International efforts to limit Somali piracy are having some effect, with the story dropping out of the headlines over the past year. In the first three months of this year, there were only five attempts and only one successful hijacking (a fishing vessel), according to the latest quarterly report from the International Maritime Bureau. This is a far cry from 2008, when piracy off the Somali coast resulted in 28 hijackings amid 237 attempts. The economic impact of piracy is considerable. The World Bank in April calculated that between $315 million and $385 million has been paid in ransoms to Somali pirates since 2005, though that pales in comparison with the estimated $18 billion that piracy costs the world economy each year.
The apparent success in limiting piracy in the Gulf of Aden raises the question of whether the tactics used there will work in other hot spots, such as the Gulf of Guinea, where piracy directed at oil tankers and other vessels is booming. The short answer is no; in fact, the tactics being used off the coast of Somalia are unlikely to have a permanent impact by themselves. The drop in reported attacks is largely due to three factors: multinational naval and aerial initiatives, private armed security guards, and improved preventive measures used by the crews of merchant vessels. For example, all five unsuccessful attempts were deterred by private armed security guards who fired warning shots, while a naval vessel quickly came to the aid of the one successfully hijacked ship.
There has been little effort to attack the root causes of piracy, however. That realization implies that should any of the current efforts to combat piracy be eliminated or constrained -- such as a reduction in the international naval presence and aerial surveillance -- the number of attacks could quickly rise to earlier levels. A European naval mission, Atalanta, is slated to end in December 2014, having already been extended once. Rising interest in the region from Asian and Middle Eastern powers could help replace any reduction in European assistance. The failure to address on-the-ground issues in Somalia is understandable as the country has not had a coherent government for much of the past two decades. However, the lack of domestic capacity to address the issue -- a key ingredient in the successful reduction of piracy in the Strait of Malacca by Indonesia, Singapore, and Malaysia -- has yet to be addressed and leaves continued success reliant on international initiatives.
One attempt to resolve this weakness has been the controversial formation of the Puntland Maritime Police Force to combat piracy from the land, but it is not necessarily the best approach in isolation. Other potential tactics such as systematically disrupting financing for pirates, addressing the lack of a global standard on the payment of ransoms, and following money trails could be useful. Such efforts also need to be joined with attempts to address the underlying causes of piracy. The lack of employment opportunities, for example, provides pirate kingpins with a consistent and ample supply of recruits. Neither can the impact of poor governance and corruption be ignored. But there is some hope in the slowly improving capacity of the Somali government. In recent weeks, Somali officials have implemented new tactics, including an anti-piracy outreach campaign and the provision of employment opportunities for youths even as the government slowly extends its reach. The real test will come at the end of next year though, when international forces are scheduled to start reducing their patrols off the coast of Somalia.
Clare Allenson is an associate in Eurasia Group's Africa practice.
ROBERTO SCHMIDT/AFP/Getty Images
Though Boko Haram, a Nigeria-based Islamic insurgency, has generated fewer recent headlines in the Western press than have militants in nearby Mali or the country's own Niger Delta rebels, they are thought to have killed more than 1,500 people in bomb attacks and drive-by shootings over the past three years. Worryingly, the threat the group poses to Nigeria, home to an economy on track to become Africa's largest next year, may be increasing.
The northeastern state of Borno, the site of a recent Boko Haram assault that claimed more than 180 lives, represents the epicenter of Nigeria's radical Islamist threat. Parts of the majority Muslim region have effectively become a warzone. Though ideology helps fuel these movements, Boko Haram and its al Qaeda-linked offshoot Ansaru are also part of Nigeria's zero-sum regional competition for power and resources, which will continue to pit regional factions within the ruling People's Democratic Party against one another and the government against the country's newly merged opposition coalition. Hotly contested primaries next year and national elections in early 2015 will further polarize the political landscape along regional lines, creating even more fertile ground for Boko Haram and its sponsors.
Boko Haram -- which means "Western education is sacrilege" in Hausa, northern Nigeria's most widely spoken language -- has assassinated key allies of President Goodluck Jonathan's government, including both political proxies and senior clerics, most recently just days after a rare presidential visit to the region. This in turn provoked a wildly aggressive response from Nigeria's military, with enormous collateral damage to civilians. Jonathan reluctantly ordered a policy review last week that could grant amnesty to Boko Haram "moderates" willing to lay down their weapons, but the current surge in violence makes a breakthrough even less likely than before.
Northeastern states will likely remain on the front-lines of the Boko Haram threat. Proximity to porous borders with Niger and Cameroon (and on to sympathetic al Qaeda allies in Mali) provides Boko Haram with rear bases and safe havens just over the border. Though the unrest created by Boko Haram has gotten worse since the French-led intervention in Mali, its impact on Nigeria's economy has so far been contained, at least viewed from the country's economic heartland in the south. Investors generally see an attack on the southern business capital of Lagos or in the oil-rich Niger Delta as a game changer for risk perceptions. A large-scale attack in either place would probably have an immediate market impact -- on the stock exchange, currency value, and bond yields, all of which are performing strongly at the moment. For the moment, this remains a high-impact but low probability risk.
But the political and economic stakes would also rise dramatically if Boko Haram ratchets up attacks on the sectarian, ethnic, and political flashpoints in north central Nigeria, including Abuja, the country's capital, and major flashpoint cities like Jos, where sectarian and ethnic tensions are already on the rise. This is an under-appreciated risk and one that is already developing.
Boko Haram has more than once proven that it can hit Abuja. If it reorients its attention and resources to Abuja and to the ethno-sectarian tinderboxes that lie at the fault line between northern and southern Nigeria, the impacts will reverberate across the entire nation, West Africa more broadly, and the restive Sahel region to Nigeria's north.
Philippe de Pontet is head of Eurasia Group's Africa practice. Willis Sparks is director in the firm's global macro practice.
Nelson Mandela's deteriorating health over the past year has spurred speculation about what impact his eventual death will have on South Africa. Both inside and outside the country, there is a (somewhat overblown) fear that his death will strike at the country's soul. Mandela certainly occupies a central place in the country's self-image, and his death will be an occasion for national mourning. But beyond that -- and the possible impact on approaching elections -- his passing will likely have little effect beyond accelerating somewhat the social and political trends already at play. The political dominance of the African National Congress (ANC) will continue to unravel, and South Africa will continue its rocky but ultimately stable transition to post-revolutionary politics.
Should Mandela die before the May 2014 elections, the ruling African National Congress (ANC) will exploit Mandela's golden reputation to remind voters of its liberation credentials and reinforce the message that voting for the ANC is a vote for Madiba (Mandela's Xhosa clan name). This propaganda will help shore up ANC support in the Eastern Cape, Limpopo, and North West and may even pry more votes from disenchanted urbanites and the so-called born-free generation, who are less tied to the ANC historically but who consider Mandela a national father figure. In this scenario, the ANC would garner about 60 to 64 percent of the vote, down from the 66 percent support seen in the 2009 election, but handily above the 57 to 61 percent range that would be likely without this Mandela-effect.
This electoral boost will not last long, though, and Mandela's death will ultimately hurt the ANC precisely where it may initially help: by further de-coupling the ANC from the liberation struggle and shining a spotlight on unmet economic promises and worsening corruption in the party. As a result, citizens will be even more inclined to step outside the party and its affiliated institutions -- including members of the ANC-linked Confederation of South African Trade Unions (COSATU) -- to press their demands. Popular discontent will continue to fuel and be fueled by the ANC's and COSATU's factionalism, and South Africa will see more violent strikes and "service delivery protests" in peri-urban communities. In the shorter term, the ANC's declining legitimacy will continue to dampen turnout rather than drive support for any opposition party. Over the longer-term, however -- probably by the 2024 election, but perhaps by 2019 -- it opens up space for the emergence of a viable opposition coalition.
A number of alternative political organizations will try to capitalize on the ANC's comparative decline. Middle class blacks will likely vote in greater numbers for the liberal Democratic Alliance (DA) or for the party that emerges from a potential merger between the ANC offshoot, the Congress of the People (COPE), and Mamphele Ramphele's new Agang party. Apart from the perception that the DA is still a "white party," there is little blocking a broader coalition between the DA, COPE, Agang, and perhaps the Eastern Cape/Xhosa-based United Democratic Movement, whose leader, Bantu Holomisa, has made political hay of last year's Marikana massacre. Some poorer blacks would also vote for this coalition, particularly given Ramphele's liberation credentials and Xhosa discontent with the growing Zulu influence in the ANC. This kind of formal coalition is likely by 2019. Before then, opposition parties will continue to increase legislative coordination, including ongoing efforts to secure a (sure-to-fail but symbolic) vote of no-confidence against President Jacob Zuma.
A viable challenger on the ANC's left flank remains unlikely -- particularly because the ANC will likely move left to try counter its decline and take a more populist line on land reform and mining (two fixed assets with strong symbolic ties to the struggle against white minority rule). Zuma has effectively sidelined former ANC Youth League leader Julius Malema, and he probably does not have enough mass support or funding to launch a revival campaign from the outside. COSATU's Secretary General Zwelinzima Vavi could organize a more radical party, and efforts by Zuma's allies in COSATU to purge Vavi for his criticisms deserve close attention. Still, while Vavi is respected both inside and outside COSATU, he is not a rabble rouser like Malema, and most unionists (particularly increasing influential public sector workers) would remain inside the ANC-linked COSATU following his ouster.
The ANC itself is more likely to fracture along provincial/ethnic lines than by ideology, especially if current ANC Deputy President Cyril Ramaphosa -- a former labor leader-turned-billionaire and one of the key architects of the country's negotiated transition to majority rule -- is not elected party president at the ANC's 2017 conference. Zuma's alliance with Ramaphosa at last year's ANC national conference in Manguang was driven by political expediency, and Zuma acolytes in Kwa-Zulu Natal are already plotting to replace Ramaphosa with a Zulu candidate at the 2017 conference. If so, party factions in the Gauteng, Eastern Cape, Gauteng, Free State, and Limpopo could lead a split in the party.
