3 October 2012 | Vol. 3, № 15. From the Editor’s Desk Dear FDI supporters, Welcome to this week’s edition of the The Landmark Study analysing the food Strategic Weekly Analysis. and water security situation in Southern Africa, and how Australia might respond, This week we published a Strategic is due to go to the publisher next week. Analysis Paper titled Australia, China and The second study, examining the same the United States: Maintaining an issues in the Middle East, is well Equilibrium in the Indo-Pacific. Written by underway. Visiting Fellow, Saloni Salil, the paper proposes that Australia should not focus We are also about to publish a major on preparing in case of a war with an study that examines our ability nationally Asian power but, instead, focus on to deal with a major catastrophic disaster. working with Asian powers to develop The study will concentrate on the Pilbara even greater co-operation and region, which is experiencing an engagement in the region. India and unprecedented expansion of its minerals Indonesia are seen as possible partners in and energy sectors. A relatively minor this process. disruption may result in a significant and costly loss of production. To help prevent Saloni Salil is a post-graduate research and alleviate such disasters, Australia scholar from the Department of requires a national capability. Geopolitics and International Relations in India’s Manipal University. I trust that you will enjoy this edition of the Strategic Weekly Analysis. Upcoming papers from the Indian Ocean Research Programme include an analysis Major General John Hartley AO (Retd) of some of the steps India is taking to Institute Director and CEO increase its political, economic and Future Directions International strategic engagement with Burma. We also continue our series examining the national involvement of various countries in the Indian Ocean Region. ***** India−Pakistan Visa Deal: A Boost for Trade and Bilateral Co-operation? India and Pakistan have agreed to liberalise their visa arrangements. While the trade benefits may not be great, at least initially, the move should still be a positive step forward in the bilateral relationship. Background Announced on 8 September, the visa deal came during a three-day meeting between Pakistani Foreign Minister Hina Rabbani Khar and her Indian counterpart, S.M. Krishna, in Islamabad. Under the deal, eight categories of visas are to be liberalised. Changes include the provision of a visa on entry at the land border for the elderly and young and, most importantly, the provision of multiple-entry and multiple-city visas for businesspeople with annual turnovers of over three million Pakistani rupees ($30,600). Comment The latter is particularly significant in view of recent trade developments. These include Islamabad’s decision to grant most-favoured nation (MFN) status to India — India having granted the status to Pakistan in 1996. Pakistan has promised to grant MFN status to India by December this year by moving from a system in which only items stipulated on a “positive list” could be traded, to one in which a small “negative” list covers excluded items, for example those relating to defence. India has also liberalised its regime by agreeing to remove yarn and textiles from its negative list and allowing Pakistani businesses to set up in India. India sees such developments as consistent with what Krishna refers to as its “step-by-step approach” to the relationship. India has for many years held the view that this is the best way forward, rather than pushing for dramatic developments in relations, for instance over Kashmir. New Delhi believes that a Pakistan that is more solidly stitched into the Indian economy is more likely to abjure the highly disruptive tactics in support of trans-border terrorism that have been witnessed from Pakistan in recent years. India is also keen to support what it sees as the delicate process of civilianising the Pakistani polity, consonant with its belief that it has been the military — and especially the Inter-Services Intelligence — that has been most heavily engaged in supporting terrorism. The step-by-step approach is also seen by New Delhi as being consistent with its persistent demand that Islamabad do more to bring those responsible for the 26 November 2008 attacks on Mumbai, and other attacks on India, to justice. For India, this is the “bottom line” in terms of achieving any significant breakthrough in relations. For its part, Islamabad claims that it doesn’t have sufficient evidence to progress with the cases. The issue is complicated by the arrest in India of Abu Jundal, who allegedly planned the 26 November attacks, and has claimed under interrogation that the ISI was involved — a claim similar to that made by David Headley, another Lashkar-e-Taiba operative associated with the attacks, during his trial in the United States. Page 2 of 12 Indian Prime Minister Manmohan Singh is set to visit Islamabad some time before the Pakistani election, which