01 May 2013 | Vol. 4, № 14.
From the Editor’s Desk
Dear FDI supporters,
Welcome to the Strategic Weekly
Analysis. This week’s issue starts with an
examination of Australian responsibility to
provide aid to Jakarta in the wake of
increasingly frequent natural disasters,
especially flooding.
We then look at the implications of Burma
becoming the new economic
battleground between China and the
West, as sanctions lift and investment
from non-Chinese backers increases.
Confrontation continues over the
disputed Himalayan border between
China and India, and we investigate the
consequences of the escalating tension
between the two powers.
Also in India we examine the economic
and political implications of the decision
by the ruling UPA party to delay several
major infrastructure projects. We also
consider the follow-up review of the
recent Food Security Bill, and whether it
has managed to gain traction in spite of
widespread criticism.
Still in South Asia, we look at the prospect
of a trans-national gas pipeline between
Pakistan and Iraq, and consider the
regional implications of such a venture.
We
Finally, we look at Africa, where massive
US investment in Djibouti’s defence
capabilities confirms the importance of
the country to Washington’s interests in
the Horn of Africa.
We also examine the upcoming elections
in Zimbabwe, in particularly a new mining
tax, and the potential impact on the
regional mining industry.
I trust that you will enjoy this edition of
the Strategic Weekly Analysis.
Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International
*****
Page 2 of 16
Jakarta: Increased Risk of Disaster Merits an Effective
Response
The risks of substantial natural disasters are rising in Jakarta. Although the risk of loss of
life has been reduced, the economic costs of lowering it are increasing. Investment from
the Australian aid programme aimed at reducing the risks from disasters should be a
priority.
Background
Natural disasters in Indonesia are following a global trend: the human cost is down but the
economic cost has risen. Flooding in Jakarta in January 2013 resulted in an estimated total
cost of US$700 million, including damage and economic loss. While previous disasters have
encouraged government and aid groups to reduce risks and attempt to mitigate potential
damage, recent experience has exposed the city’s continuing vulnerability.
Comment
Several factors have increased Jakarta’s vulnerability to flooding. Ironically, one of these is
the city’s development, something that is unlikely to slow. The result of deforestation and
construction is that for the areas where water can sink into the earth have been greatly
reduced. As a result, water now flows from the surrounding highlands towards the coast and
into Jakarta at a far faster rate. Increased water runoff raises the risk of flooding
substantially. Rising sea levels also threaten the city, which falls 3.5cm further below sea
level annually, increasing the propensity of water to pool. Estimates indicate that 40 per
cent of Jakarta is already below sea level.
As the risk of a serious natural disaster rises, authorities are looking for effective risk
reduction projects. An effective solution would be widening the rivers that run through the
city. The Jakarta administration, for example, aims to widen and dredge the Ciliwung River,
to increase the capacity and flow of water. There are substantial political and social hurdles,
however, and it is not clear whether the project will ever be completed. Some 34,000
families live on the river’s banks and are reluctant to move to the proposed government-
provided apartments. Furthermore, the cost of this project is not yet clear. A master plan for
the reduction of disaster-risk is in the works; it has an estimated total implementation cost
of US$1.54 billion.
Australia expects to provide a total of $540.1 million in aid to Indonesia in the 2012/13
financial year. Approximately five per cent, or about $27 million, is designated for
humanitarian and disaster responses. This includes amounts to be spent on disaster-risk
reduction spending. The importance of disaster-risk reduction programmes cannot be
underestimated. Following the catastrophic Boxing-Day tsunami of 2004, in which more than
140,000 people died, the Howard government announced a $1 billion aid package. That
experience encouraged government and aid groups to invest in effective risk reduction
projects. If such facilities had been in place before the tsunami, the death toll would have
been drastically reduced. Additionally, foreign development assistance could then be
directed towards reducing the impact of natural disasters.
Page 3 of 16
Indonesia is an increasingly important economic partner for Australia. Over the last financial
year, two-way trade increased by 8.3 per cent. As shown by the January floods this year,
however, even small-scale natural disasters can take a serious toll on the Indonesian
economy. The floods brought Jakarta to a stand-still. Another large-scale disaster could
devastate it; however, effective risk reduction investment could minimise both loss of life
and economic loss. This would mean a faster recovery for the city itself, and would reduce
the effects flowing to the increasing number of economies interdependent with Indonesia’s.
