22 May 2013 | Vol. 4, № 17.

From the Editor’s Desk

Dear FDI supporters, Welcome to the Strategic Weekly

Analysis. This week’s issue starts with

coverage of the Second Asia-Pacific Water

Summit in Thailand, and the Thai

government’s unveiling of its new multi-

million dollar water management project.

Next, we examine how new Pakistani

President Nawaz Sharif will address issues

such as US drone strikes and negotiation

in Afghanistan in light of increasing

domestic pressure.

We then move to China where the first

Chinese “Blue Book” on the state of India

has expressed concern over a government

in crisis.

With the Iranian Presidential Elections

approaching on 14 June, we analyse the

interdynamics of the dominant players:

Khamenei, Ahmadinejad, Velayati,

Mashaei and Rafsanjani.

In the subcontinent, we investigate

whether India’s new Mig-29K has the

potential to become another difficult

security development in Sino-Indian

relations; and the implications of the

defeat of India’s main opposition party in

the recent Karnataka elections.

In Africa, we examine the impact of the

recent removal of fuel and food subsidies

in Zambia on the mining and resources

sector, and its obligation to appease

increased social expectations.

Finally, I analyse the consequences of the

Chinese Premier’s recent visit to India,

and whether it is, as many suspect, a case

of all courses normal, or whether we can

expect to see a shift of attitude in

relations between the two countries.

I trust that you will enjoy this edition of

the Strategic Weekly Analysis.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

Page 2 of 15

Second Asia-Pacific Water Summit Overshadowed by

Mega-Project Controversy

Concerns about the multi-billion dollar water management project initiated by the Thai

Government hung over the Second Asia-Pacific Water Summit recently held in Chiang Mai.

Background

The Second Asia-Pacific Water Summit, which opened early last week, was titled, “Water

Security and Water-related Disaster Challenges: Leadership and Commitment”. It has been

overshadowed, however, by ongoing speculation about, and opposition to, the

Government’s commitment to a multi-million dollar water management project designed for

flood-mitigation and water infrastructure development.

Comment

The Thai Government has used the Water Summit as an opportunity to showcase the four

contenders bidding to participate in the country’s 350 billion baht water, flood management

and infrastructure megaprojects. With the government planning to announce the winning

bid on 4 June, those opposed to the project have called for a review of the scheme and a re-

evaluation of specific infrastructure development.

While the Summit’s key themes focused on leadership and commitment, Thailand’s

Democratic Party has supported calls from civil society and environment groups for a review

of the megaprojects. This follows the National Anti-Corruption Commission’s (NACC)

identification of several irregularities in some of the nine projects. Doubts have also been

raised about the cost of the scheme and the small number of contractors bidding for

projects. The four contenders for the nine projects are Korea Water Resources Cooperation,

ITD-Power China Joint Venture, Summit SIT and Loxley.

The lack of discussion with civil society and environment groups, as well as claims that

feasibility studies for the projects have been omitted, has led to concerns surrounding the

leadership shown by Thailand’s Water and Flood Management Commission (WFMC).

Ongoing bidding for the projects despite the omission of many legal requirements and

reports of corruption and power plays within the WFMC, continue to drive public

condemnation. The Thai Government seeks regional leadership in flood management and

water security; the current measures in developing the WFMC’s megaprojects suggest an

aspiration to do so as quickly as possible, with little regard for project protocol or legal

requirements.

Guided by the principle that the cost of recovery from natural disasters is far greater than

the cost of building mitigating infrastructure, the scheme is designed to cover 70 per cent of

the area affected by Thailand’s 2011 floods, which reportedly cost US$45 million in

damages. As well as a forum to unveil the proposed designs for the WFMC’s megaprojects,

the Thai Government, according to Technical Advisor of the panel Apichart Anukularmphai,

is using the Summit to propose the creation of a US$10 million fund to facilitate research on

water-resource management in the region. Thailand is endeavouring to become a regional

Page 3 of 15

centre for information sharing and collaborative water solutions; however, it remains to be

seen how this aspiration will be affected by the lack of inclusion of civil society and

corruption allegations circling the government initiated mega-projects.

