25 February 2015 | Vol. 6, № 6. From the Editor’s Desk

Dear FDI supporters,

Welcome to the Strategic Weekly We close this week’s edition in Africa. Analysis. First, we discuss the ambitious, and costly, plans to boost economic growth and This week’s edition opens with an analysis reduce inequalities in the South African of the need for India to upgrade its province of , outlined by the economic credentials and military Premier in his State of the Province capabilities, as well as undertake an Address. overhaul at the Ministry of Defence, ahead of Prime Minister Narendra Modi’s We follow that with an examination of the visit to later this year. need for more transparent funding that also prioritises soil and land management, Next, we turn our attention to , so that investment is directed to where it where we assess the difficulties is most needed, thus supporting long- confronting President in his term food security in Africa. efforts to appoint a new police chief while appearing not to be beholden to former I trust you will enjoy this edition of the president and PDI-P party leader, Strategic Weekly Analysis. Megawati Soekarnoputri. Major General John Hartley AO (Retd) Looking to the Middle East, we explore Institute Director and CEO developments in the Saudi-Russian Future Directions International relationship, noting some recent progress but, also, continuing friction over the effect of low oil prices on the Russian economy.

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India: Prime Minister Lacks Support from Ministry of Defence

If India wants China to take it seriously, it has no alternative to upgrading its economic and military capacity quickly.

Background

The recent visit by Indian Prime Minister Narendra Modi to the eastern state of Arunachal Pradesh, which China claims as South Tibet, to take part in its anniversary celebrations of attaining statehood, brought about the expected condemnation from Beijing. It was, however, the degree of the anger demonstrated by Beijing that attracted the attention of China-India observers. Officials from China’s Foreign Ministry put their (Chinese) New Year holiday on hold to denounce Modi’s visit. The statement released by the Foreign Ministry claimed that China had never recognised ‘the so-called Arunachal Pradesh’. The Ministry Spokesperson, Hua Chunying, added that ‘the act of the Indian side is not conducive to properly resolving and controlling disputes between the two sides, nor in conformity with the general situation of growth of bilateral relations.’ This situation has arisen before Modi is due to visit Beijing, a visit that must occur before the end of May this year.

Comment

Vociferous protestations of this nature by China are hardly new. In fact, the Chinese People’s Liberation Army has taken to making its own statements, seemingly without the authorisation of the political class. One example of this took place during then US Defence Secretary Robert Gates’s visit to Beijing in January 2011. On another occasion, Chinese soldiers entered Indian-held territory, creating a stand-off with their Indian counterparts as Chinese President Xi Jinping was visiting New Delhi.

If India wishes to be taken seriously by China, by the region and by countries further afield, Modi and his strategists will need to increase India’s economy and its military. Plans are being put in place, it would appear, to enhance the economy but Modi sorely lacks support from the Ministry of Defence (MoD). The Defence Minister, Manohar Parrikar, has inherited a more-or-less dysfunctional ministry and a less-than-reliable military research support structure. For example, Hindustan Aeronautics Limited (HAL), which is responsible for maintenance and platform support for India’s military aircraft, has been named by the Indian Air Force as a major reason for an average of only 60 per cent of the IAF’s fleet being operationally available. HAL, furthermore, was to have built the French Dassault Rafale fighter aircraft under licence as part of the Medium Multi-Role Combat Aircraft programme. This programme was tendered in 2007 and the Rafale was subsequently chosen as the fighter of choice in 2012. Negotiations between Dassault and the Ministry of Defence, however, have more or less stalled. Similarly, the indigenously designed and built Light Combat Aircraft (LCA, also known as the Tejas), was conceived in the mid-1980s but a prototype was only delivered to the IAF this year. Indian fighter pilots who tested it described it as grossly under-powered and lacking manoeuvrability. Modi described this as a prime example of the ‘chalta hai’ (casual, relaxed, or even lackadaisical) attitude that seems to pervade the MoD.

