from the editor’s desk - future directions...
TRANSCRIPT
18 December 2013 | Vol. 4, № 47.
From the Editor’s Desk
Dear FDI supporters,
Welcome to the Strategic Weekly
Analysis, our final edition for 2013. This
has been a busy year with a record
number of publications. In 2013, our
Associate numbers passed 4,000 and an
ever-increasing number of people have
viewed our website, with over 700,000
doing so in November.
We are also about to complete two major
studies on the global food and water
situation and Australia’s national
objectives in the Indian Ocean region. We
have also embarked on a major study that
will seek to identify how we might
regenerate northern and inland Australia
and develop its food producing potential.
We greatly appreciate your continuing
support and remain inspired by your
interest and contributions. We are a not-
for-profit research institute and any
donations are tax deductible.
I intend to issue a regular report next
year, starting in late January that
highlights our research intentions and
other activities. I shall also issue a brief
questionnaire, seeking your advice as to
how our product is being used and asking
for any recommendations on how we can
do better.
As noted above, this will be the last
Strategic Weekly Analysis published in
2013. We will resume its publication on
29 January.
On behalf of all of us at FDI, I wish you a
happy, safe and memorable Christmas
with the best of fortune for the New Year.
Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International
*****
Page 2 of 11
Some Progress, but Corruption Remains Endemic in Indonesia
A recent report by Transparency International reveals that corruption remains an endemic
problem in Indonesia. Though encouraging signs are beginning to emerge, corruption will
remain a major issue for investors in Indonesia in the future.
Background
Corruption remains endemic in Indonesia, with a recent survey by Transparency
International ranking the South-East Asian country at 114 out of 170 states worldwide. The
survey, published by the Berlin-based organisation on 3 December, draws on a wide range of
sources to assess ‘the degree to which corruption is perceived to exist among public officials
and politicians’. For the second year running, Indonesia scored 32 out of 100 (with zero
being totally corrupt), prompting media outlets to charge that Jakarta was not doing enough
to fight corruption. Though some encouraging signs are beginning to emerge, the
government must certainly do more to fight corruption in the future.
Comment
Indonesia again scored poorly in the survey, with a score of 32 out of 100 for the second
year in a row. Though the country improved four spots from last year (118 to 114), it was
still on par with Egypt and below other Indian Ocean countries, such as Ethiopia (111) and
India (94). Somalia, North Korea and Afghanistan were the worst performers, while Denmark
and New Zealand were perceived to be the least corrupt countries in the world.
The results will come as little surprise to most observers. Though Indonesia is set to become
one of the world’s top ten economies by 2020, corruption is virtually a way of life in the
archipelago state. Graft, whereby politicians exploit their position for personal gain, appears
to be getting worse, especially at the local level. At the same time, bribes and “facilitation
payments” are commonplace; the recent scandal, embroiling the Chief Justice of the
Constitutional Court, goes to show that paper bags stashed with cash are ubiquitous in
Indonesia.
For companies and investors, therefore, the ongoing challenge is to take advantage of the
tantalising economic opportunities while overcoming the issue of corruption. The majority of
multinationals operating in Indonesia have pledged to comply with strict extraterritorial
anti-corruption measures, including the US Foreign Corrupt Practices Act and the UK Bribery
Act. Such Acts expressly forbid corruption and include third party liability. But this then
poses the problem for firms: how can they resolve the tension between compliance and
making the most of growth opportunities in Indonesia?
Many companies may choose not to comply with their legal obligations and engage in
bribery. This is especially so given illicit payments to government agencies, often through
third parties, is seen as custom. For others, the tension may be too great a hurdle to
overcome. Control Risks, a global consultancy company, said in a recent report that ‘while
Indonesia’s government has significantly improved measures to combat corruption over the
past ten years, corruption remains a major impediment for foreign investment’. To be sure,
Page 3 of 11
companies, with significant time and effort, can achieve an appropriate balance – but many
bypass South-East Asia’s largest economy altogether in favour of other markets.
Yet, given that Indonesia desperately needs to attract foreign capital amid a widening
current account deficit and slumping economy, the country must do all it can to fight
corruption in the future.