As the risk of natural disaster rises, so must investment in disaster-risk reduction. Australia
can encourage the Jakarta administration to invest in such programmes. The direction of
current and future development assistance into such projects would also represent a more
efficient allocation of Australia’s aid budget.
James Davies Research Assistant Indian Ocean Research Programme
*****
As EU Eases Sanctions on Burma, China is forced to Reassess
Its Approach
China no longer has exclusive access to Burma. As a result of Burma’s political reforms, the
country is opening up to Western investment. The increased foreign investment is good for
Burma, but is forcing China to review its business approach there.
Background
The European Union has announced that it will lift its economic, trade and individual
sanctions against Burma, in response to the political reforms implemented since 2010. Since
military rule began in 1962, Burma’s primary foreign investor has been China. Now Europe
and the United States, which has also lifted or suspended its sanctions against Burma, have
begun to invest there. This is having strategic consequences for China and its business
strategy.
Comment
Chinese investment in Burma is very concentrated; at least US$14 billion in various projects,
including infrastructure, natural gas, an airport, and a hydroelectric project. Millions of
Chinese have migrated to Burma for work and Chinese influence is felt strongly throughout
the country. But since the government of President Thein Sein started down the path of
political reform, things have changed. Many Burmese are beginning to resent the level of
Chinese influence in their country. In 2011, the widely unpopular US$3.6 billion Myitsone
Dam project, funded by Beijing to deliver power to southern China, was suspended by the
Burmese Government.
Page 4 of 16
According to the Myanmar Times, during the military junta era Chinese businesses followed
a model in which the key to projects was to build a relationship with government officials,
without consulting non-government stakeholders.1 Garnering support among the local
community was not seen as a necessity. Now the political situation has changed. As the
civilian-influenced government has implemented reforms and members of the public are
increasingly able to voice their opinions, China has seen support for its projects evaporate.
One project that could be at particular
risk is the Burma-China Pipeline. The
strategic pipeline, scheduled for
completion on 30 May 2013, runs
from the port of Kyaukpyu, in the
troubled coastal state of Rakhine, to
the city of Ruili in the Yunnan province
of China. Once operational, it will
allow crude oil and gas to be shipped
from the Middle East via the Indian
Ocean, bypassing the vulnerable Strait
of Malacca. The pipeline has the
capacity to move 28 per cent of
current Chinese gas imports overland.
While the pipeline greatly reduces
China’s concerns surrounding the
Malacca Strait chokepoint – its so-
called “Malacca Dilemma” – it is unpopular in Burma. The project has been criticised by local
governments for land misuse, inadequate compensation and environmental problems. The
Burmese opposition considers it a violation of national sovereignty, seeing Chinese
companies as corrupt and unfairly receiving preferential concessions for projects. Even
though it is unpopular, the pipeline project is likely to continue, but future Chinese projects
to expand its capacity are likely to encounter political barriers.
China will undoubtedly worry that closer ties between Burma and the West will threaten its
interests in the region. Chinese companies no longer have exclusive access to Burma and will
need to compete with Western companies seeking investment opportunities there. Chinese
companies must change their business practices, primarily by consulting key stakeholders
outside the government. This will be especially true of projects with large environmental
footprints and significant economic and social impacts. At this stage it is still hard to know
how well China will be able to adjust to the changing political situation in Burma.
Now that Burma is opening up, one concern for China is that other regional
powers, concerned with China’s growing influence, might want to influence Burma to lean
away from Chinese interests. India, Burma’s western neighbour, is concerned about China’s
1 Gordon, J., ’China: A Hidden Danger in the Reform Process,’ Myanmar Times, 19 November 2012.
<http://www.mmtimes.com/index.php/opinion/3172-china-a-hidden-danger-in-the-reform-process.html?limitstart>
Page 5 of 16
ability to project power into the Indian Ocean region. According to the Myanmar Times,
many Chinese policy analysts perceive the rapprochement between Burma and the West,
political reform in Burma and the undermining of Chinese projects, as part of a US-led effort
to contain Chinese expansion in the region.2 In many ways, China views business
opportunities in Burma as a zero-sum game, seeing the greater Western presence resulting
in significant lost opportunities for China.