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As if that were not trouble enough, recent media reports highlight the security leaks within several ministries, including the MoD. The police have reportedly arrested an MoD employee who not only stole documents from the ministry, but also made fake identification cards to enable at least one other person to enter several ministries at will.

The Defence Minister, moreover, has not helped his own cause. Facing the stalled negotiations with Dassault, he opined that the MoD could always purchase more Sukhoi 30 MKI’s, India’s Russian-designed, mainstay fighter aircraft. He may have felt that this would encourage Dassault to make some concessions in their negotiations. While the French Defence Minister did visit India, nothing of any substance appears to have eventuated. On the other hand, the IAF’s international tender to source a manufacturer of medium transport aircraft to replace 56 obsolete Avro aircraft, saw only one bidder, a joint venture between Airbus Defence and Space and Tata Advanced Systems Limited, respond. While this poor response may not be directly attributable to the confusion caused by Defence Minister Parrikar’s statement, there is little doubt that did play a part in the outcome.

A similar state of affairs exists in the case of the development of India’s Fifth Generation Fighter Aircraft (FGFA), which is being jointly developed by Russia’s Sukhoi Design Bureau. While the Sukhoi PAK-FA, the fighter aircraft on which the FGFA is based, is a single-seat fighter, India asked for a configuration for two pilots. When the two-seat model ran into some difficulty, the MoD changed its mind and agreed to accept at least some single-seat fighters. This closely echoes the case of the aircraft carrier that India decided to purchase from Russia, the Admiral Gorshkov, which was subsequently renamed INS Vikramaditya. Here, too, there were delays and major cost overruns due to changing Indian requirements.

As stated earlier, Modi is due to visit Beijing by the end of May this year. If he wants India to be treated as an equal by China, he will need to demonstrate a change in the Indian economy or at least one that has had the groundwork prepared in order to enlarge it. He will also need to demonstrate that India has a professional and capable Ministry of Defence. While there is little, if any, doubt, about the professionalism of the Indian military itself, the Ministry’s ability to decide upon and procure the materiel required to support the Indian Air Force, Army and Navy leaves much to be desired. Unless there is a radical change in the professionalism of the Ministry, there is little hope of Modi being able to talk softly, secure in the knowledge that he carries a big stick, in Beijing.

Lindsay Hughes Research Analyst Indian Ocean Research Programme

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Indonesia: A New Police Chief Candidate, a New Beginning for President Widodo

By withdrawing Budi Gunawan as a nominee for the position of police chief, Joko Widodo is in a better position to salvage his public image, but significant hurdles, largely beyond his control, remain.

Background

Following weeks of uncertainty that re-ignited the feud between the Corruption Eradication Commission (KPK) and the Indonesian National Police (Polri), Comr. Gen. Budi Gunawan’s appointment as National Police Chief has been cancelled. In his place, President Joko “Jokowi” Widodo has nominated Polri’s Vice Chief, Comr. Gen. Badrodin Haiti. Prior to becoming Vice Chief, the new nominee was in charge of several provincial police forces. Before he can be officially inaugurated, however, his nomination has to be approved by the House of Representatives (DPR).

Comment

After being named a graft suspect, General Gunawan launched a lawsuit against the KPK, arguing that there were no grounds for this allegation. On 16 February, he was cleared by a court verdict but his nomination remained tainted and the president cancelled his appointment two days later. By withdrawing Gunawan’s candidature, after many delays and stalling tactics, Jokowi is now in a better position to restore flagging public confidence in his leadership ability. A number of hurdles need to be overcome for him to rebuild his public image, which has been dealt a severe blow by the protracted corruption case.

