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The Asian Square Dance – 1st part

Michael Akerib

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Goldman Sachs first coined the expression BRICs – Brazil, Russia, India and China – to identify the economic giants of the future that will reshape the world economic order. While Russia’s economy is linked to the prices of commodities, energy in particular, Brazil has not lived up to expectations. Of the four countries, China and India have shown the most impressive growth in recent years with, respectively, 10% and 8%. Excluding Brazil, the population of the BRIC represents 40% of the world’s inhabitants.

With Asia, reckoned to be today the most dynamic continent, accounting for 65% of the world’s population, and China and India together accounting for 40%, these two countries can potentially alter the fragile equilibrium of the world’s economy. It is forecast that by 2030 the East Asian economies will be the world’s largest economic bloc.

Due to diverging political ideologies and concerns, however, this bloc does not, in fact, exist other than in prose. Even worse, all the countries in the area have made significant investments in military equipment over the recent past thus sharply increasing the risk of conflict particularly as fears grow over China’s intentions.

The US’ dream, during the cold war, of creating an Asian equivalent to NATO was short lived. Today, Asia has five nuclear powers: Pakistan, India, China, North Korea and Russia. On the other hand, the US is constrained by budgetary problems.

Our argument in this series of articles is that the development of Asia, and its impact on the rest of the world, depends to a large extent on the relations between five countries: China, India, Japan, South Korea and the US. Depending on the structure of the type of relations that will develop, and choices made by Russia and the US, for instance on their energy policy, we may see a new world order developing, very different from that of the last four hundred years. Further, if the Chinese economy faces difficulties in the future, the US will be instrumental in determining Asia’s future. Conversely, if the US economy falters, China, if it so wishes, could assume the world’s economic leadership.

Since the end of the Second World War, the US’ role in the area has been a major influencing factor politically, militarily and economically and while it has declined recently, it remains, nevertheless, important. Asia is challenging the EU as the world’s most important trade bloc.

The US imports from Asia for over $2 trillion per year, thus making the US responsible for the creation of hundreds of thousands of jobs. A weakening of the US dollar could significantly diminish the US’ role in the region.

At issue here is what A F K Organski has termed ‘Power transition theory’ – i.e. the change of the guard of the dominant power where the dominant power occupies this position because of its control of resources, be they demographic, economic, geographic, natural or military.

According to the theory, the dominant power, or powers, must ensure the stability of the system failing what the system might be challenged by an emerging hegemon. These situations are conducive to confrontation, very often military.

The emerging hegemon is, no doubt, China, and the events in Eurasia, over the coming quarter century will witness an indirect confrontation between China and the US, a confrontation whose secondary actors are India and Russia.

Is China striving to attain the status of great power and challenge the US, at least regionally, and what role do the other regional powers, as well as Russia and the US play? Or is it just trying to reduce its feeling of being surrounded by enemies?

Asia has become a powerhouse with several countries showing economic strength and appearing to be rivals. A dangerous rivalry inasmuch as five countries in the area have a nuclear arsenal (China, India, North Korea, Pakistan and Russia), with two more (Japan and South Korea) able to produce a nuclear bomb in a relatively short time.

Monetary reserves in Asia are sufficient to allow the area to develop without much further foreign investments. Further, an increase in economic stability is heralded by the recent agreement between several Asian countries – the members of ASEAN, China, Japan and South Korea – to pool their financial resources in case of a speculative attack.

While the major trade partner of most of the countries in the area is Australia, the European Union and the United States, regional trade has increased considerably. Services such as tourism also cater increasingly to Asians.

There remains the question of whether the continent is able to develop its own technological base to compete with Europe and the US. There are diverging points of view on the issue.

The perception by the Asian countries of the effect of China’s domination of the continent evolved into an understanding that they only have two options – siding with China or with Japan and its US ally.

The financial difficulties originating in the US and which have spilled all over the world have affected Asia in its role of major exporter. As a reaction, China, Japan and South Korea are considering the creation of a community modelled on the European Union that would help them expand trade within their area and increase trade with the ASEAN countries, Russia, the Middle East and Europe. They are encouraged in this action as inter-Asian trade has been growing at twice the rate of global trade. Inter-Asian trade is more important as a percentage of total trade than inter-NAFTA trade.

The US should fear the creation of a trading block including China, Japan and South Korea as it would represent 43% of US’ foreign trade and holdings of over one trillion dollars in US Treasury paper.

 

Common problems
The countries in the area, with the notable exception of Russia, share two major problems: access to raw materials in general, and energy in particular, and an economy essentially geared to exports, and thus very dependent on the purchasing power of EU and US consumers. This last aspect is changing rapidly though with domestic markets starting to take shape and offering local producers a partial insulation from the American-led boom and bust cycles.

It is generally felt in the US that China has not been doing enough to stimulate internal demand – the number of consumers is no bigger than Italy while the population is 20 times that of the European country – and that the situation has been worsened by the decision of the Chinese government to peg the Yuan to the US dollar, thus effectively undertaking a devaluation.