China will continue to be an important investor in Burma, but it will no longer enjoy the
almost exclusive access it once had. It will need to change its approach to business there for
future projects to be successful. On the other hand, the new competition among foreign
investors is good for Burma. The economy will improve as investment pours in and, together
with political reform, will provide much-needed economic opportunities.
Kyle Springer Research Assistant Indian Ocean Research Programme
*****
China and India Continue Border Row as Tensions Mount
China and India are once again facing off over their disputed Himalayan border. While
such incidents have occurred in the past, China’s refusal to withdraw its forces may signify
an increasingly assertive Chinese foreign policy.
Background
China and India are again contesting their disputed Himalayan border, as tensions between
the two Asian giants mount. The latest altercation began when Chinese troops allegedly
crossed India’s far north-eastern border on 15 April 2013, sparking an angry reaction from
New Delhi. The neighbours have said that they remain determined to resolve the dispute
peacefully, especially as trade between the two states continues to flourish. But there is the
possibility that China’s recent revival of its long-dormant claim to Arunachal Pradesh, is just
the latest example of Beijing’s increasingly assertive foreign policy.
Comment
The latest border episode between the two countries, the first since 2009, follows
allegations that Chinese troops entered Indian territory on 15 April, sparking concerns of a
potential renewal of frosty border relations. Speaking to al Jazeera, an Indian official claimed
that ‘Chinese troops entered 10km into Indian territory ... and pitched tents in the Despang
valley in the Ladakh region of eastern Kashmir.’ China, meanwhile, has denied any
wrongdoing and has said that Indo-Chinese relations are running smoothly as usual. ‘The
development of momentum of Chinese-Indian relations is excellent, and the two sides are
maintaining good communication and co-ordination regarding the border question,’ a
Chinese Foreign Ministry spokesman told the Financial Times.
2 Ibid.
Page 6 of 16
The two countries have remained at loggerheads over the Line of Actual Control (LAC) since
a brief war in 1962. Officially, China claims India’s north-eastern state of Arunachal Pradesh,
which, in recent years, has been referred to by Chinese commentators as “Southern Tibet”,
much to India’s displeasure. India says that China only occupies 38,000 square kilometres of
territory in the Himalayas. With an overall area three times as large as Taiwan, it holds great
importance to both states. Chinese plans to dam the Brahmaputra River, which rises in Tibet
as the Yarlung Tsangpo and passes through Arunachal Pradesh, have raised further concerns
in India.
Despite their competing claims, however, both sides have expressed a willingness to resolve
the latest impasse peacefully. On 28 April, the Foreign Ministry of China issued a statement
saying it would work together with India to ‘resolve all differences’. Similarly, Indian Prime
Minister Manmohan Singh said that ‘it is a localised problem; we do believe it can be
resolved’. Both states have been trying to downplay historical tensions as bilateral trade
continues to boom – China is already India’s largest trading partner and trade is expected to
significantly increase to an anticipated US$100 billion by 2015.
Still, many observers are concerned that China’s recent actions may signal a resurgence of
interest in Arunachal Pradesh. According to Brahma Chellaney, a professor of Strategic
Studies at the Centre for Policy Research in New Delhi, China’s stealthy strategy along the
border is not new. ‘Although the Indian Government chooses to underplay Chinese actions
so as not to provoke greater aggressiveness [sic] ... the number of stealthy Chinese forays
into Indian territory again increased last year,’ he recently wrote in a column for Mint. He
went on to say that, ‘given that the Himalayan frontier is vast and inhospitable and thus
difficult to effectively patrol in full, Chinese troops repeatedly attempt to sneak in, both to
needle India and to possibly push the line of control southward’.
The most recent incident may appear minor, at least compared to other disputes in the
South and East China Seas. More broadly, however, it could be viewed as the latest example
of Beijing’s increasingly assertive foreign policy. Such incidents remain a serious cause of
concern for India, which is keenly aware of its humiliation in 1962. It remains wary of what it
sees as Chinese attempts to disrupt the current status quo and project power into India’s
sphere of influence.
Whatever Beijing’s intentions – and they can often be opaque – the recent row highlights
the volatile side of Sino-Indian relations. As The Economist wrote recently, ‘a recent attempt
to thaw relations between the two countries is having some success. But tension along the
“line of control” that separates the two sides in the absence of an agreed border … can flare
up at any time’. With both countries refusing to demarcate a formal border, relations
between them in the Himalayas are anything but neighbourly.