Since he was announced as the Indonesian Democratic Party of Struggle (PDI-P) presidential candidate, Jokowi has faced allegations of being a wayang, or puppet, of former president and PDI-P leader, Megawati Soekarnoputri. This perception gained further prominence with the nomination of Gunawan, as the General is a long-time associate of Megawati. The president’s withdrawal of General Gunawan’s nomination could suggest that he has always acted independently of his political benefactor, or is now beginning to do so. On the other hand, it could also be that Megawati has come to the realisation that pursuing the appointment of her chosen candidate would provoke widespread popular discontent and damage her long-term position. Either way, the party elder will likely have a bearing upon how the nomination process progresses.

The DPR is currently in recess and will not reconvene until 23 March, giving Jokowi time and space to manoeuvre. Many members of the PDI-P, who supported him in the election campaign, expressed their disappointment at his failure to inaugurate General Gunawan. The former nominee also received the support of the majority of the DPR and the Great Indonesia Coalition (KIH), which also lends its support to Jokowi. Members of the House could be reluctant to give support to a different candidate, adding another hurdle to Haiti’s inauguration. Though the fractious parliament could cause further headaches for the embattled President, the lengthy recess gives him a considerable amount of time to lobby members and gain support for Haiti. His discussions with the Opposition also appear to be

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bearing fruit as Prabowo Subianto’s Gerindra Party seems to support the President in nominating a new candidate.

Public sentiment will also have a role in the inauguration of the new candidate. Allegations have already surfaced in some segments of the Indonesian media that suggest General Haiti has also misused his position for nefarious ends. The new nominee was one of 23 police generals who were reported to have suspiciously large bank accounts in 2010 by the Indonesian weekly, Tempo. Haiti’s wealth was disclosed as totalling 8.2 billion rupiah ($816,266.00) in 2014 from 2.9 billion ($288,679.00) in 2008. Nevertheless, he is viewed as the best candidate available from the list given to the President by the National Police Commission.

By cancelling Gunawan’s nomination and replacing him with Haiti, immediately prior to a month-long parliamentary recess, Jokowi has bought himself some time to resolve an issue that has dominated political discussion in Indonesia for almost two months. If he is able to guide his chosen appointee through parliament it will lend credence to the argument that he is not at the mercy of Megawati and rebuild his deteriorating public image. He will also need to articulate precisely why Budi Gunawan was not a suitable candidate for the position and why Badrodin Haiti is a better one. Ultimately, however, the nomination process is now in the hands of the parliament and the president has to act quickly and decisively to ensure that he has the numbers to resolve the issue.

Mervyn Piesse Research Analyst Indian Ocean Research Programme

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Tensions Persist in Saudi-Russian Relations

The recent oil price drop, in conjunction with Russia’s struggling economy, may further strain Saudi-Russian relations. There is potential for co-operation in the oil market, although it is unlikely that Riyadh will cut oil production.

Background

Oil prices, which have dropped from US$92 to US$49 per barrel in the last six months, as well as continuing sanctions, are continuing to weaken the Russian economy. As a result, the Russian rouble has halved in value to a five-year low of 64 roubles per US dollar and the country’s foreign exchange reserves have fallen from over US$500 billion to US$375 billion in the same period. If oil prices do not recover, the World Bank has warned that Russia’s economy will shrink by at least 0.7%. Russia needs the oil price to sit at around US$105 per barrel to balance its budget, but that is highly unlikely in the short term, as there are no

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signs of oil production being slowed. This may yet become a source of tension in the Saudi- Russian relationship, especially given Riyadh’s influence over global oil supplies.

Comment

The drop in the price of oil has led to several countries blaming either Saudi Arabia for refusing to cut production, the US shale oil industry or even a US-Saudi partnership to manipulate oil prices. Within Russia, there is a tendency to point the finger at the US and Saudi Arabia. In his State of the Nation Address in December, however, Russian President Vladimir Putin noted that, while there are questions over possible US-Saudi co-operation attempting to influence the Russian economy, there is no way to know for sure.