Sinéad Lehane Research Analyst Global Food and Water Security Research Programme

*****

Sharif’s Win May Bring Better Pakistan-US Relations

Nawaz Sharif’s landslide victory in Pakistan’s general elections may bring better Pakistan-

US relations, but how he tackles issues such as US drone strikes and the negotiation

process in Afghanistan, remains to be seen.

Background

Pakistan has achieved its first ever democratic transition, with Nawaz Sharif claiming victory

in the general elections held on 11 May 2013. Sharif will be hoping it is third time lucky, after

his two previous efforts as Prime Minister were cut short by a constitutional crisis and a

coup d’état by the military. The popular politician will have little time to celebrate, however,

as the country faces mounting domestic challenges. But further afield, commentators are

hopeful that Sharif’s win will bring change to Pakistan’s foreign policy, especially its fraught

relationship with the United States.

Comment

Sharif’s triumph in the recent elections, which saw a 60 per cent turnout despite widespread

violence inflicted by the Pakistani Taliban, has renewed hopes that Islamabad may alter its

foreign policy. In particular, analysts are hopeful that Pakistan-US relations may finally

improve after ties hit a nadir in 2011, following the operation that killed Osama bin Laden.

Pakistani cooperation is critical to any settlement in Afghanistan and the US is heavily reliant

on its ports and transport links for a smooth withdrawal in 2014.

Following his impressive victory, Sharif, who heads the Pakistan Muslim League-N, vowed to

pursue better relations with the US. In an interview with the Wall Street Journal he said, ‘I’d

like to take this relationship further. We need to strengthen the relationship’. Sharif pointed

out that Pakistan’s relationship with the US was quite good while he was in power, before a

military coup, by led by Pervez Musharraf, ousted him in 1999. Washington enjoyed a

rapport with Musharraf but the relationship soon soured when it became clear that

Pakistan’s powerful military was “double dealing” by supporting the Taliban in secret.

The 63 year old Sharif got on well with the US administration and reportedly enjoys close

ties with John Kerry, the new Secretary of State. Kerry is himself well-known in Pakistan; he

is viewed by many as a sympathetic attaché and has vowed to continue the billions of dollars

http://www.futuredirections.org.au/publications/indian-ocean/29-indian-ocean-swa/1038-pakistan-s-new-government-a-harbinger-of-hope.html

Page 4 of 15

in aid currently going to Pakistan. But better Pakistan-US relations are no certainty and a

number of important question remain.

The first, and most pressing question, is what Sharif plans to do about the US drone

campaign. The air strikes, launched by CIA drones targeting extremists on the Pakistan-

Afghan border, are deeply unpopular among Pakistanis; anti-American sentiment remains

high despite a drop in drone attacks recently. Sharif himself has declared that the strikes are

‘challenging our sovereignty’ and he vowed to end them once in power. But he stopped

short of promising to shoot down the drones as Imran Khan did. ‘Why shoot them down,

when the drone flights can be stopped by other means?’ Sharif said on the eve of the polls,

signalling a desire to end the drone campaign via negotiations rather than force.

But this will be easier said than done. Pakistan officials often publicly condemn the strikes,

to garner popular support, while tacitly supporting them. Moreover, as the US begins to

withdraw the bulk of its troops from Afghanistan, decreasing its military footprint, its

strategic dependence on drone strikes is likely to increase. With Pakistan proving unwilling,

or unable, to go after such targets, the US is unlikely to stop its campaign altogether. Should

Sharif force the issue, possibly by threatening to cut off vital supply routes in 2014,

Washington may cut aid to Pakistan, as it has done before, and relations may deteriorate.

For all his cosy links with Kerry, Sharif faces the same unenviable dilemma as his predecessor

Zardari.