Indonesia may have failed to improve on its score from last year, but some encouraging
signs are beginning to emerge. The August arrest of Akil Mochtar, the Chief Justice of
Indonesia’s Constitutional Court, on bribery charges, sends a powerful message that no
person is above the law. Meanwhile, Jakarta marked International Anti-Corruption Day on 9
December by sentencing the leader of the country’s largest Islamic party, Luthfi Hasan
Ishaaq, to 16 years’ jail for corruption and money laundering. Both high-profile cases,
conducted by the Komisi Pemberantasan Korupsi (KPK), Indonesia’s Corruption Eradication
Commission, illustrate that Jakarta is starting to take corruption more seriously.
The wider story of the KPK also points to a brighter future. Established in 2002 to tackle the
widespread proliferation of corruption following the Suharto era, it has grown in size and
power. Before the KPK was formed, only police and prosecutors had the authority to
conduct anti-corruption activities. Now, however, the Commission has almost 1,000
employees, with its budget doubling between 2008 and 2011. Most important, it remains a
fiercely independent body committed to investigating the shady dealings of public officials.
But the KPK still very much a work in progress. For all the recent hype, its prosecutions still
only represent a drop in the ocean compared to the corruption that pervades the country.
One of the problems, says Control Risks, is that other administrative arms, including the
legislature and judiciary, often try to undermine the KPK in a bid to keep the status quo.
Political parties, meanwhile, are often insincere in their attempts to stamp out corruption,
treating it as a point-scoring tool, rather than a problem that needs to be stopped.
Given this, the medium to long-term prospects for corruption in Indonesia are unlikely to
change. Companies will continue to carefully weigh up the situation before investing in
Indonesia, and may choose to boycott it altogether – a costly predicament for Jakarta as it
continues to sail into economic headwinds.
Andrew Manners Research Analyst Indian Ocean Research Programme [email protected]
*****
Page 4 of 11
White Paper to Outline Opportunities for Australian
Agriculture
The Government has announced that it will release an agriculture White Paper at year’s
end, signalling its intention to capitalise on high food demand from nearby Asian markets.
Background
Last week, Agriculture Minister Barnaby Joyce issued a media release declaring Australia’s
‘once in a lifetime’ opportunity to improve the nation’s agricultural competitiveness, as the
terms of reference for a new agriculture White Paper were released. Minister Joyce cites job
creation, increased farm gate returns, investment and economic growth as key goals of the
paper. A taskforce of industry and community leaders has been established to compile the
paper and consult with stakeholders.
Comment
Joyce’s announcement comes as plans to develop a Northern Australian food bowl have
been revived. Australia holds a “strategic advantage” in the production of food products
such as rice, high protein wheat, fish, marbled meats, sugar and dairy, which could satisfy
the changing diets of emerging Asian markets. The White Paper will detail plans of crop
relocation to maximise food production. Moving cotton crops further north and citrus
production south would allow for more efficient irrigation practices. Joyce has signalled
plans to strengthen the relationship between food and fibre processing chains. Integrating
agricultural sectors will build international competitiveness.
The White Paper’s terms of reference outline plans to improve agricultural investment
facilitation but make no mention of the role of foreign investment. The recent government
rejection of the GrainCorp takeover by American firm Archer Daniels Midland is widely
believed to have resulted from lobbying efforts from the Nationals, further highlighting the
party’s protectionist stance on foreign investment. A primary goal of the paper is ensuring
food security in Australia, an issue which is often brought up to justify the National Party’s
stance on foreign investment in Australian agriculture.
Australia is currently food self-sufficient and secure, feeding its population of 22.8 million
and exporting food products to a further 40 million people. As the country grows to become
a “bigger Australia”, the sustainability of the agricultural sector will be important. Australia
experiences widespread resource degradation and studies suggest the agricultural sector
could be seriously hit by changes to the climate. It must be noted that the future success of
domestic agricultural production may not be achievable from domestic investment alone
and that growth could lie in the accessibility of the sector to foreign investors and labour.
In 2014, the FDI Global Food and Water Crises Research Programme will launch a study into
the sustainability of Australian food systems. This study will seek to investigate the
challenges and opportunities revealed by the global food and water crises landmark study
which the programme will release early in the year.