Although Putin does not publicly accuse Saudi Arabia of conspiring against Russia, low oil prices may still become a cause of tension between the two countries. As the world’s largest oil exporter, Saudi Arabia has significant influence over the global oil supply. Moreover, as noted in a previous FDI article, low oil prices serve a number of Saudi interests and Riyadh’s huge financial reserves will allow it to sustain low prices for some time. It is unlikely, therefore, that Saudi Arabia will cut back on production as it did in 2008, especially since Russia continued its production and thereby benefitted from the price increase that Riyadh’s production cut brought about. Saudi Arabia’s refusal to cut back on production may become a source of tension as the Russian economy bears the consequence this time around.

Strained Saudi-Russia relations are nothing new. Saudi support for the Mujahedeen Army during the Soviet war in Afghanistan is a historical source of contention between Riyadh and Moscow; Soviet troops were forced to withdraw after suffering over 14,000 casualties. Conflicting interests have continued in Middle East, with Saudi Arabia supporting forces to oust Syrian President Bashar al-Assad even as Russia and Iran attempt to keep him in power. Russia also faces the problem of Chechen terror groups, which have been allegedly supported by Saudi Arabia. Riyadh’s continued oil production in the face of a slowing Russian economy, therefore, can be seen as an addition to a list of grievances held by Russia in its links with the Kingdom, rather than a bridge in the relationship.

Despite these setbacks, relations did improve slightly in 2014. Partly, that was due to Saudi Arabia rethinking its strategy in Syria after Prince Saud al-Faisal took over as Foreign Minister. This set the scene for Faisal’s positive visit to Russia, where he met with Foreign Minister Sergei Lavrov and they took similar positions over numerous developments in the Middle East. According to Al Arabiya News, following the visit, both sides confirmed their intention to boost bilateral economic and trade ties. The area that requires the most attention is, of course, the oil market. Both Russia and Saudi Arabia, the top two oil exporters in the world, are dependent upon stable oil prices for development and economic growth. Co-operation in the energy market, as well as combined regional strategies in the Middle East, therefore, may follow if Saudi-Russian relations continue to improve.

If relations do not improve, however, and nothing is done to address the low oil prices, Russia may use Syria as a bargaining chip for other benefits. On the other hand, with the low oil prices impairing the Russian economy, Riyadh may have enough leverage over Putin to weaken Moscow’s support for Assad by maintaining or even introducing further cuts to oil

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production. Economic incentives have been offered by Saudi Arabia in the past and flatly refused. Although it remains unlikely that Russia will change its strategy in Syria, the current state of the Russian economy could possibly see the Assad regime used as a bargaining chip.

Jarryd de Haan Research Analyst Indian Ocean Research Programme

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South Africa: Provincial Premier Outlines Growth Plans

If the ambitious plans unveiled by Gauteng Premier David Makhura can be funded and implemented successfully, they have the potential to make a real difference to economic activity and living standards in the engine room of the South African economy.

Background

The Premier of ’s wealthiest province has used his annual State of the Province Address to outline an ambitious plan to boost economic growth and reduce unemployment. Premier David Makhura unveiled a multi-million rand plan to create five “Economic Development Corridors”.

Comment

Giving his 2015 State of the Province Address to the Gauteng Provincial Legislature in on 23 February, Premier Makhura announced that his government would foster the creation of Economic Development Corridors that would build on existing economic activities in those areas. The Corridors will be:

 Central: based on the City of Johannesburg and its role as a hub for the country’s financial, services, IT and pharmaceutical industries;

 Eastern: to be anchored around the manufacturing, logistics and transport industries of the East Rand area, including O.R. Tambo International Airport, the main gateway to South Africa;

 Northern: to be centred on Pretoria as the administrative capital of South Africa and the hub of the automotive sector, together with a number of universities and technological and research facilities;

 Western and Southern: in which new industries and urban areas are to be created.

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The intention is that the Economic Development Corridors will boost economic growth and employment and contribute to more equitable participation in the provincial economy across all racial and socio-economic groups. To achieve that, however, will require large sums of money.