Second, it remains to be seen what role Pakistan will play in ending the conflict in

Afghanistan. Sharif has promised to facilitate the US withdrawal in 2014, which includes

shipping vast amounts of military equipment through the port city of Karachi. But beyond

this, Islamabad has often played an obstructionist role, angering US officials. Pakistan’s army

frequently meddles in the negotiation process, in the hope of securing a pro-Pakistan

government in Kabul, which would limit India’s sphere of influence.

But analysts are hopeful that Sharif may bring much-needed change. Unlike Zardari, who

was trusted by neither the Pakistan army nor the Taliban, Sharif has the potential to become

a mediator in peace talks. He is respected by the Taliban and also by Pakistan’s military,

despite the coup that ousted him in 1999, and has recently said that Pakistan should no

longer meddle in the affairs of its smaller neighbour. Furthermore, Sharif has indicated that

he wants better relations with India, a long-term ally of Afghanistan, which would improve

the situation on the ground, especially when foreign forces leave in 2014.

Though domestic issues will head Sharif’s political agenda for now, how he eventually

tackles these two questions will largely determine the future of Pakistan-US relations.

Observers in Pakistan and the US will be hoping Sharif’s victory marks a much-needed

turning point.

Andrew Manners Research Analyst Indian Ocean Research Programme amanners@futuredirections.org.au

http://www.futuredirections.org.au/publications/indian-ocean/29-indian-ocean-swa/969-taliban-office-established-in-qatar-as-negotiations-inch-forward.htmlhttp://www.futuredirections.org.au/publications/indian-ocean/29-indian-ocean-swa/969-taliban-office-established-in-qatar-as-negotiations-inch-forward.htmlmailto:amanners@futuredirections.org.au

Page 5 of 15

*****

Chinese “Blue Book” Optimistic On Indian Future

The first Chinese “blue book” on the state of India has expressed concern over a

government in ‘serious crisis’, but also believes India will emerge stronger after conquering

its current obstacles.

Background

Chinese think tanks release “blue books” every year on numerous issues; the books have

tacit backing by the Chinese government, even if they do not fully represent its views. The

“blue book” on India runs to over 300 pages and was compiled by Yunnan University, which

hosts one of China’s biggest South Asia programmes.

Comment

According to a brief summary of the report, posted on the website of the Social Sciences

Academic Press of China, it argues ‘that since the implementation of a comprehensive

economic reform in 1991, India's economic development has made remarkable

achievements’.1 It points

to substantial economic

growth, which shows the

‘comprehensive

economic strength’

behind India’s ‘incredible’

rise. It also argues that

‘contradictions under the

high-growth aura are

covered up’, citing issues

such as ‘poverty, uneven

development, irrational

industrial structure, the

fiscal deficit (which

remains high) and many

other problems’. It

estimates that by 2030, the Indian population will exceed that of China and forecasts that

India isfacing serious developmental challenges. Despite this, it concludes that ‘many

difficulties can make a country prosperous.’

The report asserts that Indian foreign policy has focused on improving relations in South

Asia. This involves pushing for peace with Pakistan and developing strategic relations with

Afghanistan, Bangladesh, Sri Lanka and Nepal; all countries with which China has deepened

1 Lyu, Z., ‘Annual Report on India’s National Conditions (2011-2012)’, Social Sciences Academic Press:

Beijing, 2012.

Page 6 of 15

its economic and political ties in recent times. It also views the US “pivot” to Asia and its

strengthening of regional alliances, as influencing an acceleration in India’s “Look East”

policy, which has meant warming defence cooperation between India and the US, Japan,

Vietnam and Australia. This is viewed by many Chinese analysts as a nascent strategy to

contain Chinese power, but the report stops short of suggesting that India will become part

of a US-led front against China. The report has been carefully crafted to avoid expressing

displeasure over border issues, such as Arunachal Pradesh, and the presence of the Dalai

Lama in India, achieving this by avoiding detailed analysis of these problems.

