauge. After all, the negative PR that results from taking peoples’ land combined with lost profits due to suspended operations is not good for business?
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