According to the Premier, the government has already earmarked ten billion rand ($1.1 billion) in public and private investments for the revitalisation of the Johannesburg city centre, plus partnerships with national and local government authorities and major housing construction projects around the province – including in areas – to improve the standard of dwellings and create employment in the building sector. Over the 2015-16 financial year, the Provincial Government will allocate over R300 million ($33.1 million) to support small, medium and micro-sized enterprises in the townships.

Gauteng is the economic heartland of South Africa. The country’s smallest province is also its most populous; 11.3 million people, or almost one-quarter of all South Africans, live within its 18,100 km2 area. Gauteng has the highest per-capita income level in the country, the highest Gross Provincial Product (R811.0 billion, or $89.6 billion) has consistently recorded economic growth above the admittedly anaemic national average (2.6% in 2013, compared to national growth of 2.2%), and contributes 34 per cent of the national Gross Domestic Product.

Even so, the effects of the era linger and significant inequalities persist. The latest figures from government agency Statistics SA, report a year-on-year drop in the official provincial unemployment rate of 0.6% to 24.6% in the fourth quarter of 2014, placing Gauteng only in the mid-rankings. The national unemployment rate now stands at still very high 24.3%.

A relatively rosier picture emerges in terms of the expanded unemployment rate, which includes those who have ceased to actively look for work as well as those who are officially recorded as being jobseekers. By that measure, at 29.6%, Gauteng is second-lowest, behind only Western Cape. A similar picture emerges in terms of labour absorption, or the proportion of the working-age population that is actually employed. There, Gauteng records 51.8%; again, just behind Western Cape at 51.4%.

The Premier also touched on the thorny issue of the socio-economic impact of the electronic tolls (e-tolls) now being collected from motorists using the province’s motorways. Although implemented as part of the Gauteng Freeway Improvement Project and designed to

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contribute to the improvement of the province’s transport networks overall – a project that also has benefits for the national economy, as Gauteng is the country’s economic powerhouse – the public remains highly concerned by the inequitable economic impact of the e-tolls on low-income road users. While the National Department of Transport and the South African National Roads Agency Limited were responsible for public consultations on e- tolling, the provincial government is also negatively associated with what is felt to have been an overall lack of consultation.

Coupled with the frequently poor delivery of utilities and essential services, particularly in townships such as Alexandra and Kliptown, e-tolls remain a public relations liability for the provincial government. The Premier foreshadowed some changes to the e-tolling regime in his address but, given the cost of the construction of the toll infrastructure, it would be unthinkable for the government to announce their wholesale removal, no matter the amount of public pressure. The government will continue with the approach taken in the 1996 White Paper on National Transport Policy, which endorsed a “user pays” contribution to “economic infrastructure” or, those facilities that provide the economy with a quantifiable return. The government must, therefore, look to create good news elsewhere and will fund several multi-million rand Bus Rapid Transit Systems and investigate the expansion of the Gautrain Rapid Rail System.

The various projects announced by the Premier, and other transport, anti-crime and anti- corruption initiatives, will if properly funded and implemented, go some way towards fostering employment and addressing inequalities in the powerhouse of the South African economy. As always, however, the proof will be in the pudding and, while Gauteng residents may have much to look forward to, they may equally be watching apprehensively to see if such expensive promises will bring the desired results.

Leighton G. Luke Manager Indian Ocean Research Programme

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Addressing Food Insecurity in Africa: The Need for Greater Strategic Alignment and a More Robust Finance Tracking System for Aid

Although a vast amount of money is poured into investments in agriculture and food production in Africa, approximately 65 per cent of the continent’s land is too damaged to produce food. Transparent and traceable funding that prioritises soil and land management is required to ensure investment is being directed to where it is most needed and supports long-term food security in the region.