Rising Indian military strength is also discussed and this is perceived as being partially

directed at China. The report argues that India’s defence policy has shifted from a singular

focus on Pakistan, to a dual focus on both Pakistan and China, which includes the possibility

of a limited two-front war. It notes that India has expanded both the military forces on its

border with China and its naval power towards the East. The prime causes of concern result

from large increases in the numbers of Indian troops at the borders with new weapons and

equipment, as well as India’s expanding blue water navy. It highlights the Indian Navy’s

Eastern Naval Command and its bases in the Andaman and Nicobar Islands, as examples of

India’s eastern maritime focus. Despite this readjustment, the report argues that India

continues to view Pakistan as the ‘real threat’. More generally, it notes that India’s economic

growth has funded an increased defence budget, which has allowed it to become the

greatest importer of international arms, according to current SIPRI data.

Concerning India’s internal issues, the report argues that New Delhi is currently facing its

worst governmental crisis, despite ‘remarkable achievements’ since the 1991 reforms. This is

due to internal issues, such as the Naxalite-Maoist insurgency and frequent corruption

scandals. It discusses the state of the Bharatiya Janata Party and other political parties in

India, as well as the widespread discontent and agitations against its government. It notes

that the congress-led United Progressive Alliance is facing its most serious crisis since taking

power in 2009, as divisions within the UPA and public anger at the economic situation have

damaged Prime Minister Manmohan Singh’s government, according to a parliamentary

standing committee on finance. State-owned banks are writing off these bad debts, some of

which are alleged to have been granted under political and corporate influence, while

actions initiated by the finance ministry have failed to arrest the trend. Such corruption

scandals are particularly corrosive on public trust and are highlighted as a significant

problem by the Chinese report.

Despite the problems and concerns listed above, China is optimistic about India’s progress.

The official Chinese view appears to be one that values a peaceful, ‘anti-hysterical’ attitude

towards India’s rise. In turn, this bodes well for an increasingly fruitful bilateral relationship.

Daniel Barnes Research Assistant Indian Ocean Research Programme

*****

Page 7 of 15

Iran’s New Election Faced with Old Problems

The decision by the Supreme Guardian Council to bar Rahim Mashaei and Hashemi

Rafsanjani from standing in the upcoming 14 June elections is likely to engender public

dissatisgfaction and boost the Green Movement. How this will impact on Saeed Jalili’s

campaign against Supreme Leader Khamenei’s close advisor Ali Akbar Velayati remains to

be seen.

Background

On 21 May, the 686 Iranian presidential nominations have been cut down to just eight

approved candidates. As a shock to many analysts, Mashaei and Rafsanjani have been

dismissed by the Supreme Guardian Council. The two have made many powerful enemies

due to their policies and allegiances, meaning that current Secretary of the Supreme

National Security Council, Saeed Jalili, is likely to become the next Iranian president.

Comment

Despite Mashaei and Rafsanjani being quite opposed to Khamenei, it has come as quite a

surprise that they did not survive the vetting process. Despite being an opaque system, the

Iranian clerical regime relies

to a great extent on the

perception of being

transparent and legitimate.

The elimination of these two

major figures before the

election is likely to legitimise

the complaints of the Iranian

Green Movement.

Khamenei therefore needs to

balance two competing

needs. The first is to ensure

that his man, who in this case

is expected to be Jalili, will become the next Iranian president. The second is to ensure that a

repeat of the 2009 election in which there were large-scale protests and violence does not

reoccur. The latter will be achieved politically through controlling the debate, which includes

internet and newspaper censorship, and militarily through the coercive efforts of the Iranian

Revolutionary Guard Corps, the protectors of the Islamic Revolution.

Senior Commander of the IRGC, Colonel Rasool Sanaeirad issued a statement on 19 May,

warning his forces to be on high alert, stating that a ‘possible riot in Tehran could spread.’2

His statement and the heightened internet censorship are likely to have a significant effect

on the Green Movement by restricting its ability to communicate and organise protests and

then to crush any that do sprout.