Such a split and the ANC's more populist orientation represent the clearest threats to South Africa's long-term stability. Nevertheless, South Africa's strong social and economic institutions -- including a widely respected constitution, independent judiciary, adversarial media, robust civil society, large tertiary sector, independent central bank, and a prudent treasury -- will impede more radical policy shifts and facilitate reforms in the face of sustained market pressure that will accompany the economy's slow leak under the ANC. In addition, by virtue of its declining share in parliament, the ANC now cannot amend the constitution on its own, and previous attempts to significantly weaken the judiciary, media, and civil society have generally been repelled. In the same vein, established electoral, legislative, and judicial institutions will likely contain political violence and help clear the way for a more competitive political environment.
Mark Rosenberg is a senior analyst with Eurasia Group's Sub Saharan Africa practice.
Chip Somodevilla/Getty Images
A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.
It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.
Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates.
It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.
But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.
These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.
Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.
Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.
Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.
Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.
Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.
Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested?
All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.
Willis Sparks is director in Eurasia Group's global macro practice.
ALEXANDER JOE/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections by tweeting at us via @EurasiaGroup or @IanBremmer.
Craig Whitlock, Washington Post
Hindsight is 20-20. In light of recent events in Mali and Algeria, this is an interesting look back on a decade of U.S. counterterrorism efforts in Africa.
Lars-Olva Beier, Spiegel Online
With China slated to replace North America as the world's #1 film market by 2020, navigating the Chinese market is increasingly difficult -- and necessary.
Jonathan V. Last, Los Angeles Times
There are 38 million people living in America who were born somewhere else. How do global fertility rates shape U.S. immigration -- regardless of policy?
Ramy Inocencio, CNN
Posting a video of New York in flames? Not cool, North Korea. Using Michael Jackson's "We Are the World" as the background music? For shame. Lifting parts of the video from the latest Call of Duty video game? That's where YouTube draws the line.
To understand Kim Jong Un, it's important to put him in historical context. In the post-war era, North and South Korea's economies were roughly on par. Today, output per capita in South Korea is over 17 times that of the North.
Bill Simmons, Grantland
While it's not political per se, reporting on doping requires a great deal of diplomacy -- especially if you want to make the case that "innocent until proven guilty" does not always apply. This is one of the boldest, most honest pieces of sports journalism you'll ever read.
PASCAL GUYOT/AFP/Getty Images
Note: Today is the tenth in a series of posts that detail Eurasia Group's Top Risks for 2013.
Jacob Zuma's reelection as ANC president will hasten the decline of South Africa's dominant political party and increase social pressures on the continent's most advanced economy. As elections loom in 2014, critical reforms will fall victim to more populist policies.
On the surface, the ANC's December 2012 national conference at Mangaung struck a surprisingly market-friendly tone: Zuma and his allies defeated his most populist challengers, elected labor-leader-turned-tycoon Cyril Ramaphosa as deputy president, dropped any mention of nationalization from the party's platform, and rammed through an endorsement of the pragmatic National Development Plan (NDP). But beneath the surface, worrying trends have become apparent.
The ruling party's policy of strategic state ownership introduced further policy uncertainty to the mining sector (especially on taxes) and paved the way for a heavier state presence in industries like energy and steel. The government is now more likely to use the threat of new taxes to try to secure cheaper inputs for state-run energy and infrastructure projects.
The NDP will probably provide too little, too late. The plan's most critical reforms -- more flexible labor laws, education reform, and rationalizing local government -- will probably be scuttled by vested interests and weak governance, and its 20-year plan for expanding employment and reducing inequality is too broad and too long term to offer much-needed near-term help. As a result, the plan's more populist elements -- including boosting public-sector employment and social spending -- will be implemented first, further limiting government's ability to find longer-term, structural fixes. Ramaphosa's business experience and negotiating skills will help the NDP's cause. But the plan lost its primary champion when former finance minister Trevor Manuel resigned from the ANC's National Executive Committee.
Zuma's demonstrated ability to survive internal challenges will relieve some of the factional pressures within the ANC leadership: All top six party executives are now Zuma allies, and the president's most vocal challengers were uniformly eliminated from the 80-member NEC. Yet this winner-take-all outcome will also reduce the ANC's so-called broad church of leaders and supporters, further undermining the party's monopoly on political legitimacy among black South Africans and increasing the risk of social unrest.
Despite its electoral dominance -- the ANC won 65.9 percent of ballots cast in 2009 -- growing voter apathy and discontent with the pace of economic change has substantially reduced turnout, meaning the ANC now has the support of just 50 percent of registered voters. Anger over inequality has also driven a rise in violent protests, including frequent demonstrations against poor service delivery and last year's wildcat strikes in mining and farm communities. In general, these actions have been instigated by disgruntled or former ANC-affiliated leaders trying to exert influence from the outside.
These trends will continue in 2013. The new ANC leadership will alienate leaders and constituencies from the same areas where protests and strikes are most common, and government efforts to exert tighter control over provincial resources will exacerbate local tensions. Cutbacks and shutdowns by gold and platinum miners in the first half of 2013 -- as well as the June expiration of wage agreements in the gold and coal sectors -- will almost certainly spark another bout of labor unrest in the mining sector, especially given the weakened position of the government-aligned National Union of Mineworkers and the rise of more militant bodies such as the Association of Mineworkers and Construction Union. Combative stances are also likely from the Congress of South African Trade Unions.
The bottom up pressures will weigh on the ANC in advance of the 2014 elections, as will the scandal-plagued leadership of Zuma himself. Though Ramaphosa's respectability provides the party with badly needed cover, the ANC government will still have to focus on short-term spending and patronage to shore up support. Looser monetary policy is also a real possibility, as is a more aggressive (though still tempered) approach to land reform. Without these steps, continued bouts of social unrest may well shake investor confidence more than unwelcome policies.
Bottom line: Zuma is not Nelson Mandela, and the ANC no longer has enough credibility with poor South Africans to (once again) ask for patience in achieving a better life.
Next, we'll profile our "red herring" risks for 2013.
Spencer Platt/Getty Images
Note: Today is the first in a series of posts that detail Eurasia Group's Top Risks for 2013.
Since the onset of the financial crisis in 2008, investors and companies have focused mainly on risks in developed world markets. But as conditions in the U.S. and Europe continue to improve in 2013, the most worrisome risks will again come from emerging market countries. These countries are fundamentally less stable than their developed world counterparts, and some of their governments used a period of favorable commodities prices and the benefits from earlier reform to avoid the tough choices needed to reach the next stage of their political and economic development.
Some of these emerging market nations face more difficult challenges than others, and much depends on the degree of political capital each leader will have in order to make unpopular but necessary changes. These countries can be divided into three broad categories according to the complexity and immediacy of the risks they face and the longer-term upside they offer.
The first category includes the best bets:
The second category of emerging market economies are at risk of considerable volatility.
Lastly, there are the underperformers, those countries where risks will overshadow returns.
On Friday, we'll profile Risk #2: China vs Information.
HOANG DINH NAM/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
1. "Freshmen From Kennedy to Double Amputee Join Polarized
Steve Walsh, Bloomberg
An interesting glimpse at some of the new personalities in the 113th Congress, a group of representatives that runs the gamut of conceivable paths to Washington -- and the new Congress breaks records, with 81 women in the House and 20 women in the Senate (both all-time highs).
How to reconcile the similar economic growth we've seen in Mali and Ghana with their starkly different development trajectories? There's no simple answer, but this piece is a good primer on many of the variables involved.
3. "The Art of Snore"
John Arquilla, Foreign Policy
On US defense spending, are there more than budget cuts to fear? Is there an innovation deficit? Arquilla outlines what he perceives as shortcomings in the current military spending approach -- as well as some interesting solutions.
4a."Myanmar Launches Airstrikes on Kachin Rebels"
Simon Roughneen, Christian Science Monitor
4b."Burma's Military Follows Own Course in War against Kachin
Jonathan Manthorpe, The Vancouver Sun
When Barack Obama and Hillary Clinton visited Myanmar in November, it was an historic occurrence -- the first-ever US presidential visit to the country, and a firm endorsement of the recent reforms that have taken place. But while national hero and opposition leader Aung San Suu Kyi warmly greeted the visitors, she also admonished that "we have to be very careful that we are not lured by a mirage of success." Fighting between the military and Kachin rebels in the north has clouded reform efforts. And, as Jonathan Manthorpe explains, Myanmar's relations with China -- and water security issues -- underpin much of the issue. These are two sources of conflict that are only trending upward throughout the region as a whole.
5. "Better Than Human"
Kevin Kelly, Wired
At Eurasia Group, we've devoted a lot of attention to the long-term labor force impact that the advent of robotics and 3D printing will have, particularly on emerging markets like China, where the country's greatest resource -- cheap labor -- could very well become one of its biggest obstacles as its citizens are displaced from manufacturing jobs following technological advances. Kelly looks on the bright side of a robotic future, outlining the opportunities for innovation and productivity that come with a mechanized work force. His vision is a bit rosy, but it's a useful counterweight to the much-discussed downside risks.
Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
1. "Al Qaeda 3.0:
Terrorism's Emergent New Power Bases"
Bruce Riedel, The Daily Beast
In a world where international governance is breaking down, leaders are focused more on domestic than on foreign policy challenges. This trend extends to al Qaeda, an organization transitioning from global to local goals.
2. "India's African ‘Safari'"
Sudha Ramachandran, The Diplomat
We hear a lot about the US and China's conflicting investment approaches in Africa, but there's precious little written on Africa's fourth largest trading partner: India. With trade increasing by a factor of 17 over the last decade, India-Africa relations are becoming much more interesting.
3. "How Crash Cover-Up
Altered China's Succession"
Jonathan Ansfield, New York Times
How will Beijing's leadership manage the challenges that come with an era of more open information? What will the rest of us learn about the Chinese leadership's taste in cars, clothes and once-hidden power politics?