Andrew Manners Research Analyst Indian Ocean Research Programme [email protected]
*****
Page 7 of 16
India’s Infrastructure Boost: Are Political Jitters Spurring the
UPA Government into Action?
The UPA government’s sudden approval of delayed projects could indicate a severe case of
pre-election nerves.
Background
Indian media sources recently reported that the ruling United Progressive Alliance (UPA)
government has given several long-delayed infrastructure projects the go ahead. The timing
of this sudden spurt of activity prompts some questions. Why now? Why the sudden need to
get these projects moving?
Comment
Indian media sources report that the UPA government has permitted thirteen long-delayed
power projects to proceed. These include ten transmission projects, two thermal and one
hydro-electric project, said to have a combined investment of approximately US$6 billion.
The government also cleared investments in twenty-five oil blocks over the protestations of
the Ministry of Defence, which had previously objected to their clearance.
While these are long-awaited and positive outcomes, the situation is far from ideal. India’s
worrying power situation aside, the sanctioning of these projects is the exception rather
than the rule. India’s bureaucratic maze has stymied other infrastructure projects worth
around US$140 billion. They include projects in the cement, ports, power, roads and steel
sectors, each with a value over US$5 million. Data acquired from various state-run banks put
the number of these projects at 255. The banks claim that the delays lead to increased costs
and risk; they have invested around US$11 billion in the corporations planning to create
these projects.
According to a report by India Ratings, projects in a number of key sectors have been
delayed: around twenty major road projects, with more than US$5 billion in investment;
power projects worth a staggering US$92 billion; roads with a total investment of US$22
billion; and steel production worth US$6 billion. The roads projects, for instance, are said to
have been delayed due to the government’s land-acquisition and environmental policies;
but, as the International Monetary Fund highlights, the delays are due to an inefficient
bureaucracy rather than a lack of funds.
The assessment by the banks that delays result in cost over-runs appears to be true. The
report states that the costs of delayed projects have escalated by 13.6 per cent over the
original costs. The most glaring cases in point are: the construction of Phase 2 of New Delhi’s
Multi-Mode mass rapid Transport System, which went up by 117 per cent; and Posco’s steel
project in Odisha, which doubled in cost from an estimated US$12 billion.
So the question arises: why has the UPA government now decided to sanction thirteen
power projects, apparently against the misgivings of the Department of Defence?
Page 8 of 16
The immediate reason that comes to mind is the general election in 2014. The UPA
government is, by and large, perceived as being inefficient and, to an extent, corrupt. It is
viewed as a non-achieving government, an assessment not helped by reports that allege the
Lok Sabha, the Lower House of Parliament, is the most unproductive in India’s history, with a
half hour of disruptions for every one of business transacted. More than likely stung by this
perception and wary of the potential effect on the election outcome, Prime Minister
Manmohan Singh has taken this action to reverse any potential adversity. This, though,
raises another issue – does the UPA believe the BJP has a good chance of winning the next
election?
The BJP appears to believe it has. Its public figurehead, the Gujarat Chief Minister Narendra
Modi, is known for his ability to get things done, albeit through measures which border on
authoritarianism. But authoritarian or not, he has changed Gujarat into the model to which
the rest of India aspires. Now, however, Mr Modi appears to be taking the fight to the UPA
government. Not content with resting on his achievements, he is now visiting the southern
state of Kerala.
Kerala, which has one of the highest educational rates in India, was once governed by the
Communist Party of India (CPI), but has been held since 1970 by the Indian National
Congress (INC) Party, which dominates the UPA government. By visiting Kerala, Mr Modi
could play upon local sentiment, which fears Hindus could become a minority in Kerala.
Furthermore, Mr Modi is scheduled to meet the head of the Syro-Malankara Catholic
Church. Effectively, Mr Modi’s divisive politics, coupled with his can-do reputation, could
detract from the INC’s voter base. The majority of Kerala’s Hindu population, which
comprises 56 per cent of the total, could be persuaded by his Hindutva (Hindu principles)
background. Christians in Kerala make up approximately 20 per cent of the population; if he
can also persuade them to back him, he will have effectively demolished the INC’s support
base in that state. It is perhaps for this reason that the INC and the CPI denounced his visit to
a famous temple in Kerala and his meeting with the Catholic Cardinal.