2 Karimi, N., (2013), ‘Iran’s Guard Warns Against post-Election Turmoil’, Associated Press.

.

http://news.yahoo.com/irans-guard-warns-against-post-election-turmoil-082436418.html

Page 8 of 15

Dr Jalili is a clear choice as a successor to Ahmadinejad. Beyond his relationship with

Khamenei, Jalili has been in several foreign policy positions in recent years and has been the

face of Iran’s nuclear programme since 2007. During this position, he has been effective at

bridging the divide between the United States, Western powers and Iran in achieving several

rounds of talks this year, despite the very limited progress made at them. His position could

be useful to Khamenei, who has been under increasing public pressure due to the wide-

spread effects of Western sanctions, which have increased the cost of many daily goods and

medicines.

The other contender for the presidential position is Ali Akbar Velayati. The former Minister

of Foreign Affairs, Velayati has stayed close to the clerical regime since the 1979 Revolution.

Additionally, he has been Khamenei’s top international affairs advisor, giving him a high

degree of legitimacy as a potential future Iranian president. Velayati has been out of the

limelight for several years, however, and as a result, has significantly less public appeal than

Jalili.

The Supreme Guardian Council’s decision to bar Mashaei and Rafsanjani is likely to cause

public consternation. Rafsanjani, in particular, has considerable public support and barring

him at this early stage of the presidential campaign is likely to damage the perceived

legitimacy that Khamenei values.

Khamenei’s gamble rests on the fact that neither Ahmadinejad through Mashaei, nor

Rafsanjani, will rock the boat during the campaign and endanger the regime. It will be

interesting to watch how these two factions compete against regime-backed Jalili, and how

outside factions will have a role in the elections.

Gustavo Mendiolaza Research Analyst Indian Ocean Research Programme gmendiolaza@futuredirections.org.au

*****

No Homes for India’s New Mig-29Ks

India’s latest acquisition, the advanced aircraft carrier-capable Mig-29K, could be another

difficult security development in Sino-Indian relations. With the supplier Russia in the

middle, it remains to be seen how Beijing will respond to this potential threat.

Background

The Indian Naval Air Arm has this month received 16 carrier version Mig-29Ks and their first

Long Range Maritime Reconnaissance & Anti-Submarine Warfare (LRMRASW) Boeing P-8I

Poseidon. These purchases come at a time when India has been waiting for the refitted

Russian aircraft carrier INS Vikramaditya. Additionally, India’s recent acquisitions have also

coincided with China’s purchases of high-end Russian aircraft, finally concluding a deal on

the Su-35 to end nearly a decade of talks.

mailto:gmendiolaza@futuredirections.org.au

Page 9 of 15

Comment

The India, the Mig-29K is an important form of power projection, when coupled with a

competent naval strike force. It would have a considerable deterrent effect on its regional

rivals and, to a certain extent, be an imposition upon China. The Mig-29K comes as part of

the US$2.3 billion Gorshkov deal that includes the refit of the INS Vikramaditya, six Karmov-

31 naval helicopters, 45 Mig-29Ks and extensive pilot training.

The deal is expected to be part of an emerging Indian naval strategy. India plans to be able

to project two carrier groups simultaneously, with another carrier in reserve; a similar

concept to British and French strategic naval doctrine. The 44,570 tonne carrier being

bought from Russia will complement two indigenous designs expected to be commissioned

by 2018 and 2025, with displacements of 40,000 tonnes and 65,000 tonnes respectively.

India’s Naval Air Arm received its first LRMRASW P-8I from the United States this month. The

P-8I will complement India’s naval strategy by being able conduct surveillance, anti-

submarine and electronic

intelligence operations. Its

operational range of

2,200km can be extended

through midair refuelling,

utilising the Ilyushin II-78

aerial tanker, giving India’s

naval air arm both

defensive and offensive

capabilities. India is

expected to receive seven

more P-8Is.

