8 August 2012 | Vol. 3, № 30.
From the Editor’s Desk Dear FDI supporters,
Welcome to this week’s edition of the security. Staying on the theme of food Strategic Weekly Analysis. security, Anna Mitrofanova, provides an assessment of the growing agricultural We begin this week, by exploring the crisis in the Democratic Republic of the announcement of industrial military co- Congo. operation between China and Indonesia. To conclude, we focus on India. Firstly, we FDI Associates, Margareth S. Aritonang examine the causes and consequences of and Novan Iman Santosa, consider this the recent large-scale power outage. within the broader context of growing Linked to this, we focus on the prospects relations between Beijing and Jakarta, of recovery for India’s slow economy. considering the implications for security in the region. I trust that you will enjoy this edition of the Strategic Weekly Analysis. Staying in South-East Asia, we analyse the implications of the on-going water crisis in Major General John Hartley AO (Retd) Selangor, and its implications for up- Institute Director and CEO coming elections. The Indian Ocean Future Directions International Research Programme analyses Singaporean Prime Minister, Lee Hsien Loong’s recent visit to India.
Next, following July’s announcement that Australia will supply the United Arab Emirates with uranium, we assess Abu Dhabi’s motivations for nuclear power and broader regional trends.
Gary Kleyn reports on a new study from the Economist Intelligence Unit that provides national assessments on food *****
China, Indonesia Begin Missile Talks
Background
China and Indonesia have started talks on the ambitious local production of C-705 anti-ship missiles as part of Indonesia’s efforts to achieve independence in weapons production. The defence co-operation reflects strengthening ties between both countries amid heightening tension in the South China Sea involving China and a number of Indonesia’s ASEAN neighbours.
Comment
Indonesian Defence Ministry chief spokesman Brigadier-General Hartind Asrin said that the initial talks were conducted during the first China-Indonesia defence industry co-operation meeting held in Jakarta on 25 July. The Ministry’s Director-General of Defence Potential, Pos M. Hutabarat, hosted the Chinese delegation which was led by Liu Yunfeng, a deputy Director-General at the Chinese State Administration for Science, Technology and Industry for National Defence (SASTIND). ‘The meeting discussed various efforts to improve co- operation between the defense industries of both countries,’ Hartind said. ‘We’ve already prepared an area for the *missile+ production site that faces the open sea for trials.’
Hartind said the C-705 had a range of 120 kilometres and that the Indonesian Navy had successfully test-fired C-705s in the Sunda Strait. ‘China has also offered to donate weapons systems that Indonesia might need,’ he added.
A source said that Indonesia was expected to reply to Phase One of the missile proposal at the end of August and Phase Two, one month later. A contract is expected to be signed in 2013. Phase One covers semi-knocked down production, while Phase Two is on completely- knocked down production. A proposal for a Phase Three on research and development is already on the table although the focus is currently on the first two phases.
Aside from missile production, a number of Indonesian Army Special Forces Command (Kopassus) members recently conducted the second “Sharp Knife” joint exercise with Chinese Special Forces operatives earlier this month in Jinan, Shandong, China. China has also offered to train ten pilots from the Indonesian Air Force in using a Sukhoi simulator in China. Commenting on the defense co-operation, Indonesian defence expert Andi Widjajanto said the industrial co-operation was solely to gain access to more advanced technology. ‘However, it will take a long time for us to be independent in the defence industry, perhaps after 2024. This is the reason Indonesia builds partnerships with many countries that possess modern military technologies,’ he said. ‘This is also why we require partner countries to transfer their technologies to us in any agreement we sign with them.’ Andi added that there were two goals in terms of the partnership: to access advanced rocket technology, and to collaborate in upholding maritime security, which began when President Susilo Bambang Yudhoyono signed an agreement in March during a state visit to Beijing. ‘I don’t believe it has anything to do with conflicts in the South China Sea,’ he stressed.