is scheduled to take place in the first half of next year. But so far New Delhi has not committed to a date, saying the visit would need to achieve something significant, probably in reference to a breakthrough on terrorism. Such a breakthrough is currently unlikely. Even if the civilian government wished it, the military remains attached to its “tame” terrorist groups like Lashkar-e-Taiba and the Haqqani Network as a potentially useful force de frappe in the context of Kashmir and Afghanistan. The outcomes in trade, too, may be slow and painful to realise. Trade between India and Pakistan is currently minimal at US$2.7 billion (although the third country transactions between India and Pakistan, mostly via Dubai, bring the total two way trade to US$10 billion). According to the Wall Street Journal, even with MFN status, non-tariff barriers, such as onerous labelling provisions and lack of trade facilitation at the borders, are likely to keep trade low for some time. Meanwhile, Chinese goods are flooding into Pakistan under its MFN arrangement with Beijing. India also faces challenges from Chinese manufacturing. A further challenge is that the Indian and Pakistani economies are not particularly complementary. Even with the best will in the world — which is currently lacking — progress will be incremental. Where there could be greater trading traction, however, is at the local level between the two Punjabs, both of which are dynamic sub-regions of their respective economies. Niche items like Pakistani light cotton products for women’s fashion, which could prove popular in India just as they have in Pakistan, could also benefit from the new regime. The most recent developments may still be seen as a positive step forward for India−Pakistan relations. The challenge now is to maintain positive momentum of the step- by-step approach to improving bilateral relations. However, a terrorist attack that is seen to have originated in Pakistan could derail this process at any time. Dr Sandy Gordon FDI Associate About the Author: Dr Gordon is a Visiting Fellow at the College of Asia and the Pacific, Australian National University, Canberra. He is a specialist of South Asia and the Indian Ocean and co-editor of South Asia Masala. This article first appeared in the East Asia Forum, 25 September 2012. ***** Page 3 of 12 Multiple Internal Challenges for South Sudanese Oil Supply Corruption, security, social discontent and lack of infrastructure will significantly constrain South Sudan’s oil producing capability. Background Much of the commentary on South Sudan’s post-seccession oil production has focussed on the dispute with Sudan. Signs suggest that September’s meeting between leaders from Sudan and South Sudan has produced a modus vivendi between the two parties. Oil-rich South Sudan will, however, still face multiple challenges in encouraging investment in its vitally important oil sector. Comment In late-September, the leaders of Sudan and South Sudan held direct talks, aimed at resolving the long-running border and oil disputes. Initial analysis suggests that the discussions, held in Addis Ababa - both the Ethiopian capital and home to the African Union (AU) – may have produced consensus over both the border and oil revenue. Additionally, the AU, the broker of the mediation process, has proposed an October 2013 referendum to decide the future of Abyei. The potentially oil-rich region has been claimed by both states and was the flashpoint in April, as the dispute escalated to the brink of war. Negotiation and agreement bode well for both countries’ economies, which are inextricably linked to oil production and export. The northern area of Sudan retains the region’s processing and exporting facilities. Conversely, the South boasts two-thirds of pre- independence oil reserves, which will provide a much needed source of revenue for the undeveloped state. Significantly though, it is not simply external pressures that will test South Sudan’s hydrocarbon sector. Oil companies seeking opportunities in South Sudan will face multiple challenges, including corruption, a lack of infrastructure, social discontent and political instability. While undoubtedly impacting its northern neighbour, South Sudan’s decision to shut-down oil production has resulted in significant strain on its own economy. As is often the case in Africa, it is ordinary citizens who have felt the impact of the government’s decision. As a result of an austerity budget imposed due to declining revenue, the Juba government has found it increasingly difficult to pay civil servants. As a consequence, according to British risk consultancy firm Maplecroft, graft and bribe-seeking among public sector workers may pose an increasing risk to business. Declining revenue has also led to scarcity, particularly in fuel and foreign exchange. Conscious of its weak position, the South Sudanese government has blamed a variety of foreign parties, including foreign traders, for the state’s poor economic conditions.