The publicity India has

gathered about its aerospace acquisitions has come at a convenient time, with China

recently announcing that it has made a deal to purchase the Su-35 from Russia. Talks about

this purchase have been in progress since the 1990’s, to little avail until recently, mainly

based on Russian worries about technology theft. This has occurred with various other

aircraft that Russia has exported to China, including the Su-27 and Su-33, which China copied

into the J-11 and J-15 respectively. The Su-35 is powered by a Saturn-117S engine, which is

suspected to be a decisive reason behind Beijing’s desire for the aircraft. The engine in

question is highly sophisticated and, given China’s nascent indigenous military technology

industry, critical to a future Chinese fifth-generation fighter.

China’s acquisition of the Su-35 and India’s growing power projection capabilities, present

confronting realities. In April this year, India withdrew from trilateral naval exercises with

the US and Japan off Guam, in response to concerns of how its involvement may be

perceived by Beijing. New Delhi’s reluctance to participate echoes that of Australia during

the Rudd era, when the Australian government withdrew from the Quadrilateral Security

Dialogue, signalling closer relations with China and fear of a provocation. India will still hold

Page 10 of 15

naval exercises with the US this year in the regular Malabar exercises, but these are

expected to be a “bare bones” arrangement held in the Arabian Sea.

It is apparent that New Delhi is concerned about how its purchases may be perceived in

Beijing. Consequently, India’s naval air capability expansion is likely to raise eyebrows due to

the offensive nature of those capabilities.3 New Delhi’s overarching concern about China’s

military activities may be seen to be a key driver behind its acquisitions, with air and naval

capabilities taking priority for their ability to project power. Though India may acquire the

Mig-29K, it has little practicality until the Vikramaditya has been delivered by Russia and

integrated into the Indian Navy. This is expected at the end of 2013. This process will take

time and, until then, India’s block of Mig-29Ks will have to wait on a mock-up of a flight deck

in Goa.

Gustavo Mendiolaza Research Analyst Indian Ocean Research Programme gmendiolaza@futuredirections.org.au

*****

India: Karnataka Elections Reflect Federal Challenges for Modi

The defeat of India’s main opposition party in the southern state of Karnataka is a

rejection not only of the party’s poor governance record, but of the nationalistic Hindu

ideology that some members adopt. One such member is a potential candidate for Prime

Minister.

Background

India’s main federal opposition party, the Bharatiya Janata Party (BJP), has been voted out of

power in the southern state of Karnataka. The loss of Karnataka is a substantial setback for

the BJP, whose support base is generally found in the north of the country. Gujarat Chief

Minister, Narendra Modi, a likely BJP candidate for Prime Minister in the 2014 federal

elections, campaigned on behalf of the party in Karnataka.

Comment

The BJP came to power in Karnataka in 2008, with over 40 per cent of the vote. This month,

a strong swing against the party meant they received only 21 per cent of the vote – and are

now only the third largest party in the state. Corruption and poor governance have been

widely recognised as a key cause of the poor showing. The BJP has also been accused of

turning Karnataka into a Hindutva laboratory, referring to the nationalistic Hindu ideology.

Hindutva is not the ideology of the BJP, but is endorsed by some members.

3 Kainikara, S., (2012), Essays on Air Power, Air Power Development Centre: Canberra, pp. 33-6.

mailto:gmendiolaza@futuredirections.org.au

Page 11 of 15

Gujarat’s popular Narendra Modi is a proponent of Hindutva. He was brought into Karnataka

to campaign on behalf of the ruling BJP party, based on his success in presiding over the

rapid development of Gujarat. Modi was elected for a third term last year, after making his

state a major investment destination and advancing industrialisation and power distribution,

while also controlling pollution. While the BJP has not yet named its preferred candidate for

Prime Minister ahead of next year’s federal election, Modi is a front-runner for the job. The

loss in Karnataka is a blow to the BJP, and particularly to Modi. In Gujarat, the opposition

party, the Indian National Congress, has pointed out that wherever Modi campaigned in

Karnataka, the BJP lost seats.