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Meanwhile, Chairman of the House of Representatives’ Commission I on defence issues, Mahfudz Shiddiq, said such global partnerships in the defence industry were designed to develop Indonesia’s own industry. ‘We have allocated 150 trillion rupiah ($15.1 billion) to modernise our weapons-defence system from 2010 to 2014. It would be wasteful paying such a huge amount to foreign defence industries without any attempt to improve our own,’ he said. ‘Therefore, we require partner countries to transfer their military technologies in the hope that they will gradually improve our own technologies.’
He added that the partnership with China was due to its advanced military technologies in fields such as rocketry. ‘This is not political, even though others might link the partnership to political issues, for example, the South China Sea disputes,’ Mahfudz said.
Indonesia already co-operates on weapons production with several other countries, including South Korea to build jet fighters and submarines, the Netherlands to build frigates and Spain to build medium transport aircraft.
Margareth S. Aritonang and Novan Iman Santosa FDI Associates
About the Authors: The authors write for the Jakarta Post, Indonesia’s leading English- language daily. Ms Aritonang is a graduate of the Universitas Sanata Dharma in Yogyakarta, and Mr Santosa is an alumnus of the Institute of Defence and Strategic Studies, Indonesian Defence University.
This article originally appeared in the Jakarta Post of 27 July 2012. *****
Politics Blamed for Malaysian Water Crisis
Background
As Malaysia gears up for a federal election next year, people in the state of Selangor in the country’s west are questioning whether the current water shortage crisis in their area has been manufactured for the sake of political leverage. Malaysia’s long ruling party United Malays National Organization (UMNO) lost control of Selangor in the last election and many believe that this current water crisis is an attempt by UMNO to undermine the public’s perception of the state’s current ruling party before next year’s election. The current crisis, while serious, is not life-threatening to the people of Selangor, but will potentially mean reduced access to water due to rationing.
Comment
Malaysia’s western state of Selangor is the richest and most populous in the country. It includes Kuala Lumpur, the nation’s capital and is the traditional engine room for Malaysia’s economic growth with a population of over seven million. Recent heavy rains have left the seven dams that supply Selangor’s drinking water overflowing, but UMNO representatives
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have suggested that the state government’s decision to block the RM3.8 billion ($1.2 billion) Langat 2 water treatment plant is behind the current water crisis.
The state’s water supply company Syabas announced on 14 July it would implement water rationing in Kuala Lumpur, Hulu Langat and Klang in response to the critical levels of treated water available, but this has led to outrage from both the state government and locals. Rozali Ismail, the executive chairman of Syabas, is also the treasurer for UMNO’s Selangor branch showing that the country’s ruling party has close ties with the company in control of the area’s water supply. This has resulted in cries of corruption from both the state government and locals, as many believe that UMNO and Syabas are working together to manufacture a water crisis so as to ensure the state government appears incompetent. Rozali also owns a 40 per cent stake in Puncak Niaga, a company that owns 29 out of 34 water treatment plants in Selangor as well as a 70 per cent stake in Syabas. In response, Selangor has declared an attempt to take over Syabas and is going ahead with plans to sack Rozali by using their 30 per cent stake in Syabas to trigger a vote of no-confidence. The federal government has signalled it will not allow Syabas to be taken over by Selangor, but in response, the Selangor government has revealed it will bring the takeover bid for Syabas to a referendum.
The water treatment plant proposed by UMNO has been slammed by the Selangor government as unnecessary and a potential catalyst for a steep rise in water tariffs. They also claim that projections for water consumption and population growth used to justify construction of the plant are too high. Instead, they are asking for RM225 million ($68 million) from the federal government to upgrade two existing plants and have committed RM200-300 million ($60-90 Million) of their own funds which they say will generate an additional 100-150 million litres a day. Many, including Charles Santiago, an opposition member of parliament and coordinator for the Coalition Against Water Privatisation, believe Rozali’s large stake in Puncak Niaga and therefore also Syabas, is the main reason behind the current push for the Langat 2 treatment plant.
“Are the companies manufacturing a crisis for projects? Did the federal government promise operations and management of Langat 2 to Syabas?” asked Santiago while speaking to Free Malaysia Today; an independent news agency. The Deputy Prime Minister, Muhyiddin Yassin has stated that the federal government will go ahead with building Langat 2 without Selangor state’s approval if necessary.