However, the UPA has worries closer to home than the situation in Kerala. The Standing
Committee on Coal and Steel has reportedly stated that all coal mining blocks awarded
between 1993 and 2008 are invalid and the allotments of all coal mines where production is
yet to begin should be cancelled.
Prime Minister Singh’s call.
Lindsay Hughes Research Analyst Indian Ocean Research Programme [email protected]
Page 9 of 16
*****
Different Aims, Same Medium: Iranian and Pakistani
Objectives for the Transnational Gas Pipeline
A high-level meeting on 17 April between Iran and Pakistan has reaffirmed the importance
of the Iran-Pakistan (IP) gas pipeline for both countries’ energy crises. It also confirms
Islamabad’s shift away from Washington and towards Tehran and Beijing.
Background
The completion of the IP Pipeline – scheduled for late 2014 – provides Tehran and Islamabad
with a means of achieving their energy security objectives. But the pipeline traverses
territory that is both geographically and politically dangerous, providing a significant security
challenge to both governments. Furthermore, the importance of the project has caught the
attention of Washington,where Pakistan continues to have a rocky relationship.
Comment
Upon completion, the IP Pipeline will transport 8.7 billion cubic metres of gas per year over a
distance of 2,775 kilometres, from the Iranian South Pars Field to Multan, in the Punjab
region of Pakistan. The total cost of the project is expected to be US$7.5 billion, with
Pakistan contributing US$1.5 billion, of which US$500 million is a 20-year soft loan from Iran
to Pakistan. The area the pipeline crosses is some of the most unstable in Pakistan; it
includes the resource-rich Baluchistan region, the site of a long-running and increasingly
violent insurgency.
Despite the inherent dangers in establishing and maintaining a pipeline across Baluchistan,
the possibility of a reliable supply of energy for Pakistan has increased incumbent President
Asif Ali Zardari’s chances of being re-elected in the 11 May election. Pakistan has long
suffered an energy crisis due a combination of increasing demand and ageing and failing
infrastructure. This last point is critically important to Pakistan, because its infrastructure, as
in many other earthquake-prone countries, is subject to higher degrees of geological
pressure. In the 2010 floods, many Pakistani power stations and distribution and
transmission stations were damaged. The regular occurrence of earthquakes in Pakistan and
Iran creates another layer of instability for the IP Pipeline – the 16 April earthquake in Iran’s
southwest was the biggest in 40 years.
The pipeline construction was launched on 11 March 2013, in the border city of Chabahar in
Iran. The launch, which was attended by President Zardari and Iranian President Mahmoud
Ahmadinejad, signalled an important part of their respective foreign policies. The pipeline is
critical to Iran as it struggles to find means to evade international sanctions against its
energy and finance sectors. The revised sanctions imposed by the US on 6 February this
year, have made evasion even more difficult.
The souring of Pakistan-US relations has manifested itself in Islamabad’s increased
alignment with Iran and China with Washintgon perceiving the pipeline construction as a
deliberate snub by Islamabad to the US. The IP Pipeline is just the most recent nail in the
Page 10 of 16
coffin. The main reason behind Pakistan’s realignment lies in the anticipated US withdrawal
from Afghanistan in 2014 and the power vacuum that is likely to result. The pipeline may be
the beginning of a distinct change in Islamabad’s foreign policy. In recent months, Pakistan
has displayed its shifting alignment through the passing of the Gwadar port to Chinese
control, recently leaked details of nuclear co-operation with China and the public use of
Iranian designed Hatf-V nuclear-capable missiles.
Co-operation between Pakistan and Iran is likely to increase, as it suits the security needs of
both states. It is strategically sensible for Islamabad to take its current course, as the US
presence will be reduced post-2014 and principally focussed on India and the Middle East.
Although it is likely to agitate Washington, a closer alignment with Tehran and Beijing may
help Islamabad to achieve its longer term strategic objectives of energy and, perhaps,
military security.
Gustavo Mendiolaza Research Analyst Indian Ocean Research Programme [email protected]
*****
Price Hikes Causing Further Food Insecurity For Iran
The trend of rising prices and double-digit inflation rates continues in Iran causing further
problems for Iran’s food security and public unrest ahead of its presidential elections.