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Jack Di Nunzio Research Assistant Global Food and Water Crises Research Programme
*****
Madagascar Presidential Election, Round 2: Many Challenges
Ahead for the Winner
A clear outcome in a free, fair and peaceful election is a prerequisite if Madagascar is to
address the many challenges it faces.
Background
The run-off election between the two highest-polling candidates in the 25 October first
round poll, Jean Louis Robinson and Hery Rajaonarimampianina, remains on track for 20
December. While the two candidates are effectively proxies for bitter rivals former president
Marc Ravalomanana and current leader Andry Rajoelina, who deposed Ravalomanana with
the support of the military in 2009, many in Madagascar will be hoping that this week’s poll
will close the door on four years of political instability, economic uncertainty and
international isolation. Whether that will be the case is difficult to say at this stage, but at
least the candidates’ policy pronouncements are pointing in the right direction.
Comment
After four difficult years,
Madagascar has an opportunity
to put the recent difficulties
behind it with a successful
conclusion to an electoral
process that, so far, has been
described by foreign observers
as free and fair.
While the degree of
magnanimity that will be shown
by the victor towards the loser –
and if the loser will even accept
the verdict – is highly uncertain,
a legitimately elected president and parliament (National Assembly elections are to be held
on the same day), are absolutely required if Madagascar is to address such issues as falling
living standards and environmental degradation.
Page 6 of 11
The 2009 political crisis hit Madagascar hard. According to World Bank figures, the economy
contracted by 4.1 per cent in 2009, with meagre growth returning in 2010 (0.5%), 2011
(1.9%) and a more impressive 3.1 per cent in 2012. Per capita Gross Domestic Product fell
slightly in 2012 to US$447 from US$457 the year before, but was still an increase on the
figure of US$419 recorded in both 2009 and 2010. The World Bank estimates that 92 per
cent of the population lives on less than US$2 per day and that, with a high population
growth rate (2.9%), per capita income in 2013 has, in effect, been reduced to the level of
2001.1
Already low health standards have been affected by reduced government revenue and
overseas aid. A bubonic plague outbreak – endemic in highland areas of the island –
beginning in November occurred outside the usual season, at a lower altitude than usual and
showed increased virulence. Increased poverty, overcrowding and decaying sanitation
facilities are all contributing factors.
Illegal land clearing has escalated since 2009, with traditional slash-and-burn agriculture –
already responsible for the destruction of 90 per cent of the island’s forest cover –
exacerbated by poverty, competition for agricultural land and President Rajoelina’s early
decision to end a ban on the harvesting of valuable hardwoods, such as rosewood. The ban
was reinstated in April 2013, but only after much damage had been done to unique and
delicate ecosystems, including national parks, with a corresponding drop in the country’s
important ecotourism sector.
Large parts of Madagascar experience food insecurity, malnourishment is widespread and
agricultural production is vulnerable to locust infestations and damage from tropical
cyclones. More positively, Madagascar is a leading producer of vanilla.
Fortunately, both candidates have indicated an interest in tackling such issues. Despite a lack
of detail, Rajaonarimampianina’s manifesto, for instance, outlines a plan to create a national
Green Ticket “return-to-the-land” programme intended to boost agricultural production,
efforts to reinvigorate livestock exports, and to restore confidence to the tourist industry,
returning visitor arrivals to 500,000.2
Dr Robinson, meanwhile, has condemned the rampant illegal deforestation, noting the
important role played by the environment in the country’s economic development, and has
pledged to punish those caught logging rosewood. Dr Robinson has stated his intention to
increase funding for health and education, but the funding need to do so would largely be
conditional on overseas donors.
In any event, whoever wins on 20 December – and, in a country as large and poor as
Madagascar, the final result will not be confirmed for some time afterwards – will need the
legitimacy that can only come from a clear victory in a free, fair and peaceful poll that is
accepted by winner and loser alike. If Madagascar is turn the page, that will be the first step.
1 ‘Madagascar: Measuring the Impact of the Political Crisis’, World Bank, 5 June 2013.
<http://www.worldbank.org/en/news/feature/2013/06/05/madagascar-measuring-the-impact-of-the-political-crisis>. 2 ‘Hery Rajaonarimampianina: Programmes’. <http://www.heryvaovao.com/>.