The Selangor government appears set to take drastic action against what it perceives as manipulative politicking by the federal government ahead of next year’s elections. The declared takeover of Syabas would eliminate the existing conflict of interest between Rozali and Syabas and allow an end to the current water policy stalemate. In response to this, the federal government will attempt to press ahead with Langat 2 despite the absence of an agreement with Selangor.
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Either way, the current crisis appears to be heading for some type of resolution; it will just depend on which level of government is able to impose their will on the situation.
Ryan Wilson Research Assistant FDI Global Food and Water Security Research Programme
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Links to Expand Following Singapore PM’s India Visit
Background
Singaporean Prime Minister Lee Hsien Loong visited India for the second time this year from 10-12 July. The visit focussed on increasing trade and investment and involved the signing of a Memorandum of Understanding (MoU) on the Co-operation in Vocational Education and Skills Development and the renewal of the Air Force Bilateral Agreement.
Comment
Since the signing of the Comprehensive Economic Co-operation Agreement (CECA) in 2005, on another visit to India by Prime Minister Lee, bilateral trade has tripled to nearly US$30 billion in 2011. Five thousand Indian companies have opened offices in Singapore. Singapore has become the top overseas investment destination for Indian companies and the island- state is second only to Mauritius as the largest cumulative investor in India. In May 2012 alone, Indian companies invested over US$500 million in Singapore, accounting for one- quarter of total foreign investment of US$2.35 billion.
Three key agreements were signed: an MoU on Co-operation in Vocational Education and Skills Development between the Indian Labour Ministry and the Singaporean Education Ministry; an MoU between Singapore’s Institute of Technical Education and the Delhi State Government to collaborate on a World Class Skills Centre in Delhi, aiming to train up to 15,000 students annually; and, the renewal of the Air Force Bilateral Agreement.
For India, co-operation with Singapore in the field of vocational training and skills development will be of great assistance in building workforce skill levels and providing top- quality education. According to a leading management expert, the late C.K. Prahalad, India will need to train 500 million people by 2022 in order to fully capitalise on its economic and global leadership potential. The creation of world-class training facilities in collaboration with Singapore would deepen the bilateral relationship at the institutional and individual levels and help to elevate India’s vocational training standards.
In the field of defence and security, both leaders have confirmed to step up relations by including the renewal of the Army Bilateral Agreement next year. This year it was the renewal of the Air Force Bilateral Agreement, under which the two countries’ air forces conduct joint training and exercises. In a similar arrangement to that which it has with Australia, Singaporean Air Force personnel undertake training at the Kalaikunda air base in
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West Bengal. Singapore is the first country that has been allowed to place its military assets permanently in India. The Singapore Air Force will use its F-16s combat aircraft for joint exercises with the India Air Force (IAF). This will provide the IAF with an opportunity to indirectly learn more about the F-16s being used by the Pakistani Air Force.
Singapore-India relations are in good shape. The MoU on the Co-operation in Vocational Education and Skills Development is likely to lead to greater people-to-people relationships. Greater security and defence co-operation will further strengthen the bilateral relationship. Singapore may well turn out to be the epicentre of India’s “Look East” policy.
Paras Lohani FDI Research Assistant Indian Ocean Research Programme
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Australia Signs Uranium Deal with UAE
Background
In late July, Australia and the United Arab Emirates (UAE) reached an agreement on the provisions of the export of uranium to supply Abu Dhabi’s nuclear energy programme. Trends and concerns of the UAE are not unique, and are felt across the Middle East. In the future, therefore, it is likely that more states in the region will join the UAE as an Australian energy importer.
Comment
After an agreement reached in late-July, Australian producers may supply uranium to the United Arab Emirates fledging nuclear programme. While not a commercial agreement, the commitment details the conditions under which nuclear material will be supplied to the UAE. Quantity, price and other specific considerations will be settled in consultation between import and export parties.
The Australian decision comes less than a month after the announcement that the UAE’s nuclear regulator has awarded a licence to Emirates Nuclear Energy Corp for construction of the state’s first two nuclear reactors. Led by a South Korean Consortium, the multi-billion dollar project, will be the first maiden nuclear power plant project for a country in over twenty years. Additionally, the UAE is the first Gulf Arab state to begin building a nuclear power plant.