4. "Merkel's mastery of
Michael Fry, The Scotsman
Is Angela Merkel the most talented politician in the world? Her domestic political tactics shed light on her policies with regard to the Eurozone and beyond.
5. "A free-trade agreement
David Ignatius, The Washington Post
Though still on the drawing board, the Trans-Pacific Partnership has far-reaching security and economic implications for North America and the Asia Pacific region. Progress on an Atlantic equivalent seems beyond the horizon. But is an ‘economic NATO' already in the planning stages?
6. "The mother of all
worst-case assumptions about Iran"
Stephen M. Walt, Foreign Policy
Would a nuclear Iran carry "shattering geopolitical significance?" This piece overstates its case at times, but it's a question that demands consideration.
The Weekly Bonus:
"Floating Housing (And
Golf Courses) For Post-Climate-Change Island Paradises"
Co.EXIST blog, Fast Company
In a G-Zero world, don't expect political leaders to tackle climate change. An ineffectual climate summit meeting in Doha this week makes that all the more obvious. If climate change continues unabated, the Maldives will end up underwater. The government knows it, hosting a cabinet meeting on the ocean floor in full scuba gear in 2009, and inquiring about land purchases abroad. But even the most daunting risks come with opportunities, however whimsical they may seem.
By Mark Rosenberg
South African politics is broiling. The exceptional violence surrounding the wildcat strike at Lonmin's Marikana platinum mine -- where police killed 34 strikers and 10 people died in an inter-union clash -- reflects poorly on the leadership of President Jacob Zuma, who is up for re-election as head of the ruling African National Congress (ANC). By weakening Zuma's allies and strengthening his foes, the Marikana incident and its aftermath make Zuma's hold on the ANC presidency-and thus the presidency of South Africa-extremely tenuous.
The most immediate political victim of Marikana is the National Union of Mineworkers (NUM), the largest affiliate of the powerful Congress of South African Trade Unions (COSATU). The violence at Marikana began with clashes between members of the NUM and the splinter Association of Mineworkers and Construction Union (AMCU), which has exploited discontent over NUM-negotiated wages and its perceived coziness with management to make significant inroads into the NUM's membership rolls throughout the platinum industry. Meanwhile, the NUM has faced similar criticisms from COSATU's acerbic Secretary General Zwelinzima Vavi, who has accused the union of favoring management and higher-skilled workers over its rank-and-file. The NUM, for its part, has accused Vavi of sowing dissension in its ranks, and its leaders have been at the forefront of a politically-driven effort to replace Vavi at COSATU's upcoming elective conference in September. Given Marikana -- where the NUM was utterly unable to contain the situation -- Vavi's criticisms will reverberate within COSATU, whose leaders are freshly focused on preventing the kind of union splintering which has struck the NUM. As a result, the NUM's influence in the federation -- and thus its challenge to Vavi's leadership -- will be weakened.
This damages Zuma, who is close to the NUM and has actively pushed for Vavi -- a former ally and now vocal Zuma critic -- to be replaced. Vavi's likely re-election will probably deprive Zuma of COSATU's endorsement heading into the ANC's December elective conference in Mangaung. COSATU is in a "governing alliance" with the ANC, and many of its 1.8 million members are also members of the ruling party: Its rejection of Zuma (whom the labor federation forcefully endorsed in 2007) will not only cost the incumbent votes, but it will also highlight Zuma's weakness among his erstwhile base. Indeed, the COSATU conference may well spur anti-Zuma factions to push Deputy President Kgalema Motlanthe into a more explicit challenge to the party's leadership. Motlanthe -- who is closer to Vavi and favored by the ANC's more statist elements -- is Zuma's most viable challenger, though he has thus far been reluctant to take on Zuma directly.
Zuma's hold on the ANC presidency is also threatened by direct political fallout from Marikana. The fact that Zuma ordered police to bring the Lonmin strike under control has exposed him to accusations of being aligned with (mostly white-owned) mining companies and of complicity in the miners' deaths. Leading the anti-Zuma charge is Julius Malema, the expelled ANC Youth League leader and populist demagogue. While Malema has no official influence in the ANC election, he is still viewed sympathetically by the party's "nationalist" faction and its youth wing. More broadly, the incident reinforces the impression that Zuma is a leader who is not in control of his government or his party. His consensus style of leadership is not suitable for containing ANC factionalism or the rise in popular discontent among many of the ANC's core supporters, opening a window to potential challengers such as Motlanthe at Manguang in December.
Mark Rosenberg is an analyst in Eurasia Group’s Africa practice.
STEPHANE DE SAKUTIN/AFP/GettyImages
By Philippe de Pontet and Clare Allenson
Although today's African Union (AU)-U.N. deadline for reconciliation between Sudan and South Sudan has come and gone without a resolution, the Security Council is unlikely to follow through on its threatened targeted sanctions for now (China and Russia are unlikely to endorse them). While an oil deal in the next few weeks remains unlikely, the economic and patronage imperatives in both capitals finally point toward an interim oil deal before the end of the year or in early 2013 -- despite plenty of spoilers on both sides who see compromise as capitulation. Each side has made an initial offer on transit fees, and while more movement is needed, resumption of most of Sudan's 350,000 barrels per day (BPD) will likely occur by the end of the year or, at the latest, in early 2013.
Ever since South Sudan shut down its northern-bound oil production in January, the two nations have been engaged in a battle of economic attrition, punctuated with actual and proxy battles near their disputed border. South Sudan, which depends on oil for more than 95 percent of its revenue base, injected a ray of hope in recent weeks into the long-languishing talks, with an offer of over $8 billion in debt relief and compensation for Khartoum, and pipeline fees of about $8 per barrel of oil. The government of Omar al-Bashir in Khartoum wasted no time in rejecting the offer, insisting that border security is the top priority -- but its revised (albeit still low) offer of roughly $32 per barrel a few days later indicates that the two countries are slowly moving toward a deal. Sweeteners from China and the Gulf states will probably be necessary to get Khartoum to raise its offer further. Despite the initial rejection, the new terms should provide the basis for a reasonable oil deal that could get Sudanese crude flowing again. Though full production will take several months, the largely unexpected addition of more than 200,000 BPD of Sudanese crude would be a small, but not insignificant, supply bump for highly volatile oil markets.
The embattled Bashir administration cannot afford to appear weak, and declined a meeting with South Sudan President Salva Kiir ahead of the U.N. deadline this week. But it literally cannot afford the drastic austerity that looms on account of lost oil revenues, which explains Khartoum's acceptance to attend an AU summit with Kiir in the near future. The envisioned Sudanese cutbacks make Greek austerity look like a walk in the park -- not to mention the additional pain of high inflation, a sharp depreciation of the Sudanese pound, and an incipient anti-regime protest movement. The Kiir administration faces an equally negative outlook, with inflation well above 70 percent and a 56 percent-unfunded budget despite a nearly 40 percent cut in spending. Dwindling donor patience will serve to push Juba's hand toward a deal. Even more significant is Juba's belated realization that a southern-based pipeline, if it emerges at all, is years away and therefore not a panacea for its pressing needs.
A binding deal on oil revenue sharing will not be possible or sustainable if the Sudans remain in a shooting war on both sides of the border. Both of the military-dominated governments would plough a huge percentage of oil revenues into security, risking an even greater escalation, making both sides understandably wary of an oil deal without security guarantees-particularly Khartoum, which faces multiple insurgencies just a year after its painful loss of the south.
Talks have broken down several times over the location of a demilitarized zone, which would represent the first step to ending hostilities. During her visit to Juba this week, Secretary of State Hillary Clinton will pressure the Kiir administration to follow through on security guarantees in order to move negotiations forward. Juba's implicit bargain now appears to be to demobilize its affiliated militias in Southern Kordofan and elsewhere, in exchange for an independence referendum in Abyei, which would likely see the district join South Sudan. Khartoum will no doubt exact a higher price, through higher transit fees. Hammering out such a deal will be tough, but the reality of a mutually destructive stalemate, together with both Juba and Khartoum's revised oil offers, should offer scope for a deal-albeit a shaky one-sooner than most would expect.
Philippe de Pontet is the director of Eurasia Group's Africa practice. Clare Allenson is an associate in the firm's Africa practice.
ASHRAF SHAZLY/AFP/Getty Images
By Scott Seaman, Shaun Levine, and Divya Reddy
Major resource-producing countries are shifting economic levers in their favor, taking advantage of consumer countries' thirst for commodities. Producer countries are increasingly restricting exports of raw commodities so they can be processed at home, creating jobs and moving domestic industry up the value chain. For countries that import natural resources, export restrictions can translate into higher costs that industries, labor forces, and consumers find difficult to swallow.
Moreover, when facing off against developing countries whose economies are growing quickly and becoming more sophisticated, developed countries may find that threats or offers of traditional development aid and tit-for-tat trade actions are less effective tools to apply pressure. This will be especially true as the gains from implementing new export restrictions expand, adjusting the cost-benefit calculation in favor of new restrictions even in the face of potential trade conflicts.
A case in point is the row between Indonesia and Japan over Indonesia's imposition in May of a 20 percent export duty on unprocessed mineral ores, as well as Indonesia's plans to implement a total ban on such exports in 2014. Unsurprisingly, these restrictions have made post-Fukushima Japan even more skittish about the security of its commodity supplies, and are fueling a lively exchange: Japan has made references to potential WTO action and allegedly threatened to ban Indonesian imports of photocopy paper, while Indonesia has indicated it could retaliate by restricting LNG exports to Japan.
While a trade war is not likely, these tensions highlight a growing trend that countries like Japan will inevitably face. Recent efforts by countries such as Brazil and India to limit iron ore exports to promote domestic steel production, and by a local government in the Democratic Republic of the Congo to force domestic copper processing, pose worrisome precedents from Japan's perspective.