Page 7 of 11
Leighton G. Luke Manager Indian Ocean Research Programme [email protected]
*****
The Imperatives of India’s Central Asia Policy
India’s on-going strategic competition with China has ensured its “Look East Policy” has
been in the spotlight. There is, however, another policy that is just as important to its
national strategy – the “Connect Central Asia Policy”, which could secure it energy
supplies, extend its influence, support its long-time ally, Russia and, possibly, rein in
China’s growing regional influence.
Background
At the Shanghai Co-operation Organisation’s (SCO) recent meeting in Tashkent, Uzbekistan,
in late November, the Indian Foreign Secretary, Sujatha Singh, made it clear that India
sought to enhance its relationships with the Central Asian states. To this end, it had initiated
steps towards applying for full membership of the organisation which, if granted, will give
India an enormous boost towards achieving its Central Asia goal of increasing its economic,
political and cultural ties in the region. This will, in the longer term, enable India to project
its influence there.
Comment
In her speech, Ms Singh raised two issues of importance to India. The first was that the SCO
ought to hasten its efforts in rebuilding Afghanistan. On the face of it, this would appear to
be a logical move to ensure that Afghanistan is not left in a vacuum caused by the impending
withdrawal of US and Coalition troops in 2014. India’s worry is that a vacuum will give rise to
terrorism and further strife there, which could easily spill over into the rest of the region,
including India. The second issue was that of Iran. The recent agreement reached by the
P5+1 and Iran over its nuclear programme is viewed by India as an opportunity for itself and
the region to further enhance their energy and political security.
While both issues are fairly self-evident, being, as they are, of benefit to all concerned, the
catch was in Singh’s further statements on Afghanistan. Once the SCO ramped up its efforts
in Afghanistan, she stated, India could then work with Russia to create common SCO policies
on Afghanistan. This statement leaves open the possibility that there could be more at stake
for India here than just the future of Afghanistan. It is, by now, commonly held that Russia is
not overly-enamoured of China’s growing importance in a region that Russia has long
Page 8 of 11
regarded as its own area of influence. By working together with Russia, India could
potentially provide Russia additional leverage within the organisation to ensure it is not
forced to play second fiddle to China’s economic clout. It is true that Russia and China are
working together to balance the United States in Central Asia, in the western Pacific and
elsewhere. This notwithstanding, neither China nor Russia would be entirely adverse to
accumulating a degree of influence in Central Asia to the detriment of the other. It is very
possible that by working with Russia to achieve that end, India could counter China in
Central Asia, just as it seeks to do in South-East Asia. It is hardly likely that such a move
would be as plainly enunciated by India, Russia or, for that matter, China. It does not,
however, need to be.
There is an added advantage of this action for India. Given President Putin’s stated ambition
of forming a Eurasian Union with a Eurasian Economic Commission along the lines of the
European Union, India could stand to benefit by having direct economic access to the former
Soviet republics of Belarus and Kazakhstan and also to some Eastern European states, such
as Bulgaria and Hungary.
In any event, the SCO’s plan to create a Free Trade Area by 2020 is also appealing, as it
would give India access to an economically integrated area, enabling it to export is goods
and services to a population of around 1.5 billion people and increasing its trade with the
region from around US$500 million at the present time.
Given this potential, it is almost a certainty that India will use its ties with Russia to ensure it
is granted full membership in the SCO. Given the benefits to be accrued from having India on
board, it is equally sure that, barring unforeseen events, Russia will use its considerable
influence to ensure India obtains just that.
Lindsay Hughes Research Analyst Indian Ocean Research Programme [email protected]
*****
Tension in the Middle East Set to Grow
The recent bombing of the Iranian embassy in Beirut has increased tension in the Middle
East. With alliances being formed along sectarian and strategic lines, the oil-rich region
faces increasing uncertainty.
Background
With a history of conflict, the Middle East continues to be the centre of tension. Given its
various sectarian followings, huge natural resources and the introduction of nuclear
Page 9 of 11
capabilities, the Middle East is bound to cause further headaches for policymakers. With
several countries vying for the leadership of the Muslim world, alliances are being formed in
the Middle East that could create a platform for greater instability. One such alliance that
has been formed, and that continues to grow stronger, is that between Iran and Syria, so
that the former of the two might challenge the regional dominance of Saudi Arabia.