Rich in oil, the UAE wishes to preserve reserves for export. Currently, the emirates use gas to generate electricity. In recent years, however, as demand has risen, the state has become an energy importer. Energy security has an added significance in the Middle East, with much of the region relying on desalination plants for water supply. In addition to its strong energy security credentials, nuclear power is also commercially competitive and without emission considerations from carbon-based fuels.
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In contrast to Iran, the UAE’s programme has been transparent, with rulers voluntarily implementing a number of safeguards and controls. As a signatory to the Nuclear Non- Proliferation Treaty, the UAE has re-emphasised its commitment to a peaceful nuclear programme. Moreover, in accordance with a recent deal with the United States, it will not enrich uranium or reprocess spent fuel for plutonium, steps required to develop a nuclear device. Additional measures have also been drafted to strengthen nuclear safety, a continuing concern impacting global confidence following Fukushima.
Importantly, provisions for fuel leasing and the return of radioactive waste were not agreed. The UAE has hoped to agree a fuel leasing framework, which makes the supplier liable for spent fuel, this was however rejected. Similarly, the government will not accept waste, with Australian Foreign Minister, Bob Carr, suggesting domestic public opinion would make this option unviable. It is therefore likely, that Abu Dhabi’s waste management system will include an underground storage facility in a remote area within its own borders. Alternatively, greater co-operation in the Gulf Co-Operation Council may lead to a shared regional repository. Although given the connotations of radioactive waste, it is unlikely any of the member states would welcome the opportunity to host such a facility.
Looking ahead, the UAE’s energy strategy is likely to be replicated across the region, with all states conscious of the need for cheap, sustained power supply, but unwilling to tap into valuable domestic reserves. For Australia, which boasts the largest global reserves of uranium, this bodes well, and the UAE deal could be the first of many.
Liam McHugh Research Manager Northern Australia & Energy Security Research Programmes [email protected]
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Global Food Security Index Highlights Concerns
Background
The Economist Intelligence Unit released a new index on food security which considers the food security of 105 countries with a model that analyses 25 individual indicators in the areas of affordability, availability and quality and safety.
Comment
The Sub-Saharan region of Africa scored with worst region for food security followed by South Asia. North America and Europe and Central Asia had the highest level of food security.
The Democratic Republic of the Congo scored the lowest world ranking, followed by Chad, Burundi and Haiti. Ethiopia and Tanzania were also in the list of the 10 least food secure nations.
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The United States was considered the most food secure, followed by Denmark, Norway, France and the Netherlands. Australia was ranked the 14th most food secure positioned between Spain and Portugal and behind Canada and New Zealand.
Pushing Australia’s ranking down was its food availability ranking. This affordability index measures the sufficiency of the national food supply, the risk of supply distribution, national capacity to disseminate food and research efforts to expand agriculture outputs.
To determine the food availability ranking, scores are kept on the sufficiency of supply, public expenditure on agricultural research and development, agricultural infrastructure, volatility of agricultural production and political stability risk. In terms of the availability index Australia ranked 21st, just ahead of Israel, Poland and Mexico and well below the Netherlands, New Zealand, Canada or the United States. Australia scored significantly higher on the affordability stakes (5th) and Quality and Safety (6th).
The global food security Index is a useful tool in determining where there is need for improvement and in identifying new approaches to food security.
To view the EIU Index on Food Security click here.
Gary Kleyn Manager FDI Global Food and Water Security Research Programme [email protected]
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Livestock Virus Detected in the Democratic Republic of the Congo
Background
The highly contagious peste des petits ruminants (PPR) virus has been detected in livestock in the Democratic Republic of Congo (DRC). The virus is destroying thousands of livestock in the country. It is the worst epidemic the DRC has experienced in the last decade, and is having a devastating economic impact on farmers. The outbreak is exacerbating an already precarious food security situation in the DRC, and threatens to spread further south to previously unaffected countries.