Not only is there a risk that Japanese smelters will be squeezed out of the market by these changes, but associated job and revenue losses will pose challenges for the government. For example, Japanese firms and the government will face domestic backlash if they invest in smelting facilities abroad while cutting jobs at home, especially at a time when the economy is fragile and the "hollowing out" of industry there has become such a hot-button issue.
At the end of the day, Japan and other countries dependent on raw materials imports will have little recourse to counteract producer countries looking to take a greater share of the value-added processing market. That said, many of these producer countries (including Indonesia) will take time to build up their domestic smelting capacity and may not prove to be cost-competitive in areas such as labor and electricity supply.
So Japan may be able to buy some time and avoid the immediate economic and political consequences of a shifting resource landscape. But the overall trajectory probably won't reverse course. At some point down the road, Japan and other countries accustomed to having more leverage will have to make painful adjustments.
Scott Seaman and Shaun Levine are analysts in Eurasia Group’s Asia practice. Divya Reddy is an analyst in the firm’s Global Energy & Natural Resources practice.
By Anne Fruhauf
Zimbabwe's Robert Mugabe is a man of many talents: independence hero, accomplished educator, wily political strategist, cunningly cruel autocrat, and lately, a man skilled at cheating death. At his 88th birthday bash back in February, he cheerfully proclaimed to have "beaten Christ" (by being resurrected several times). The Old Man -- as he is usually referred to in Zimbabwe -- has outlived fellow rulers like Gabon's Omar Bongo and Malawi's Bingu wa Mutharika, whose (un)timely death this month will perhaps save Malawi from a deepening economic crisis and popular rebellion.
Cut from tougher cloth, Mugabe has outlasted more than a decade of political and economic crisis, in which the country's economy shrank by almost half, Zimbabwe set new records for hyperinflation (picture shoppers using bundles of 100 trillion Zimbabwe dollar notes), unemployment reached 80 percent, and millions of Zimbabweans fled the country in search of jobs and/or food.
But nearing 90 and suffering from metastatic prostate cancer, even Mugabe will (probably) one day meet his maker. His absences from the country have become more frequent, including at least nine 'medical tourism' trips to Singapore in 2011. In fact, the Old Man will probably leave office feet first (or through some form of incapacitation that is impossible to conceal). A smooth, negotiated retirement seems unlikely given succession squabbles inside his ZANU-PF party.
It is widely believed that Mugabe's departure will be a watershed moment, releasing the country from a tyrant's grip on its political culture and economy. True, without his departure, Zimbabwe's political transition, which began hesitantly with the formation of a unity government in 2009, will stagnate, as will progress on the economic front. In this scenario, the long-suffering opposition MDC, now ZANU's unlikely bedfellow in the unity government, will win free and fair elections (technically due in 2013) and preside over political and economic reforms. That's assuming they prove themselves true reformers, of course.
But Mugabe's critics shouldn't be too hopeful just yet. ZANU-PF and especially its generals -- few of whom are democrats or reformers -- are planning for a post-Mugabe future. Emmerson Mnangagwa, the country's fearsome defense minister, seems to be positioning himself for takeover against party rivals such as Vice-President Joyce Mujuru.
ZANU-PF knows that it faces potential implosion, and that its success at the next elections is not assured unless it builds its war chest and relies on coercion. That is why the country is now enduring an extended scramble for resources -- the indigenization drive against international mining companies, the controversial exploitation of the Marange diamond deposits and more recently a gold rush around Kwekwe, the country's mining heartland.
Zimbabweans have long lived by the motto that things can only get better. But life may yet get a little harder still.
Anne Fruhauf is an analyst in Eurasia Group's Africa practice.
JEKESAI NJIKIZANA/AFP/Getty Images
By Patrick Cullen
The international shipping industry and the governments that are ostensibly supposed to protect it have begun to radically rethink their long-held aversion to private armed protection at sea. The shift illustrates the inability and/or unwillingness of states to provide security, and presages potential ethical and legal controversy as the lines between commerce and state authority become increasingly blurred.
For decades, both the international shipping industry and the governing bodies that oversee it have been critical of the concept of putting armed guards on commercial vessels in order to protect them from violence -- and piracy in particular -- at sea. From the perspective of private industry, hiring armed guards has traditionally been viewed as a costly and risky move that creates more liabilities (financial, legal, and reputational) than it resolves. Furthermore, the shipping industry has also balked at the idea of paying for a service that it expects the world's navies to provide for them free of charge.
As recently as June 2010, a host of public and commercial maritime industry stakeholders -- including major shipping organizations -- explicitly stated that "the use of armed guards is not recommended" in a Best Management Practices maritime security document designed to offer shippers advice to mitigate the threat from Somali piracy.
States and international organizations such as the U.N. International Maritime Organization (IMO) and the International Maritime Bureau have long underscored the importance of maintaining the classic division between the state and the market, with the former maintaining a monopoly of the legitimate use of force, and the latter enjoying the privileges granted by this state protection.
The shift toward the acceptance of armed private security on ships has been recent and dramatic. In an unprecedented announcement last May, the IMO issued guidance to governments and shippers on how to engage with "privately contracted armed security personnel," and many states have followed in the IMO's wake, issuing similar policy announcements outlining their acceptance of armed private security teams operating onboard commercial vessels. And only weeks ago, on March 28th, BIMCO, the world's largest international shipping organization, issued a standardized guard contract (GUARDCON) intended to help shipping companies responsibly select and manage teams of armed guards provided by specialized maritime private security companies. The same maritime industry players that were traditionally averse to the idea of placing armed guards on commercial vessels have now positioned themselves as key players involved in legitimizing this practice. This includes maritime insurance brokers and Protection and Indemnity insurance clubs that have begun to accept, and even endorse, the use of private armed security at sea.
So what has changed? Somali piracy has shifted from a small-scale and purely regional risk to a mature threat from professionalized piracy syndicates extending beyond Somali waters into the Indian Ocean and beyond. And recognizing that the current multinational and unilateral naval efforts to curb Somali piracy are falling short, governmental actors have sought to harness and regulate this emerging practice rather than ban it outright.
However, due to the novelty of the armed maritime private security, as well as the transnational and multi-jurisdictional nature of the global shipping industry, navigating this legal environment remains difficult at best. Placing armed guards on board ships has proven to be an effective method of deterring pirate hijackings -- to date, no ship with an armed escort has been hijacked -- but the use of armed guards poses its own set of serious risks. Last month, two armed Italian sailors on board an Italian flagged commercial vessel were caught and charged with murder by the government of India after allegedly shooting innocent fishermen within India's exclusive economic zone. Many commentators point out that it may only be a matter of time before a similar incident occurs with a private security team.
The shift in attitudes among shippers and states is just another illustration of how the management of risk is evolving from the reactive to the proactive, and how the responsibility for providing security is becoming increasingly fragmented between states and the market.
Patrick Cullen is an analyst in Eurasia Group's Comparative Analytics practice. Patrick is an expert in maritime private security, and is the editor of "Maritime Private Security: Market responses to piracy, terrorism and waterborne security risks in the 21st century."
MOHAMED DAHIR/AFP/Getty Images
By Hani Sabra and Willis Sparks
Some of the outsiders inspired by last year's protests in Tahrir Square and the power of ordinary Egyptians to oust their long-time dictator expressed surprise when the country's transitional government began in December to target prominent NGOs as agents of foreign (read Western) governments. They shouldn't be. So far, the great lesson of Egypt's ongoing "transition" is that it remains awfully hard for old dogs to learn new tricks.
Egyptian authorities are now prosecuting more than 40 people for operating NGOs without licenses and for receiving "illegal foreign funding." Among the accused are 19 Americans, including the Washington-based International Republican Institute's Sam LaHood, son of U.S. Transportation Secretary Ray LaHood.
The case is but one example of how far Egypt's revolution has unraveled. A year ago, after Hosni Mubarak's exit, even those Egyptian activists least willing to trust the Supreme Council of the Armed Forces (SCAF) believed that the generals understood that the country could not continue as it had for six decades, that power had to be shared, and that democracy demands much more than the conduct of hastily arranged elections.
The activists, and the rest of the country, watched the generals leap aboard the "January 25 Revolution" bandwagon and salute the struggle's young martyrs. Protesters believed they had an unspoken understanding with SCAF that the military would retain some political influence -- and some of the commercial assets they had amassed over the years -- in exchange for a willingness to pass political power to a pluralist civilian government following a period of transition, to reform state institutions, and to respect the rights of citizens to organize.
In the months that followed, minds changed and understandings evaporated. When the military killed more than two dozen Egyptian Christian activists in October, the illusion was publicly shattered. Clashes between activists and security forces in November and December upped the stakes. As 2011 drew to a close, it became clear that SCAF generals, who first rose to prominence via the intensity of their loyalty to Hosni Mubarak, shared their former leader's authoritarian worldview.
Over the course of 2011, SCAF froze out the protest leaders and struck a separate deal with the Muslim Brotherhood, one that gives various Islamist parties a dominant position in crafting Egypt's domestic policy while leaving the army in charge of foreign policy and key segments of Egypt's economy. Islamist parties, including the Muslim Brotherhood, won about two-thirds of seats in recent parliamentary elections. The protesters, now marginalized, are becoming more confrontational.
The crackdown on NGOs reveals the understandings that are implicit in the Muslim Brotherhood-SCAF understanding. Credible allegations have emerged that Islamist groups have received foreign funding too, from Gulf Arab countries, but SCAF has taken virtually no action against them. It's the groups that lobby for human rights -- and who have criticized SCAF -- that have been targeted.
If these NGOs have indeed broken laws, they are Mubarak-era laws. SCAF has changed the rules on elections and the formation of political parties, but their unwillingness to tolerate civil society shows the limits of their willingness to change.