One conclusion is that these circumstances highlight the fact that while Modi is popular in

Gujarat, he remains a divisive figure elsewhere.

Another conclusion is that the Hindutva policies, which have been popular in Gujarat, are

viewed with scepticism elsewhere in India. In Gujarat, Modi has combined this ideology with

high rates of economic growth, averaging greater than 10 per cent each year over eight

years. Growth rates have been comparable in other states of a similar size, however. The

Hindutva ideology has certainly not been popular in Karnataka, which is known for its

secularism. The state already boasted strong economic growth before the BJP was elected.

A number of incidents, involving violent right-wing Hindu gangs, have occurred in Karnataka

and have raised concerns about the Hindutva ideology. On one occasion, such a group

brought a girl to the local police station – accused of befriending a Muslim boy. Police

warned her and her father about her behaviour. She committed suicide the following

morning. Other incidents of violence against Muslims have been reported. On another

occasion, following attacks on churches, false charges were filed against Christians, accusing

them of coerced conversions. The BJP has been accused of implicitly supporting and

protecting Hindutva gangs.

Modi has himself been criticised over the 2002 anti-Muslim violence in Gujarat, which

resulted in the death of over 800 Muslims and 100 Hindus. His administration stands

accused of, at best, failing to stop the violence, or, at worst, actively encouraging it.

It is likely that several factors were behind the BJP’s loss in Karnataka. The vast majority of

voters have turned against the party they elected in 2008. This includes Muslims, Christians,

and Hindus. There is no doubt that corruption, poor governance, instability within the

government – and Hindutva ideology have all contributed towards the result. The rejection

of Hindutva is notable, while Modi has found support in Gujarat, where the Hindutva

ideology has been combined with economic growth, outside of the state there is much

scepticism. This will be a factor on the minds of BJP leaders as they choose their Prime

Ministerial candidate.

James Davies Research Assistant Indian Ocean Research Programme

*****

Page 12 of 15

The Removal of Fuel and Food Subsidies: What It Means For

Resource Companies

Zambia’s decision to remove fuel and maize subsidies could put added pressure on the

mining sector to appease social expectations.

Background

Zambia’s president, Michael Sata, has removed subsidies on maize meal and fuel, a decision

which has angered civil society, particularly the young. Protests have since been held and,

although these have not turned violent, they signal a growing social discontent in the

country. On 16 May, a group of civil society organisations gave the government seven days

to reverse their decision to remove subsidies, threatening to stage mass protests if the

demand is not met. As the government is unlikely to back down from their decision, large

protests should be anticipated, beginning on 23 May, particularly in Lusaka. Although the

protests may not have a direct impact on the mining industry, it is important to note that the

removal of these subsidies, combined with civil society’s growing dissatisfaction, could

arguably place added pressure on the mining sector to increase wages and create more

employment opportunities.

Comment

The rising level of social discontent is a concern in Zambia, which is considered to be a

relatively stable country that witnesses only sporadic incidents of social unrest. There is,

however, a rising youth population and unemployment, particularly amongst this group,

remains high. An estimated 60 per cent of the population is considered to be below the

poverty line. The high level of poverty is fuelled by the high rate of unemployment among

the young. The removal of fuel and maize subsidies is likely to stoke tensions and could

prove to be a catalyst to bring other social and economic issues to the fore.

The resources sector will need to monitor the current dissatisfaction closely. This sector,

particularly in developing or emerging economies, often faces the task of satisfying the

needs of civil society by providing education, employment and improvement to the local

area, for example through the development of infrastructure. Although the current

discontent stems from government decisions, those in the resources sector could arguably

find themselves having to face demands for increased wages and the creation of more

employment opportunities for the young, as the cost of living increases. Failure to respond

to such demands is likely to result in targeted protests and unrest.