Comment
The rapid spread of the PPR virus is having grave consequences for farmers in the DRC. The disease is destroying sheep and goats, though cannot be contracted by humans. PPR was first detected in the Bandundu district of the Kwango and subsequently spread to Masimanimba, Bas-Congo, Equateur and the Kasai provinces. According to the FAO, the epidemic causes an 86 per cent mortality rate in goats. To date, 75,000 goats have died from
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the disease, and tens of thousands are currently infected. It is estimated that a further one million goats and 600,000 sheep are in danger of contracting PPR. It is feared that the epidemic may spread further south into Angola, Botswana and Zambia. These countries have prioritised the prevention of PPR entering Southern African Development Community (SADC) countries.
The PPR virus is devastating for poor, rural farmers, who heavily rely on goats and sheep for their livelihoods. Following the outbreak, many are struggling to find alternative means of survival. The government, due to budget constraints, is unable to provided farmers with compensation to ease their situation. Farmers with seemingly healthy animals have tried to escape the virus by moving to non-contaminated villages. This, however, has contributed to the spread of the epidemic by infecting healthy animals in those villages. Local authorities are therefore implementing education programs on how to recognise the symptoms, and the necessity of destroying sick livestock before the virus has a chance to spread.
The current PPR outbreak will exacerbate the country’s already precarious food security situation. The DRC is a destabilised state with internal conflict and recurrent natural disasters. Since 1996, more than four million people have lost their lives as a result of civil conflict and more than one million have been displaced. Additionally, the east of the country continues to experience civil violence as armed groups terrorise the local population, as well as stealing and destroying food and crops. The 2011 Human Development and Global Hunger Indexes both place the DRC last on their lists. 70 per cent of the population does not have adequate supplies of food and, as a result, one in four children are malnourished. The Food Policy Research Institute reveals that the DRC is one of four countries worldwide to have an ‘extremely alarming’ food security situation.
The FAO’s Chief Veterinary Officer, Juan Lobroth, has stated that vaccinations can combat the current epidemic. Lobroth noted that a similar strain of viral disease – Rinderpest – was eradicated with the assistance of donors, the scientific community, development organisations, governments and farmers. It is hoped that a similar effort will lead to the eradication of PPR. The FAO is currently providing the DRC with funds to ensure that approximately 5,000,000 healthy sheep and goats are immunised against PPR. The government of the DRC have also restricted the movement of animals and are educating local farmers through rural radio and village meetings about how to go about preventing the strain’s spread. Furthermore, surveillance for PPR has been increased and field veterinarians are being trained to better understand the epidemic. The successful containment of the virus will greatly assist in preventing the DRC’s food security situation from worsening.
Anna Mitrofanova FDI Research Assistant Global Food and Water Crises Research Programme
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Crippled Tiger: Power Failure in India Highlights Problems
Background
India’s recent power blackouts, which affected over six hundred million people spreading over half the country, raises questions about the complex internal problems prevalent in one of Asia’s key rising powers. The chaos caused to hospitals, transportation, mining operations, and daily living is ascribed to an overstretched generation system, with accusations of poor management being levelled at India’s State Electricity Board.1 India’s increasing middle class and population have put a massive strain on the county’s limited infrastructure and energy resources, which are in need of reform.
Comment
India’s state governments refuse to adhere to power grid discipline and the lack of frequency relays installed for automatic energy withdrawal management2 illustrates the difficulties of preventing power supplies being overdrawn. The power supply situation also needs to be addressed at a higher level with a nationwide electricity sector reform.3 Increasingly, there is a belief in India that the current system is becoming incapable of fulfilling India’s increasing energy needs.4
Prime Minister Manmohan Singh recently approved a National Critical Information Infrastructure Protection Centre (NCIPC), to control and monitor the country’s critical infrastructure systems.
India’s growing economy is highly dependent on energy, but the lack of effective infrastructure and systems causes energy supplies to be unreliable. While India’s economic growth is high, it has fallen in the first quarter of 2012, demonstrating how much further the country needs to develop to reduce poverty levels and increase its international standing.
With India facing other issues, such as rising inflation, domestic reforms are needed to reinvigorate the economy; addressing energy usage and the capacity of electricity networks are integral to this.