The generals' inflexibility bodes ill for Egypt's future. The Brotherhood, eager to finally enjoy a share of formal power, has become the army's enthusiastic partner. But neither group appears to recognize that elections alone will not guarantee stability. Their broader public popularity and the power of state television ensure that, especially outside of Egypt's largest cities, the military and Muslim Brotherhood represent the "silent majority."
But the vocal minority will keep pushing back, and the potential for violence is on the rise.
Hani Sabra is an analyst in Eurasia Group's Middle East practice. Willis Sparks is an analyst in the firm's Global Macro practice.
Jeff J Mitchell/Getty Images
Today, we turn to risk #9 in our series of posts on Eurasia Group's Top Risks for 2012 and answer the most common questions we've gotten about it.
Here's a summary:
South Africa-ANC discord. In South Africa, a bitter struggle for leadership and the policy direction of the ruling African National Congress (ANC) will undermine governance this year in a country trying to prove it belongs among the top tier of emerging markets. Populist pressures and elite infighting have intensified to a level not seen since the end of apartheid in 1994, President Jacob Zuma will likely win reelection as ANC leader and another term as South Africa's president, but disillusion among former allies will fuel political discord, preventing the country from making much-needed economic strides.
Q- What is driving the strife within the ANC?
A- During his tenure as South Africa's president (1999-2008), Thabo Mbeki held to a conservative macroeconomic approach that pleased investors but disappointed many within the ANC who hoped for a more aggressive spending approach to the country's social and economic problems. When Zuma succeeded him as ANC leader in December 2007, supporters hailed him as a unifying force who would offer a more inclusive leadership style than his predecessor. Zuma then became South Africa's president in 2009. But after less than three years in office, Zuma has maintained Mbeki's spending discipline, feeding a perception that he is at best indecisive and at worst more interested in enriching his friends than in addressing the country's needs. Opposition to Zuma is personified by firebrand ANC Youth League leader Julius Malema, who has called for the nationalization of mines, among other populist policies. Malema has been suspended by the party for indiscipline, but opposition to Zuma extends far beyond the Youth League.
Q- To see where the country is going, what are the events to watch this year?
A- The release of the national budget on February 22, the ANC's policy conference in June, and the December party elective conference. The Treasury faces a difficult balancing act: There is pressure to spend on social programs and improvements to South Africa's poor infrastructure, while foreign investors hope to see continued fiscal discipline. Complicating matters is South Africa's exposure to the volatility in the eurozone, which has placed pressure on the rand and threatens trade flows to South Africa's largest trade partner. At the June policy conference, the ANC will emphasize economic transformation and a statist approach to the economy, and the proposal to nationalize mines will be debated. The conference is unlikely to endorse outright nationalization, but clear consensus exists on the need for broader redistribution of the wealth that the country's natural resources generate. That's why we'll probably see more state involvement in the mining sector and tighter regulation. Finally, the December elective conference, the ANC's highest decision-making organ, will endorse the party's June policy resolutions and will essentially determine whether Zuma will preside over South Africa for the next several years, or whether a challenger -- most likely Vice President Kgalema Motlanthe -- will get the nod.
Q- What will be the impact of the ANC discord?
A- Generally speaking, there will be policy paralysis. The ANC is increasingly unable to conclusively reject radical policy proposals such as nationalization, and it will fail to endorse necessary microeconomic reforms, such as a liberalization of labor markets. Opposition to Zuma will encourage the government to use the intelligence apparatus and corruption charges against rivals to bolster his authority. This could help Zuma eliminate potential rivals, but we could also see corruption charges against the president himself. Conspiratorial politics will be pervasive, undermining the government's ability to concentrate time and resources on efforts to reduce high unemployment and improve competitiveness. Poor governance will damage South Africa's appeal as an investment destination.
Despite the country's much vaunted inclusion among the BRICS group of emerging market powerhouses, and at a time when politics in many developing states is maturing, South Africa's political system is in danger of becoming a hindrance to the growth needed to lift so many South Africans from poverty.
Next up, a lose-lose election in Venezuela.
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By Willis Sparks
Western officials (and more than a few Western celebrities) have criticized China in recent years for its protection of Sudan's government. They've charged Omar al-Bashir's regime in Khartoum with support for ethnically motivated militia attacks on civilians in the country's Darfur region -- and China's government with complicity. Bashir, the world's only fugitive head of state, was indicted by the International Criminal Court in 2008 for Darfur-related crimes against humanity. Beijing uses its veto power to block international efforts to supply UN peacekeepers for Darfur, critics say, to protect its oil interests in the country.
It's ironic then that China's energy needs are now helping forestall a broader (and perhaps bloodier) confrontation in Sudan.
Last July, Sudan became two countries. The mostly Muslim North and mainly Christian South finalized a relatively amicable break-up as South Sudan became an internationally recognized independent state. But like most divorces, this one did not produce a clean break, because the two countries share custody of the country's oil wealth.
Before the separation, Sudan produced about 500,000 barrels of crude oil per day. South Sudan now sits atop 75 percent of that total, but the pipelines that transport the oil and the ports that move it to market lie in the North. Since July, the northern government in Khartoum has faced a series of political and economic crises, and its foreign reserves have dwindled to dangerously low levels. Bashir's government needs some way to draw more cash from the oil it has lost.
Not surprisingly, North and South have yet to agree on how to share oil revenue, and each side has used its leverage to pressure the other. An opening of negotiations offered little promise of progress: Khartoum demanded a transit fee of $36 per barrel. The southern government in Juba offered less than a dollar.
On Nov. 8, President Salva Kiir of South Sudan dramatically upped the stakes in the dispute by ordering the expulsion from the south of Sudapet, the North's national oil company and a financial lifeline for its government. Khartoum countered with an announcement that oil exports from South Sudan would be suspended.
China quickly jumped in.
This oil is especially important to the China National Petroleum Corporation (CNPC), which has equity production in Sudan of about 200,000 bpd, 15 percent of its total overseas output. Despite its growing involvement in oil exploration and production abroad, CNPC is still a newcomer to this game, with fewer options than its international peers.
And CNPC is important for China's government, because the company is a guarantor of China's energy security. Most of the crude that CNPC draws from Sudan is not shipped home to China but is sold on international markets. Yet Beijing has emphasized the importance of holding oil assets overseas, providing fuel that can be directed to China if events threaten a sharp drop in supply.
The country's thirst for energy -- and management of the political vulnerabilities it creates -- remain a top priority for Beijing. Sudan represents less than 5 percent of China's crude oil imports, but add an extended export shutdown in Sudan to the current range of worries and headaches across oil-producing North Africa and the Middle East, and you could have significant upward pressure on global oil prices at a time when the Chinese leadership is already worried over price inflation and the risk of unexpected foreign economic shocks.
This is an especially anxious time for Beijing's economic policymakers. Volatility in Europe and the slow recovery in the United States -- China's largest trading partners -- fuel fears of a sharper-than-expected slowdown inside China. It's also a delicate moment for the country's politics as a leadership transition begins in earnest in 2012. That's why China moved quickly to pressure the North to renounce its threatened blockade.
To save face, Khartoum announced it would allow the oil to pass but would seize about a quarter of the profits as compensation. Low-level violence will continue, and we can expect to see more of the increasingly common attacks on oil fields along the two countries' poorly demarcated border. There will be more turmoil in restive oil-producing regions in the North. But thanks to aggressive Chinese mediation, the oil continues to flow, and Chinese diplomats are now trying to broker a long-term deal on transit fees.
Don't expect China to dive more deeply into conflict resolution in other countries. On foreign policy, China's leadership is risk-averse even in the most confident of times, and the looming transition to a new president, premier, and party elite over the next two years will make officials even more cautious. Only when political and commercial interests clearly coincide, as they do in Sudan, will Beijing move quickly to intervene in the politics of other countries.
In this case, however, Chinese intervention helped avoid a dangerous foreign conflict -- at least so far -- even if Western critics are cynical about its motives.
Willis Sparks in an analyst in Eurasia Group's Global Macro practice.
ASHRAF SHAZLY/AFP/Getty Images
As protests in Tunisia, Egypt, and Libya captured international attention, riots swept Algeria earlier this year. But as unrest elsewhere reached a crescendo, the turmoil in Algeria went quiet. Since then, Algeria has escaped the world's attention, but long-term damage has been done. Local anger at its government is high, and President Abdelaziz Bouteflika's reform program -- aimed at improving political representation and official transparency -- is unlikely to change that. Without a surge of fundamental political reform, Algeria could quickly become unstable, and the concentration of resources in a few hands, the resulting corruption, and weak governing institutions make successful reform highly unlikely. The regime is not on the verge, but widespread social unrest, regime infighting, and a looming presidential transition will only add to the risk of political instability over the next three years.
Algeria's oil and gas exports leave its government flush with cash. In fact, the country's central bank governor noted in September that foreign currency reserves had topped $170 billion. The Algerian government avoided the fate of President Hosni Mubarak in Egypt in part by using some of this cash on subsidies -- to reduce consumer prices and raise public sector salaries, for example.
But money alone can't buy good governance. The state continues to provide Algerians with lousy social services and all that wealth isn't creating nearly enough jobs. Rampant corruption at the highest levels and a near total lack of accountability exacerbate public anger. Events like major electricity outages and the exposure of corrupt public housing programs continue to spark unrest. Labor activism is on the rise.
Even as the regime's popular legitimacy erodes, its ageing leaders resist making plans for what will come next. Infighting between civilian and military power centers triggers dueling corruption investigations and abrupt leadership changes at key ministries and state-owned companies like oil and gas giant Sonatrach. President Abdelaziz Bouteflika is still widely credited as the man who brought a decade-long civil war to a close, but age is catching up with him, and he's been ill for years. His term isn't set to expire until 2014, but his sudden death or incapacitation would leave the transition in the hands of senior military leaders, some of whom carry the taint of atrocities committed during the fighting. An internal power struggle among civilian and military leaders -- or within the armed forces itself -- might well spill into the open and provoke a broader conflict. Even in the best-case scenario -- Bouteflika serves out his term and a managed transition begins in 2014-there is little reason for optimism that serious unrest can be avoided.