Background
Increasing food prices in Iran are raising concerns about the country’s political stability.
International, particularly Western, sanctions over Iran’s controversial nuclear programme
have damaged the local economy in multiple ways: reducing access to foreign currency;
cutting the government’s income; and prolonging inflation, which hurts consumers’ buying
power. Prices of staples, such as cooking oil, chicken and red meat, have jumped by up to 60
per cent recently, since authorities increased the special exchange rate for importers.
Iranians are rushing to supermarkets to buy cooking oil, red meat and other staples on
Tuesday, then stockpiling the goods over new fears of price spikes from a change in the
official exchange rate, which could severely reduce the already weakened purchasing power
of the rial, the national currency.
Comment
There are concerns that the growing frustration over increases in food prices could lead to
growing restlessness ahead of the June 14 presidential election. Furthermore, Iran’s double-
digit inflation rates indicate a very severe economic outlook for the Iranian government, and
Page 11 of 16
will exacerbate the population’s continued loss of confidence in the Islamic Republic’s ability
to keep the economy afloat. Although Ahmadinejad’s government has strategic food
reserves for three months, recent protests showed that growing frustration over high food
prices has the potential to provoke unrest. Experts worry about the potential implications of
Iran’s food insecurity, more so when reminded of the 2011 Arab Spring, where public
discontent, economic decline and inflation were among root causes for civil unrest in the
Middle East.
As the trend of rising food prices continues, the Iranian government has rationed vegetable
oil in all chain stores; which has doubled the price of a litre of cooking oil on the open
market. Furthermore, the government recently announced that only four imported food
staples are now eligible for foreign currency subsidies (wheat, barley, corn and soya beans),
which immediately translated into price increases of up to 35 per cent for other grocery and
food items. The change, so close to the critical national elections, appeared to cause
widespread concern, even among Iranians accustomed to chronically high inflation and
other problems – the results of a combination of severe Western sanctions and the
government’s economic mismanagement.
Although food shipments are not targeted under the sanctions, which are aimed at Tehran’s
controversial nuclear programme, the financial squeeze has cut off firms operating in Iran
from much of the global banking system. Oil exports, Iran’s major source of hard currency,
have more than halved since 2011. Food exporters largely shun Iranian deals, with the
volatile rial increasing their risk levels. Foreign banks are wary of financing the food trade for
fear of damaging their reputations. If Iran continues to be subjected to widespread oil and
financial sanctions by the United States and the European Union, limiting its ability to export
oil and further contributing to high inflation, it is possible that Iran will be forced to become
less reliant on imports and more self-sufficient.
Some experts would argue that the issue lies not with food supply in Iran, despite the
sanctions, but Iran’s food security is critical due to poverty and the decline in people’s
purchasing power. The vast majority of Iran’s population could not endure further increases
in food prices and are already unable to afford sufficient food. If the country’s per capita
income is taken into consideration, Iranians eat the most expensive food in the world.
Although there are no official figures on the decline in consumption, the drop in the rial’s
value has contributed strongly to the decline of an average Iranian’s monthly income.
Anecdotal evidence, such as shopkeepers’ complaints that people buy less red meat or fruit,
shows that the decline has worsened since the tightening of sanctions. While the sanctions
are partly responsible for Iran’s agricultural vulnerability, the government’s failure to invest
in sustainable agricultural development and instead to use its record oil revenues to stoke
an import-led boom, is a huge part of its current food security dilemma. Iran has imported
about 50 per cent of its food in recent years, even though it only imported 30 per cent of its
food when it was hit by drought in the mid-2000s.
Iran needs at least $10bn-$12bn in investments annually in the next decade to boost
productivity and help provide people with cheaper products. The problems that endanger
Iran’s food security, in order of significance, are: poverty and the decline in incomes; lack of
Page 12 of 16
investment in the agriculture sector; sanctions, which have made food imports expensive;
and rising prices of food on world markets.
Ashlyne Nair Research Assistant Global Food and Water Security Programme
*****
Patrol Boats and Surveillance Systems for Djibouti, the Latest
Move in US Consolidation in the Horn of Africa
The United States continues to deepen its strategic relationship with Djibouti. The gift of
advanced surveillance and detection equipment and two new patrol boats, confirms the
strategic importance of Djibouti to Washington, as it attempts to address the threats
posed by piracy and armed extremists in the Horn of Africa.