To ensure efficient power supply in India, natural resource production and transportation, power generation and distribution, infrastructure, pricing revisions and regulations all play a part and need to be addressed by the government.5 This could, in turn, assist other problem areas, including a lack of suitable urban infrastructure, water and sanitation facilities.
Prime Minister Singh’s promises of economic reform need to continue to be implemented, and the government’s willingness to act on them is a vital component of India’s aspiration to
1 Mehdudia, S., The Hindu, 31 July 2012, ‘Day two: 21 States plunge into darkness as 3 grids collapse’.
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become an economic superpower while avoiding internal turmoil.6 Riots occurred earlier in July 2012 over power shortages in Delhi. They have become a common occurrence in Indian cities, with power cuts leading to protests and unrest, in a striking comparison to the strong economic image India wishes to portray to the outside world.
India’s power grids are also vulnerable to cyber-attacks. This could be an increasingly critical issue, taking into account the tensions and rivalry between India and Pakistan and, potentially, China. For India to improve its outlook both internally and globally, taking advantage of the current crises could prove to be immensely valuable in the long-term.
Zamaris Saxon FDI Research Assistant Indian Ocean Research Programme
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India: Implications of a Slowing Economy
Background
The recent electricity crisis and the appointment of a new Finance Minister have, among other issues, drawn attention to India’s economic slowdown.
While analysts are divided over the long term prospects, there is a general consensus that the economic slowdown is happening with little prospect for any positive change in the foreseeable future.
Comment
The most optimistic assessment is that the current slowdown is temporary. India’s inherent strengths, such as its relatively young population, large domestic market and strong information and technical communications industry, will see it through its present economic decline. But there is also a realisation that India’s economic difficulties are, at least partly, related to a declining global economy which sees Europe grappling with its sovereign debt crisis, high unemployment in the United States, weakening growth in China and a general economic situation that appears to have little prospect for any immediate recovery.
India’s economic growth rate, where predictions of 9 per cent or higher were recently voiced by officials, has slipped to 5.3 per cent for the fourth quarter in 2011-12. While still expanding, and high by the standards of developed countries, the slowdown is significant, particularly given India’s low economic base. Certainly the improvement of living standards recently experienced and anticipated for the future is now highly questionable.
India’s continuing economic growth is also influenced by domestic and foreign investment. The development and expansion of mining, housing and infrastructure among other areas
6 CBC World News, 31 July 2012, ‘India blackouts affect half the country’.
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are dependent on such investment. But Indian corporations are increasingly investing overseas and foreign investments in Indian stocks and bonds fell by almost 50 percent in the last fiscal year.
Inflation is rising, the value of the rupee is falling and deficits continue to reduce the government’s ability to invest.
In part, business leaders and certain analysts blame this on growing political dysfunction. The lack of a clear political agenda, populist tendencies, bureaucratic inefficiencies, regional disparities in terms of poverty and development and allegations of corruption have all contributed to this assessment.
Certainly India faces a politically challenging time with the cost of food likely to increase significantly as the impact of below average monsoon rains starts to be felt.
Major General John Hartley AO (Retd)
Institute Director and CEO *****
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What’s Next?
Richard Marles, Australian Parliamentary Secretary for Foreign Affairs, will visit the Republic of Korea on 8 August. Earlier in the week, Mr Marles also visited Brunei Darussalam and Nepal.
This week, Hillary Clinton, U.S. Secretary of State, will continue her visit to Africa. On 8 August, she will conclude meetings in South Africa, visiting Ghana on 9-10 August. The 8th round of cross-strait talks will be held in Taipei on 9 August. Negotiations between Taiwan and China are expected to focus on an investment protection,
culminating in an accord on customs co-operation. On 8 August, Wan Gang, Chinese Minister of Science and Technology, will conclude a tour of Brazil.
Libya’s newly elected transitional government will assume power on 8 August, following a scheduled transition from the National Transitional Council.
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. Desborough House, Suite 2, 1161 Hay Street, West Perth WA 6005 Australia. Tel: +61 8 9486 1046 Fax: +61 8 9486 4000 E-mail: [email protected] Web: www.futuredirections.org.au
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