But the tipping point into violence could come much sooner. Legislative elections are scheduled for 2012. With expectations raised by the sweeping changes across North Africa and the Middle East this year, this could be all Algeria needs for a true test of the regime's willingness to tolerate dissent -- and of the people's tolerance for more of the same.
James Fallon is an associate with Eurasia Group's Middle East practice.
FAROUK BATICHE/AFP/Getty Images
By Anne Fruhauf
After much dillydallying, South Africa's failure this week to award the Dalai Lama a visa in time for his planned visit has elicited a chorus of opposition from respected human rights campaigners, led by Archbishop Desmond Tutu -- whose 80th birthday the Dalai Lama was hoping to celebrate in person. The government's vacillation was no surprise. Over the past decade, the nation renowned for its Nobel Peace Prize laureates and freedom fighters has repeatedly demonstrated that when it comes to big power politics it will abandon ideals in favor of realpolitik. This readiness to choose practicality over principles is likely to grow as the country tries to boost its economy, more and more on the back of emerging economies such as China.
South Africa's partners among the so-called BRICS offer much that the Old World increasingly seems to lack: deep financial pockets and promising models for economic growth and poverty eradication. South Africa is struggling on all these fronts. Just last week, therefore, President Kgalema Motlanthe called on his counterparts in Beijing to secure a $2.5 billion financing deal and memorandum of understanding on geological and mineral resources -- putting South Africa in no mood to rankle China. Awarding the Dalai Lama a visa would certainly have chilled the bilateral relationship. Beijing called off a summit with the EU in 2008 after French President Nicolas Sarkozy met with the Buddhist leader, and a recent research paper found that such a gathering could cost a country 8 percent to 16 percent of its exports to China.
That's not a hit that South Africa is willing to risk these days. President Jacob Zuma, facing serious pressure ahead of the African National Congress (ANC) party's leadership elections in December 2012, has pledged to create 5 million jobs by 2020 through the country's New Growth Path. But the economy is not playing ball. Instead, the recovery has taken a turn for the worse: Debt is rising, the budget is tight, and inward foreign direct investment plummeted roughly 70 percent between 2009 and 2010. Jobs data roundly contradict Zuma's promise that 2011 will be a year of job creation. Unemployment rose to 25.7 percent last quarter, and young people account for 72 percent of those without work -- a figure that politicians find particularly worrying given the Arab Spring to the north and the ANC Youth League's calls for "economic liberation" at home.
It's no shock, then, that South Africa is keen on diversifying its trade partners and soliciting investment from well-endowed allies. In 2009, China became South Africa's largest trading partner, and Chinese investment in the country, long lagging, is creeping upward as well. The Asian giant's footprint in South Africa's mining sector is also expanding, and the new memorandum could open the door for deeper involvement. (China might even wind up financing South Africa's undercapitalized state mining company.) In addition to cash, South Africa is looking for economic role models. The New Growth Path envisages a prominent role for state enterprises and development finance institutions in job creation -- an area that China and other emerging markets know a thing or two about.
The cosy relationship between South Africa and China could come at considerable long-term cost, both political and economic. The country needs more democracy, not more social control. And some worry that deepening economic ties will squeeze South Africa's troubled manufacturing sector; China's cheap imports and competitive labor pool could compound South Africa's deindustrialization trend. But for now, South Africa's leaders seem to calculate that the main downside to the deepening alliance is the occasional inconvenience of having to deny a great man a visa.
Anne Fruhauf is an analyst in Eurasia Group's Africa practice.
RODGER BOSCH/AFP/Getty Images
By Philippe de Pontet
The Aug. 26 car bombing of a U.N. building in the Nigerian capital of Abuja, which killed more than twenty people and wounded dozens more, suggests that the Islamist militant group Boko Haram may be in cahoots with al Qaeda in the Islamic Maghreb (AQIM). This sobering development constitutes President Goodluck Jonathan's most acute political and security challenge yet. If he responds decisively, he could further alienate northerners who resent his rule and would consider a poorly managed crackdown a provocation targeting Muslim communities. If he proceeds too cautiously, he risks frustrating his southern, largely Christian political base while reinforcing his image as an indecisive "accidental president." Either way, Jonathan's unlikely to come out a winner.
While headquartered in Nigeria's economically depressed northeast, Boko Haram (whose Hausa name translates roughly to "Western education is sinful") has steadily expanded its geographical reach, targets, and tactics since 2009. After the group's founder, Mohammed Yusuf, was killed by Nigerian forces that July, Boko Haram got busy establishing mosques, schools, and other institutions throughout the north while stepping up its attacks on government targets. When Jonathan, a Christian from the southern Niger Delta, assumed the presidency, the group's ambitions became national in scope. And the latest attack indicates that the militants' struggle has become somewhat international, with all the hallmarks of an al Qaeda connection.
So far, the Jonathan administration has responded cautiously to the car bombing. For days it delayed confirming Boko Haram's role, even after the group claimed responsibility for the attack both online and in a press briefing. The government's tactic may prove shrewd, given that Nigeria's electorate is divided along highly charged regional lines and many northern community leaders, politicians, and imams are worried that innocent Muslim civilians could suffer from a heavy-handed government response.
On the other hand, the
administration's response could be the product of paralysis and indecision. And
those who see it that way -- particularly southern Christians who consider the
Islamist movement a growing national menace -- are calling for retribution and a
show of force. A handful of prominent northern leaders, including presidential
runner-up Muhamadu Buhari, have also called for a swift response.
Caught in the middle as he is, Jonathan will likely try to strike a balance between hawkish military and police action aimed at weakening Boko Haram's base and increased funding for compliant northern governors. The first prong of his approach will be to beef up security in Abuja, Kano, and other urban centers and launch targeted military offensives on suspected militant hideouts. If bungled, such a campaign could spark a backlash against Jonathan, and possibly a recruiting bonanza for Boko Haram. The second prong of the approach will likely be to funnel funding through northern governors to help ameliorate underlying grievances such as grinding poverty and high youth unemployment. But this won't be possible without a prolonged period of legislative debate, which could further calcify the country's regional fault lines. And unlike the rebels of the Movement for the Emancipation of the Niger Delta (MEND), Boko Haram's absolutist ambitions may not be amenable to political negotiation or payoffs.
Philippe de Pontet is director of Eurasia Group's Africa practice.
Henry Chukwuedo/AFP/Getty Images
By Anne Frühauf
Nationalization is the topic of the moment in South Africa and will likely continue to dominate political debate until the end of 2012, when the African National Congress (ANC) will elect its next president. The most likely long-term outcome, however, will not be too far from the government's current incremental approach to tighter regulation, which may be sold as "nationalization by other means."
The debate is largely being driven by political infighting within the ruling alliance. The ANC Youth League (ANCYL) and its populist leader Julius Malema are trying to use the issue to gain traction ahead of the December 2012 party conference, by tapping into popular grievances over economic and racial inequalities that persist nearly two decades after the end of apartheid. The ANCYL has said it will not support any candidates who do not favor nationalization, but its attacks against President Jacob Zuma (also the ANC head) have become increasingly personalized.
Zuma, fearful of alienating key constituencies ahead of his reelection campaign, is unlikely to lay the debate to rest once and for all. Malema won reelection as ANCYL leader in June and he has exploited the issue to maximum effect. Malema presents a growing threat to Zuma, not as a direct successor but as a detractor. His political future, however, may be undermined by investigations into his business dealings and ANC disciplinary procedures. Still, the ANC is finding it increasingly difficult to control the ANCYL. As a result, it prefers to attack the Malema and the populist youth wing on non-core issues rather than by openly debunking nationalization. But even if Malema's political career takes a knock, the nationalization debate is unlikely to fade.
The factional fighting will only intensify ahead of the party congress, and the nationalization issue is easily exploited for political gain. The ANCYL is supported by some African nationalist elements within the ANC. The Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP) are internally divided on the issue but worry that the ANCYL may simply be using it to secure political clout and bailouts for indebted black entrepreneurs. But the unions are equally concerned that the ANCYL is trying to invade their traditional left-wing turf and hijack their popular appeal. Pushed on to the back foot by the ANCYL, they may only give nationalization a lukewarm endorsement.
The mining sector has been the main target. (The ANCYL, however, has occasionally eyed the financial, agricultural, and industrial sectors as well.) But, the various constituencies also differ on the definition of nationalization, and options include expropriation without compensation; expropriation with compensation or alternative measures such as more taxes, royalties, black economic empowerment (BEE) policies, and greater state participation. Possible policy proposals over the next two to five years could include a mining tax like that recently implemented in Australia, and efforts to tighten BEE equity transfer targets. It is, however, far from clear whether the current equity transfer target (26 percent by 2014) will be increased. The government may instead more strictly enforce the existing target. Greater participation by the state-owned African Exploration Mining and Finance Corporation may also form part of this agenda, but the government faces real capitalization and management challenges.
At the ANC congress, party delegates are unlikely to endorse outright nationalization, nor complete rejection. Instead, their resolution is likely to be a muddled middle of the road call for greater public benefit. This lack of clarity is unlikely to reassure investors unnerved, not only by questions over South Africa's long-term policy trajectory, but also the existing regulatory burden. What many in the industry would consider a best-case scenario-a firm rejection of the nationalization proposals and efforts to ease the regulatory burden-is increasingly unlikely given South Africa's political dynamics. A worst-case outcome such as outright expropriation (even with compensation) is limited by constitutional and fiscal concerns, however. Nationalization without payment would result in capital flight and severe economic damage (as in Zimbabwe), while payment for mining assets would bankrupt the government. (For example, the mining industry's current market capitalization of around $270 billion is about twice the government's total budget). As a result, a "muddle through" scenario probably implies no radical departure from the status quo, but may allow the government to sell its policies to disgruntled voters as nationalization by other means.