Background

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Food production needs to double in the next 35 years in order to meet forecast demand. Approximately 60 per cent of the world’s uncultivated arable land is located in Africa. The continent, however, is experiencing extensive amounts of land degradation due to harsh climates with high soil erosion, fragile soils and poor land management practices. Land productivity is declining at approximately one per cent annually, with an estimated 20 per cent loss of productivity over the last 40 years. With population growth and food demand continuing to rise exponentially, developing strategies to manage land degradation is critical to support long-term food security in the region.

Comment

Approximately US$68 billion is lost every year in Sub-Sahara Africa due to land degradation caused by poor land management, population pressure and climate change. Despite this loss, assessing the contribution and effectiveness of aid in addressing this issue remains a significant challenge.

There has been an increased international focus on the importance of sustainable land management, with the United Nations declaring 2015 the International Year of Soils. This priority however, is yet to reflect in donor strategies in Africa. A recent Montpellier Panel Report has highlighted the need for increased investment in land and soil management by African governments and donors, the stronger political support for sustainable land management and improved transparency for soil and land management programmes to address degradation.

Calculating the amount of aid allocated specifically to land management is proving challenging. In recent international climate change negotiations, OECD countries agreed to collectively contribute US$100 billion per year by 2020 in “climate finance” for developing countries. But, one of the only accessible tracking datasets available is the OECD’s Development Assistance Committee (DAC) Rio Marker. This marker is unable to calculate the amount of aid allocated to land management and a lack of accurate tracking continues to reduce effective monitoring and evaluation processes.

Donor governments in Europe currently fund soil management programmes through various institutions such as the International Centre for Tropical Agriculture (CIAT), the International Fertiliser Development Centre (IFDC) and the Alliance for a Green Revolution, making it difficult to identify contributions and collectively monitor the effectiveness of investments.

There are numerous climate finance funds and initiatives which currently exist, but the vast majority do not specify a particular area of focus for funding. This becomes problematic when attempting to align strategic efforts and assess the overall success of funding initiatives. More importantly, none of these initiatives, with the exception of the Congo Basin Forest Fund (CDFF), require projects to address land management issues. This means that, although funding is available for land management, there is no guarantee that approved projects will address this issue.

To ensure investments in soil and land management are effective, robust tracking systems of funding need to be established to better monitor, manage and evaluate the progress of projects. There also needs to be greater international co-operation to ensure strategic goals

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and development plans are aligned to increase success. The Montpellier Report suggests that this could be done by ensuring that projects in Africa are aligned with the Comprehensive Africa Agriculture Development Programme’s (CAADP) investment plans, making it a central institution with a greater ability to monitor donor finance and assess progress. A strategic alignment which prioritises land management would play a significant role in ensuring food security both locally and globally by safeguarding much-needed arable land for food production.

Haweya Ismail Research Analyst Global Food and Water Crisis Research Programme

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What’s Next?

 India will hold e-auctions for its Schedule III mines on 25 February.

 The Indian Parliament’s budgetary session is now underway. The railway budget will be presented on 25 February, the economic survey will be submitted on 26 February, and the general budget on 28 February.  US Under-Secretary of Defence for Acquisition, Technology and Logistics, Frank Kendall, will visit New Delhi on 26 and 27 February to discuss four pathfinder projects agreed to last month.  The 21st International Engineering and Technology Fair, India’s largest biennial trade show for the engineering and manufacturing sectors, will be held from 26- 28 February.

 King Harald and Queen Sonja of Norway are on a state visit to Australia until 27 February.

 Sri Lankan Foreign Minister Mangala Samaraweera will meet with his Chinese counterpart and other officials in Beijing on 27 and 28 February.

 Despite continuing political tensions, Lesotho will hold parliamentary elections on 28 February.

 The second Association of South-East Asian Nations (ASEAN) Nutrition

Surveillance Workshop-Conference is underway in the Philippines until 28

February.

 Delegations from Egypt, Ethiopia and Sudan will meet in Cairo on 1 March to discuss disputes over the Grand Ethiopian Renaissance Dam.

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Any opinions or views expressed in this paper are those of the individual authors, 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

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