Simmering social tensions and discontent with the government, may also be a deterrent for

future foreign investments. With the country’s ongoing stabilisation and peaceful 2011

elections, there appeared to be an opportunity for viable and stable investment in the

mining industry, particularly copper – one which has been taken up by some Australian

companies, such as Blackthorn Resources. With the recent political developments, however,

it is probable that investors will now monitor and consider the country’s long-term political

risk more closely prior to making investments. At a time when interest, and therefore

Page 13 of 15

competition, in Africa is increasing, Zambia needs to control demonstrations and rising social

tensions to attract foreign investors and ease concerns of long-term political instability.

Kim Moss Research Analyst Minerals and Energy Research Programme kmoss@futuredirections.org.au

*****

A New Approach or More of the Same? China’s Premier Visits

India

The visit may result in a new relationship that will see China and India assume closer ties

that reflect more than economic issues.

Background

Premier Li Keqiang’s four-day visit to India is the first time a Chinese leader has gone to New

Delhi before visiting another country. The visit follows recent border tensions and a visit to

Beijing by India’s Foreign Minister. A visit to China is planned for later this year by Prime

Minister Singh.

Comment

Analysts view Li’s visit in one of two ways: a sign that China recognises India as a major

player in the region or that Beijing seeks to establish assertiveness while India’s government

is distracted by internal issues, leading to next year’s national election.

The first school of thought suggests that it is in China’s interests that both countries benefit

from a closer relationship that establishes their territorial integrity and prepares the way for

further economic development and the social and political transformation that will

undoubtedly confront both countries. This is a long term vision that also recognises the

challenges that China faces with an ageing population, environmental concerns and

increased demands for food, water and energy.

An indication of this type of reasoning is the burgeoning economic interaction between both

countries. Annual bilateral trade is now over $70 billion with a target of $150 billion by 2015.

India, of course, seeks to redress the imbalance which now significantly favours China.

The second school of thought views the relationship as clouded with uncertainty at best.

The recent border incursion, where some 40 Chinese soldiers camped 19 kilometres inside

India’s perceived territory, is part of this assumption. Why did this occur? Was this part of

China’s “pressure diplomacy”? Was it designed to place India in a defensive and reactive

mode? Certainly there is no shortage of strategic thinkers and journalists in India who view

China as a major threat.

mailto:kmoss@futuredirections.org.au

Page 14 of 15

This visit, and Singh’s proposed visit to China, occurs during a period of considerable regional

political change. The appointment of a new Chinese National People’s Congress in March,

India’s national elections next year, the recent defeat of China’s close ally, former Pakistani

President Zadari, and the withdrawal of most of the international force from Afghanistan are

all part of this uncertain future.

Nor is there any doubt that Li’s visit is different from those of senior Chinese leaders in the

past. Both he and President Xi Jinping became politicians after the 1962 war between India

and China and do not carry the negative baggage that resulted from this conflict. Li has also

been to India before, having led a youth delegation in 1986.

Even if Li’s intentions are to establish not only closer relations, but an attempt to have the

two most populous countries influence the changing of a world order, it will take some time

for India to accept this direction. Li will visit Pakistan next and further discussion will

undoubtedly follow as to the intentions of the visit to India and its perceived outcome.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

What’s Next?

22-23 May: Chinese Prime Minister Li Keqiang will visit Pakistan where he will meet

with President Asif Ali Zardari. It will be Li’s first visit to Pakistan after assuming

office, and it comes shortly after general elections in Pakistan.

23 May: Iran’s Guardian Council will complete the vetting of potential presidential

candidates and will announce the final list.

24-27 May: Indian Foreign Minister Salman Khurshid will travel to Saudi Arabia to

discuss regional issues and Saudi labour policies.

The Summit of the African Union continues in Addis Ababa until 27 May, with the

theme “Pan Africanism and African Renaissance.”

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