Anne Frühauf is an analyst with Eurasia Group’s Africa practice.
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Africa is changing. Across the continent, robust urbanization, strong population growth, and sound economic policies are contributing to the development of an indigenous middle class. While this trend clearly interests multinational corporations hoping to tap into a new and growing market, the improving economic situation, changing consumer preferences, and the rise of a middle class may also deepen democracy in the region, albeit unevenly across the continent.
A decade of sustained economic growth (averaging between 4 percent and 7 percent annually in sub-Saharan Africa) is translating into higher per capita GDP and rising discretionary incomes that is helping build a middle class. The IMF forecasts 5.5 percent growth this year and nearly 6 percent next year for the region. In 2015, the average GDP per capita in 22 sub-Saharan African countries will exceed $2,000, according to the IMF. That level is an important threshold, representing the point at which people begin to demand basic consumer items, in addition to satisfying their basic needs.
The emergence of a middle class has important political implications. It has the potential to transform governments and encourage greater accountability and reform. In most cases, pressure from the middle class is unlikely to secure sweeping political reform of autocratic governments in the short term (as in Egypt). But it may result in a more welcoming business climate, better access to credit, and improved service delivery. Middle-class citizens, especially entrepreneurs with a stake in economic reform, are the most likely to push back against revenue-draining state monopolies, excessive red tape, and elite capture of industries. The poor are too busy simply surviving and the rich often have a stake in the status quo. Middle-class constituencies can and sometimes do bolster protectionist policies or union obstructionism to needed reforms (witness South Africa's public sector unions), but the same can be said of the world's most developed economies. In general, middle-class interests will help to galvanize economic and political reforms far more than pressure from other countries, donors, and multinational institutions.
A strong middle class also has other political benefits. At best, it fosters an active civil society and in some cases checks on executive power, providing a constituency for moderation at times of intense political stress. In the bloody aftermath of Kenya's 2007 elections, it was civil society groups such as local NGOs, media, business associations, and churches that forced the political elite to retreat from the brink. Over time, a growing middle class is likely to push back against the kind of big man politics that has characterized much of Africa since independence. For example, while Nigeria's middle class has not reined in the country's pervasive culture of corruption that effectively puts the government up for sale, the commercial hub Lagos and surrounding southwestern states have become an opposition stronghold for the reform-minded Action Congress of Nigeria (ACN), eroding the ruling party's monopoly on power. Likewise, South Africa's ruling African National Congress, which has dominated politics since Nelson Mandela's historic inauguration in 1994, is also finally losing ground to opposition forces judging from last month's municipal elections.
After a half century of violence, volatility, and suffering, major African countries may finally be on the road to a more sustainable political and economic future.
Philippe de Pontet and James Clinton Francis are analysts in Eurasia Group's Africa practice
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By Philippe de Pontet
On Sunday, Goodluck Jonathan was sworn in as the fourth president of Nigeria, guarded by security personnel and shadowed by the country's double-digit inflation. He's not alone. Rising food prices threaten governments across Africa, where food costs consume more than 50 percent of urban dwellers' average incomes. A handful of countries face a heightened risk of unrest as a result, and in a year of multiple elections, incumbents will struggle to cling to power. That said, the intensity of the threat varies widely across the continent, and the widespread upheaval rocking the Middle East isn't in the cards. Here's a cheat sheet for the continent:
Philippe de Pontet is head of Eurasia Group's Africa practice.
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By Hani Sabra and Anne Fruhauf
Last week was tough for recently deposed leaders. On April 13, an Egyptian prosecutor ordered the detention of former president Hosni Mubarak and his two sons, Gamal and Alaa. Their fate mimicked that of Laurent Gbago, the former president of Ivory Coast who was captured on April 11 looking dazed and disheveled after a five-month political impasse and two weeks of vicious fighting between his forces and those of incoming President Alassane Outarra. Gbagbo is reportedly being held under U.N. protection in the northern town of Korhogo (an Outarra stronghold), and despite an alarming photo of Gbagbo's wife surrounded by soldiers, the new president has promised that the couple and their allies will receive fair trials. In Egypt, Mubarak is confined to a military hospital, while Gamal and Alaa are in locked up in Tora Farm prison, where Gamal has seemingly lost his appetite. These tribulations will likely be just the beginning of long processes to bring the former leaders to justice. So what can they expect next?
Hani Sabra is an analyst in Eurasia Group's Middle East practice. Anne Fruhauf is an analyst in the firm's Africa practice.
By Philippe de Pontet and Anne Fruehauf
The price of your favorite chocolate treat may not have gone up yet, but there is a real chance it will, despite the resolution to the impasse in Cote d'Ivoire, the world's leading exporter of cocoa. The arrest of former President Laurent Gbagbo after a four-month standoff significantly improves the prospects for a full resumption of cocoa exports. But there are still significant political and logistical hurdles that could affect how much you'll pay for a candy bar.
The immediate situation in commercial capital Abidjan is broadly reassuring. Gbagbo urged his supporters to stand down while the incoming President Alassane Ouattara struck a note of national reconciliation in his address to the country. These developments, together with the presence of about 10,000 U.N. peacekeepers, should limit regime-threatening instability, despite the charged atmosphere and the presence of armed militias that represent a potential source of unrest. There was further positive news on April 13 when the Ivorian government reported that the nation's two main ports would reopen and that cocoa exports would resume within days.
But there are several obstacles to the resumption of full exports that some observers may be missing. Even though the EU and Ouattara have lifted their export bans, cocoa revenues have long been funneled to Gbagbo's cronies. The incoming government will want to ensure that cocoa sales do not enrich the ex-president's associates at the expense of the state. That sets the stage for potentially disruptive reforms to the industry.
The other factor is the security situation both in Abidjan and in the restive western regions where most cocoa is produced. Cote d'Ivoire's west has been the scene of significant turmoil and ongoing retributions in recent weeks. This instability could threaten key transportation corridors from the cocoa fields to San Pedro, the port of departure for about a third of Cote d'Ivoire's exports.
Additionally, migrant farmers will need to travel back to the planting regions by the end of April in time for the May-July harvest that accounts for about a third of annual production. Instability, roadblocks, and bank closures could be a real deterrent. Commercial banks will need to resume operations for small traders to buy the harvest. Any delays or problems at this level could also influence international prices, despite expectations for a bumper crop.
Philippe de Pontet and Anne Fruehauf are analysts in Eurasia Group's Africa practice.
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By Ian Bremmer and David Gordon
A wave of money flooding into emerging markets has lifted many boats. But when the tide goes out, certain countries -- and the investors betting on them -- may be left high and dry.
There are very different risk profiles among emerging markets, and even beyond the increasingly turbulent Middle East, not all are going to perform well this year. The risks facing these countries include negative economic policies (fiscal imbalances in some, premature austerity in others) as well as more purely political risks (including contentious elections and political violence). As these problems play out in 2011, they will contribute to poor investment outcomes, ranging from adverse regulatory changes to asset bubbles to weak stock market performance.
The most notable underperformers are Argentina, Hungary, Peru, South Africa, Sri Lanka, and Thailand.
In Argentina, investors appear overly optimistic that policy will improve -- either as a result of President Cristina Kirchner losing her re-election bid or a change in direction if she wins. In fact, she is likely to win, but policy is unlikely to change, leading to higher inflation and more populism.
In Hungary, markets have recently turned south, but still do not seem to be pricing in the scope of the potential impending crisis as the Fidesz government attacks asset holders across a range of classes. Hungary may once again have to turn to the IMF, but Prime Minister Viktor Orban has walked himself into a political corner with his vitriolic anti-IMF rhetoric.
Investors in Peru underestimate the potential for populist candidate Ollanta Humala to make a serious run at the presidency. He's a decided underdog to be sure, but it's too early to write him off. Even if the more market-friendly Alejandro Toledo wins, we're likely to see more resource nationalism -- and mild capital controls if the Peruvian sol continues to appreciate.
Despite its aspirations, South Africa won't improve its investment climate in 2011. Growing political pressure on President Jacob Zuma ahead of municipal elections in April-May and the ruling party leadership contest in 2012 will increase the risk of government inertia and erratic policy-making and reinforce the African National Congress (ANC)'s "single party rule" mentality."
Many people have become overconfident that the end of Sri Lanka's civil war will usher in a period of political stability. But President Mahinda Rajapakse, insecure in his position, is centralizing power while failing to address the country's structural challenges. That's a recipe for resurgent political and ethnic tension, and it will dampen growth prospects.
Finally, 2011 promises to be a year of political tension in Thailand, especially given the king's failing health. Allies of former Prime Minister Thaksin Shinawatra remain popular in much of the country, raising the risks of a violent, flawed election or a military intervention. There's real potential for serious and sustained unrest involving Thailand's incumbent elites and the pro-Thaksin "red-shirt" movement.
Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.
By Eurasia Group's Africa practice
Over the next couple of weeks, The Call will be detailing our political and economic expectations for regions around the world. First up: Africa.
The big story in Africa next year will be elections. In total, Africa will hold 17 presidential contests; a range of local, regional, and parliamentary votes; and a referendum on independence in southern Sudan. Not all political actors will seek legitimacy via the ballot box or play by the rules, but this high number of elections highlights the continent's momentum toward democratization.
Elections in Africa often generate uncertainty -- by intensifying power struggles among elite factions, between reformist and hard-line elements, and between incumbents and the opposition. Nigeria's election in April 2011 is likely to be the continent's most hard-fought. A bid by current President Goodluck Jonathan, a southerner, to secure the ruling party's nomination for another term threatens to upset the delicate power balance between the country's north and south and to derail crucial oil and power-sector legislation.