Background
After the 11 September 2001 terror attacks, the United States stepped up its counter-
terrorism operations around the world. The post-September 11 strategic environment
necessitated a more intensive and permanent presence in areas where terrorism was
deemed to be a sufficient threat. In the Horn of Africa, the United States took over the
former French military base, Camp Lemonnier, in Djibouti. Since 2001, the US has provided
aid to the Djiboutian armed forces. The latest provisions are two patrol vessels and
sophisticated maritime surveillance equipment, supplemeted by training in their operation.
Comment
Djibouti was recently described by a US Embassy military official as ‘…the eye of calm in the
hurricane that revolves around them.’ A decade before the September 11 attacks, during the
first Gulf War, the Djiboutian Government established a precedent for military co-operation
with the US, by allowing use of its territory and facilities for US missions in Iraq. Thus, when
the US military was seeking a stable, secure coastal location in which to set up a base of
operations in the Horn of Africa, Djibouti was a natural choice.
Although Washington’s motives for establishing an enduring presence in Djibouti became
more numerous and intense after September 11, the agreement for the US presence was
actually reached earlier that year, before the terrorist attacks. The new base was established
by renovating a derelict former Djiboutian facility, which previously hosted a contingent of
the French Foreign Legion. It became the new headquarters for the United States’ Combined
Joint Task Force-Horn of Africa (CJTF-HOA), which “moved in” in May 2003. Djibouti is home
to the only permanent US military presence in Africa.
Page 13 of 16
US-Djiboutian strategic co-operation is not limited to the US military presence. Under the US
Foreign Military Financing Programme, which finances the equipping of its allies, the US has
provided resources and training to the armed forces of Djibouti. It recently gave two Metal
Shark 28 Defiant patrol boats to the Djiboutian Navy, including technical advice and training
in their operation. It is the provision of sophisticated new electronic maritime surveillance
systems, however, which is most indicative of US strategic intent in the Horn of Africa.
For a superpower such as the United States, with global interests, particularly in the
maintenance of global free trade, it is essential to keep chokepoints, such as the Bab el-
Mandeb between the Red Sea and Gulf of Aden, open and free of threats such as piracy.
Djibouti’s new Regional Maritime Awareness Capability System allows complete coverage of
its 12 nautical mile zone of jurisdiction (troubled Yemen lies only another four nautical miles
away). Its Automatic Identification System allows region-wide coverage, out to 100 nautical
miles. Both were provided courtesy of the United States Government. These capabilities
allow Djiboutian personnel (and, hence, the United States), to closely observe the more than
20,000 ships which pass through the Bab-al-Mandeb each year.
The importance of Djibouti cannot be underestimated. The geo-political environment
surrounding the Bab el-Mandeb chokepoint is particularly fraught. Islamist extremist groups
continue to proliferate in neighbouring countries, including Somalia – the epicentre of
regional piracy and home to the al-Shabaab militia – and Yemen, where al-Qaida has a
seemingly secure presence in the Arabian Peninsula. Consequently, beyond the economic
threat posed by piracy, any number of dangerous goods, materials or weapons may fall into
the wrong hands. At the very least, strategically-valuable shipments may be prevented from
reaching their destinations, even if not actually retained by the pirates themselves. Given
the confluence of economic and strategic imperatives in the Horn of Africa, the strategic
importance of Djibouti to the United States will continue, along with further high-tech gifts.
Jeff McKinnell Research Assistant Indian Ocean Research Programme
*****
Zimbabwe’s Upcoming Elections and their Potential Impact on
the Mining Industry
As Zimbabwe’s elections loom, its government considers imposing new taxes, including a
tax on mining companies, to finance the poll. There are also concerns over a potential
amendment to the indigenous laws. Although the latter is unlikely to be passed, the
mining and resources sector is likely to face a period of uncertainty.
Background
Page 14 of 16
Elections are due to take place in Zimbabwe later in 2013; however, the country lacks the
available funds to hold a credible poll in the near future. The government has stated that it
may impose several new taxes, of which at least one will affect the mining industry. In
addition, fears were raised by reports of a possible amendment to the indigenisation laws,
which would see the Zimbabwean government taking a majority share of mining companies
without providing compensation. Although the latter is unlikely to go ahead, the issue of
additional taxes targeting mining interests is a real possibility. Such developments have
raised uncertainties among investors and may hinder the country’s ability to attract new
investors.