Comment
The relationship between Iran and Saudi Arabia has been rocky since the 1979 revolution in
Iran. Prior to then, the two countries maintained relatively good terms, the relationship
being managed to some extent by the United States. Strategic allies with Iran and Saudi
Arabia, the US continued to control the rivalry, until the Shah was overthrown in Iran. This
event had the effect of driving a wedge between the two countries, mainly due to strategic
and sectarian competition. Both states now fight for eminence in the energy sector and
leadership of the Muslim world.
As the alliance between Iran and Syria continues to grow, tension between the two
countries and Saudi Arabia has increased. The 19 November bombing of the Iranian embassy
in Beirut, which killed twenty-three people (including an Iranian diplomat) has served only to
exacerbate the situation. Many believe the bombing is the reaction to their alliance and to
Iran’s support of Shi’a domination in Syria. Saudi Arabia has given support to the Sunni cause
in both Lebanon and Syria, making retaliation by Iran against it highly likely.
Al-Qaida claimed responsibility for the embassy attack in Beirut, saying it was to serve as a
warning to Iran to remove its troops from Syria. Hezbollah’s leader Hassan Nasrallah,
however, has accused Saudi Arabia of being involved. Nasrallah has claimed Saudi
intelligence provided backing and support for the attack, thus retaliation should be directed
at Saudi Arabia. Reacting to the bombing, Saudi Arabia advised its citizens to leave Lebanon
due to instability. Although Iranian Foreign Minister Mohammad Javad Zarif told reporters
earlier this month that Iran hopes for a ‘new page’ with the Saudis, it does not rule out an
attack by the Iranian-backed Hezbollah.
Although Iran has agreed to certain restrictions regarding its nuclear programme, the
building of a second nuclear reactor has caused concern in Saudi Arabia over its regional
hegemony intentions. Nuclear weapons in Iran could see the country make a play for
dominance in the region, but Iran’s nuclear activities have seen it struggle with sanctions
imposed upon it by many countries, including the US. This has given Saudi Arabia the chance
to fully capitalise on exporting energy products to Iran’s former customers. By agreeing to
rein in the nuclear programme, however, Iran has had some relief from the sanctions,
providing it an opportunity to regain markets lost to Saudi Arabia.
The fallout between Iran and Saudi Arabia has forced many Middle Eastern countries to
“choose a side”. Israeli scepticism of Iranian nuclear intentions has seen it draw “closer” to
Saudi Arabia, resulting in reports of a recent meeting between the heads of intelligence of
Saudi Arabia and Israel. The alleged meeting is said to have been sparked by the deal Iran
struck with the P5+1 Group regarding its nuclear programme and its plans to construct a
second reactor. Other regional states view a conflict between themselves and an Iran-Syria
Page 10 of 11
alliance as the worst possible outcome for themselves and the region. Omani Minister for
Foreign Affairs, Yousif Bin Alawi al Ibrahim, has told the Gulf Co-operation Council that
Oman would not support any aggression against Iran, as a conflict of this nature would set
the region back centuries. Although true, managing Iran has become a more difficult task, a
task that may soon become impossible if Tehran continues with its nuclear activity.
David Martin Research Assistant Indian Ocean Research Programme
*****
What’s Next?
The Bangladesh-China-India-Myanmar Forum will visit Kunming, China, for a Joint Study Group meeting on 18 December.
The leaders of 17 armed ethnic groups in Burma/Myanmar will travel to Hlaingbwe, in south-eastern Kayin state, where they will meet at the Karen National Union headquarters for a conference from 18-20 December.
India will test the Agni-III, a nuclear-capable missile with a 3,000-kilometre range, at a base on the coast in Orissa state on 18 December.
Four Somalis arrested for participating in the Westgate Mall attack in Kenya will go on trial on 18 December.
On 20 December, the Sri Lankan Government will complete its house-to-house survey to ascertain how many people died during the civil war, which ended in 2009.
The Commerce Secretaries of Nepal and India will meet in Kathmandu on 21-23 December.
Newly-elected Maldivian President Abdulla Yameen will make a visit to New Delhi on 22 December.
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