Zimbabwe is at a crossroads. Political reforms -- including a constitutional referendum -- are stalled. The landmark power-sharing agreement between President Robert Mugabe's party, ZANU-PF, and the opposition Movement for Democratic Change (MDC) expires in February 2011, but the timing of elections is still uncertain. ZANU-PF will go all out to avoid another power-sharing pact, but a disputed election is possible. If Mugabe can hold elections in early 2011, ZANU-PF has a good chance of retaking sole power, which would kill Zimbabwe's tentative rapprochement with Western nations and seriously dampen its prospects for economic recovery. A postponement (perhaps until 2012) would ensure a more credible process and give the MDC a decent chance. In the meantime, the election battle will heighten economic policy risks.
In the Democratic Republic of the Congo (DRC), the administration of President Joseph Kabila will likely rig the voting in late 2011 to ensure his reelection. But one challenger, Vital Kamerhe, could pose a limited threat if the government allows him to run. On the economic side, management of resources is expected to improve incrementally, especially at the central bank, the finance ministry, and donor coordination bodies.
Although Uganda's President Yoweri Museveni is likely to win reelection outright in February (perhaps thanks to his newly displayed musical talents), challenger Kizza Besigye may force a runoff. Uganda's imminent oil wealth has ratcheted up the political stakes and could darken prospects for a peaceful election. But despite complaints from the opposition about election rigging, the international community will likely accept the results, and the status quo will prevail. This will reassure investors in East Africa's next oil-producing state. But the combination of a relatively competitive election, the potential for violence, and looming oil windfalls could each make Uganda harder to govern.
A different type of vote, southern Sudan's referendum on independence, is likely to generate the most media attention in early 2011. Despite logistical challenges, the referendum is almost certain to take place -- though with minor delays -- and a vote in favor of independence is a foregone conclusion. But the separation may be difficult to effect. During the six-month transition period before statehood and a final agreement on oil revenue sharing, borders and citizenship rights must be negotiated. The contested region of Abyei, which has its own referendum, could become an early flash point.
This post was written by analysts in Eurasia Group's Africa practice.
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By Philippe de Pontet and Willis Sparks
Why would President Omar al-Bashir allow the southern third of Sudan to secede, taking 80 percent of the country's oil with it? Maybe he won't. It's far from a done deal. But for the moment, it appears his government might be willing to do just that.
South Sudan is hoping to hold a referendum on January 9 that will almost certainly lead to its independence from the government based in Khartoum. After years of negotiations, North and South remain far apart on issues that must be resolved if a credible vote is to take place, and if an independent South Sudan is to be truly viable. But incentives and pressure from outsiders may help bring this off.
Last week, the State Department formally offered the North some attractive conditions-based carrots. If Khartoum accepts the results of the referendum, Washington will lift restrictions on non-oil trade and investment. And upon fulfillment of the terms of the Comprehensive Peace Agreement that ended the civil war in January 2005 and "resolution" of the Darfur conflict, the US will give al-Bashir's government much of what it says it wants: sanctions removal, normalization of relations, and support for a multilateral plan to reduce Khartoum's astronomical $38 billion debt.
In return, the South will have to share some of its oil wealth with the North, moving gradually over the course of several years from the current 50/50 split to a smaller share for the North that's large enough for Khartoum to accept. The two sides will also have to demarcate the border and resolve the status of the oil-rich province of Abyei -- not easy tasks. On Friday, a U.N. summit on the issue will bring together representatives of North and South with U.N. Secretary-General Ban Ki-Moon, President Barack Obama, and Secretary of State Hillary Clinton.
There are solid grounds for optimism beyond the persuasive powers of the diplomats involved. First, China, one of the few international players with real influence in Khartoum, wants a North-South agreement that averts any risk of a return to civil war, since most of the 480,000 barrels of crude oil that Sudan exports each day are bound for China. That's more than 5 percent of China's imported oil. A North-South conflict in Sudan would cost Khartoum and Beijing dearly.
Second, Washington will lean heavily on the South to compromise on the sharing of oil revenue and the border demarcation process. The South depends on support from the United States and the United Nations for the referendum and its independence. With billions of U.S. aid dollars spent, and billions more to come, it's high time that the United States put real pressure on the South to make necessary compromises, starting with oil revenue-sharing.
Finally, the North is not entirely vulnerable to southern control of oil. The South may hold 80 percent of the reserves, but the existing pipelines run north. The two sides must get along if either is to profit from the oil.
Last week, Hillary Clinton told a Council on Foreign Relations audience that Sudan is "a ticking time bomb of enormous consequence," reminding everyone involved how much work remains to be done-and how easily negotiations could fly off the rails. The United Nations will offer to play a leading role (with the African Union) in preparing the referendum. That's critical since preparation time for such an ambitious vote is running short, in a region almost entirely devoid of infrastructure. Khartoum's response to this proposal will give some indication of its willingness to make compromises of its own, as it has grudgingly done on several occasions since the 2005 peace agreement.
The Obama administration has adopted an ambitious (and risky) strategy. Much of what it has promised Khartoum will depend on "resolution" of the conflict in Darfur, an issue not directly related to the North-South conflict. Khartoum will want clarity on what the word resolution actually means, balking at allowing the South to secede without knowing just how high a bar it must clear to claim the incentives Washington has promised. The United States, European Union, United Nations, and Khartoum's friends in China and Egypt will have to remain actively involved if talks are to remain on track.
In the end, despite hot heads and tough talk on both sides, North and South will probably move toward compromise on oil profits, the border, and Abyei during the six-month transition period between the referendum and the official birth of a new nation (whose name has yet to be determined). A return to civil war would serve neither government. An end to conflict and a stable environment for oil production would profit the two governments' most powerful foreign friends.
If things go wrong, either side could get aggressive. A breakdown in talks before the referendum could push the South to simply declare independence unilaterally -- not an auspicious start to nationhood in one of the world's toughest regions. Alternatively, the North could decide to seize control of the South's largest oil fields. It could also destabilize border regions -- though Khartoum knows well that any attempt to stoke a broader conflict across the South would invite a military response that could trigger a return to war that virtually no one wants.
But for the moment, there are solid grounds for optimism that one Sudan can peacefully become two. And that would be an accomplishment worth celebrating.
Philippe de Pontet is Director of Eurasia Group's Africa practice. Willis Sparks is an analyst in the firm's Global Macro practice.
By Jonathan Tepperman
The government of Rwanda reacted with fury last weekend when a leak revealed that a forthcoming U.N. report may charge Rwanda with genocide stemming from massacres of Hutu rebels and civilians by Tutsi forces in the next-door Democratic Republic of Congo (DRC) following the 1994 Rwandan civil war. Rwanda's foreign minister, Louise Mushikiwabo, blasted the 500-plus-page draft report as "fatally flawed" and "incredibly irresponsible" and threatened to withdraw the thousands of troops Rwanda contributes to U.N. peacekeeping operations in multiple African countries if the United Nations moves forward and publishes the draft.
At first blush, it's easy to understand Rwanda's rage. It does seem a little rich for the United Nations -- which pretty much sat on its hands in April 1994 when Hutu extremists butchered some 800,000 Tutsis, ignoring the pleas of the United Nations' own head peacekeeper for reinforcements -- to now accuse the Tutsi government that stopped that killing of perpetrating a genocide of its own in the process. (The U.N. charges relate to a period of several years following Rwanda's civil war, when the victorious Tutsis chased rebel Hutus across the border into the DRC, then called Zaire.)
And yet Rwanda's livid reaction, and its refusal to even countenance the possibility that it too may share some blame for the mayhem, is another painful sign of just how badly things have gone wrong in that country since the Tutsi government of President Paul Kagame's very promising start.
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By Ian Bremmer
"There is no reason why these things, as tragic as they are, should affect the safety of fans or players at the World Cup," said Lawrence Schlemmer, vice president of the South African Institute of Race Relations, on Monday. On the surface, Mr. Schlemmer is right. There is no reason why the murder last weekend in South Africa of white supremacist leader Eugene Terreblanche, allegedly by two young black men who worked on his farm, should have any effect on the upcoming FIFA World Cup, the first on African soil.
Unfortunately, he's simply responding to the fears sparked by comments like these:
"We're going to warn those nations, 'You are sending your soccer teams to a land of murder," said Andre Visagie, General Secretary of the AWB, the political party Terreblanche helped establish, first to defend apartheid and then to create a whites-only homeland within South Africa. "Don't do that if you don't have sufficient protection for them, Visagie added." After calling the killing a "declaration of war" by blacks against whites in the country, the AWB has since toned down its rhetoric and joined with the government in calling for calm.
The mother of one of the suspects blames the killing on frustration and anger over unpaid wages. Terreblanche's political allies blame a man called Julius Malema, president of the Youth League of the ruling African National Congress, for inciting black South Africans by singing an apartheid-era resistance song that calls on members to "shoot the Boer," a reference to white farmers of Dutch descent that has become a term of derision in some quarters for all white South Africans. A South African court has since banned the song under hate speech laws.
Under normal circumstances, it's a stretch to claim that a song can provoke murder or that a murder can disrupt the World Cup. But if the country is on edge, it's in part because violent crime remains a serious problem. Murder rates have fallen in recent years, but the perception remains that South Africa is a dangerous place. Even after passions have cooled, the murder will feed a growing perception in South Africa that government policies have failed to economically empower black citizens, to alleviate poverty, and to create jobs. Local corruption remains a chronic problem.
The real bad news for the country will come if this single headline-grabbing act of violence speeds an exodus of white South Africans. Just as the decision by Venezuelan President Hugo Chavez to fire striking oil workers from the country's state-owned oil company sent some of the most talented and experienced engineers to work in Canada's oil industry, so a significant number of white South Africans, fearful of the future or merely searching for a more promising economic climate, have found their way to Australia, the U.K., Canada and elsewhere.
There is now some real risk of racial unrest before the World Cup, which has had an overwhelmingly positive impact on the country's sense of unity and national pride. The larger risk is that any spike in violence will add to the perception, at home and abroad, that things aren't getting any better for most South Africans, black or white. There remain good reasons to be positive about the country's role in rapid African economic development. But the weekend's events could, reasonably or not, create trouble in days and years to come.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)
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The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.