Comment
After holding a successful referendum on 16 March and implementing a new Constitution,
Zimbabwe is scheduled to hold elections later in 2013. Although a specific date has not been
set, Justice and Legal Affairs Minister, Patrick Chinamasa, has said that the election must
take place prior to 29 June 2013, when Parliament will be officially dissolved. Although
Zimbabwe’s Constitution allows for an extension of Parliament under section 63 paragraphs
(5) and (6); these provisions, however, permit an extension only if the country is at war or
under a declared state of public emergency. To hold these elections, Finance Minister Tendai
Biti indicated that the country needs an estimated $132 million; a sum the country cannot
fund itself. After rejecting UN funding, on the grounds that the organisation would in the
media and security sectors, Zimbabwe has called on the governments of South Africa and
Angola to assist in funding the election.
Ultimately, without adequate funding, Zimbabwe lacks the resources to hold a credible poll,
especially if the ballot date is set as early as June 2013. As a result, the mining sector looks
set to mainly bear the burden of funding the elections. Biti has said that the government is
considering creating several new taxes, including a tax on the mining and resources sector,
to raise the required funds. The country applied fuel taxes on 9 March, which are expected
to remain in place until December 2013. Although exact details surrounding the possible
new taxes remain unclear at this time, the announcement is certain to have worried would-
be, as well as current, investors. Furthermore, it is likely that such taxes will be
implemented, especially if funding for the poll is not granted by South Africa or Angola. The
expectation is that major platinum miners will be hit hardest, including Anglo American and
Impala Platinum; however, smaller mining companies are also likely to be targeted, for
example Australia’s ElDore Mining (EDM), which acquired the Lonely gold mine in February
2012.
Of further concern are possible amendments to the indigenous laws in the country. Under
the law, which was passed in 2008 and took effect in 2010, Zimbabwe gave foreign owned
companies valued at over US$500,000, five years to transfer 51 per cent of their assets to
indigenous people. This particularly affected mining firms and banks. Concerns have been
raised in recent days over news of a leaked white paper, which indicated the government’s
intent to forcibly take the majority share without compensating the companies. Zimbabwe's
Indigenisation Minister Saviour Kasukuwere said, on 24 April, that the ministry has not
changed its legislative framework.
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Even if an amendment to the legislation were to be put forward to Parliament, it requires
the approval of a parliament dominated by the opposition Movement for Democratic
Change (MDC), which has largely been against the idea. It is, therefore, unlikely to be
approved. Initial speculation over the proposed amendment to the legislation, suggested
that Robert Mugabe would use the finances to fund the upcoming polls; however, it is also
likely that the proposal is part of a tactic to garner more support for ZANU-PF. Indigenisation
laws resonate well with the civil population, who have previously shown concern that too
much of the country’s wealth is given to foreign entities, as opposed to being distributed
among the local population.
Although Zimbabwe has stabilised somewhat in recent years, the current issues
demonstrate that the country still has far to go. Zimbabwe has previously called on
Australian mining companies, in particular, to invest in Zimbabwe, citing Australia’s expertise
in the industry as a driving factor. Despite Zimbabwe’s progress, ad hoc statements and swift
changes to tax laws are often seen as a risk to investment and cause further confusion in the
political environment. Such developments hinder Zimbabwe’s ability to attract new
investors and to retain current ones.
Kim Moss Research Analyst Minerals and Energy Research Programme [email protected]
*****
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Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: [email protected] Web: www.futuredirections.org.au
What’s Next?
o 1 May: A free trade agreement signed between South Korea and Turkey will
go into effect.
o 3 May: An anti-terrorism court in Pakistan will resume its investigation of the assassination of former Pakistani Prime Minister Benazir Bhutto.
o 3 May: The seventh informal meeting of the South Asian Association for
Regional Cooperation Finance Ministers will be held in New Delhi, India.
o 5 May: Malaysia will hold general elections, expected to be the most contentious since the country's independence.
o 5 May: Israeli Prime Minister Benjamin Netanyahu will visit China, the first
visit to China by an Israeli prime minister since 2007. Netanyahu will discuss with Chinese officials Iran's nuclear program and bilateral trade.