Should China’s export drive remain as a major contributor the country’s economy, the accumulation of reserves by 2020 will be bigger than that of Germany, Japan and the Middle East countries put together. America’s response could be to return to a more isolationist policy by slapping import duties on Chinese products or getting China to open its doors to greater exports of US products.

Both China and India have to contend with an extremely large population. In fact, they are the only two countries with a population of over 1 billion persons. Economic development has brought, to both countries, an uneven distribution of wealth to the extent that social disruptions can be feared in the future.

China has become the world’s second largest oil consumer and it is likely that it will surpass the US to lead the world in energy use. Imports which represent 50% of consumption are likely to rise to reach 80% in another 10 – 15 years particularly considering the oil intensity of economic growth is particularly high, as in most developing countries. Thus, for each 1% growth in GDP, the country needs 1.2% additional oil.

In fact, China is the world’s fast-growing energy user, Russia is the most inefficient user of energy and he US is the country with the largest carbon footprint.

China is also the world’s largest consumer of several raw materials.
The country’s search for natural resources has been done in a predatory way, and there is fear that, backed by its staggering reserves, it could encourage suppliers to increase prices at levels beyond those acceptable to a large number of other users.

India’s energy requirements are expected to grow by 30% in the next 3 to 5 years and its imported crude oil dependency is expected to reach 95% by 2025.

India depends for 50% of its energy needs on coal and increasing its use would create major environmental problems.

Its gas suppliers are considered to be relatively unreliable and include Bangladesh, Iran, Myanmar and Turkmenistan.

This situation has encouraged India to pursue the road to nuclear power.
Such growth in raw material requirements is not sustainable and is strategically dangerous.

Both China and India have very large armies (in fact the largest in the world) and nuclear weapons.

Japan is also a major energy importer, relying entirely on imports for oil. Japan has an important stockpile of energy products, and it has encouraged other Asian countries, including China, to jointly plan the stocks and their administration.

Indeed, Asia’s energy needs are expected to double in the coming 20 years. In spite of this, OPEC countries do not seem to be prepared to invest in increasing production, in large part because of the massive funds required. They have been estimated by McKinsey to be of the order of $ 45 billion a year over the next three decades.

The countries in the area perceive themselves as rivals in securing energy sources and China, particularly, has shown an eagerness to develop partnerships, whether through limited investments, or through political support, in the United Nations, of countries like Iran.

Hydrocarbon reserves in the China Sea are claimed by several countries, and are a growing point of contention. Neighboring countries are fearful of China’s rising military power and have led them to develop closer relations with the US.

In an effort to temper their competition, India and China have made some joint bids to buy and share oil fields.

Japan too is dependent on energy imports and has recently been unlucky with their supply sources. Thus, they have had to curtail their investments in Iran, Kuwait, Russia and Saudi Arabia.

To counterbalance these losses, Japan has offered Saudi Arabia the possibility of building oil-storage facilities in Okinawa, provided Japan can have access to them in case of emergency.

A closer rapprochement between the two countries depends, however, on the US’ willingness for this to take place as the Saudi monarchy depends on the US military shield against the rising threat of Iran and of the djihadists, and there is no way Japan can replace the US in that role. This, in spite of the fact that Asia is today, by far, the largest buyer of both Saudi and more generally, Middle Eastern oil – up to 60% and 70% of their exports, respectively.

Reliance on Russia for energy is therefore extremely important. While a pipeline is being built from Siberia to the Pacific that could partly alleviate these escalating needs, a number of other pipeline projects have been proposed. All these projects require large investments ($ 1-2 million per kilometer of pipeline or around $ 12 billion for the pipeline that will link Russia and China), long delays in building and face substantial political and ecological problems. Further, the gas transmission systems in China and Japan are under-developed and therefore not suitable for the transport of large quantities of imported gas.

Russian industry has access to gas supplies at prices substantially below those practised on world markets and has therefore become a voracious user. The Russian government will be increasing prices for domestic consumption, including for private heating, and / or turning to alternative energy sources such as coal, hydro-electric or nuclear power.

Other possibilities have also been considered, but they all depend on Russia’s cooperation.

Thus, for instance, integrating the energy grids of Russia with those of China, Japan and the two Koreas has been proposed to enable the exchange of seasonal surplus.

This entails not only Russia’s cooperation, but also North Korea’s. It also requires large investments, although possibly not of the scale of building a pipeline network.

Another common point between the China, India, Japan and South Korea is that they constitute, jointly, the world’s largest weapons market and their suppliers are the European Union, Russia and the United States.

China and Japan also share the will to stop North Korea’s nuclear program.

The two countries are also large emitters of greenhouse gases.

Both China and Russia fear, perhaps rightly so, that the US is conducting an encirclement strategy due to their military presence in Central Asia as well as, in Japan, South Korea and Taiwan as far as China is concerned, and Russia is concerned with a possible NATO expansion in Europe.

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Economy

BRICS acts as a collective will to safeguard global multilateralism

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Authors: Zhou Dong chen &Francis Kwesi Kyirewiah*

On November 13-14, the 11th BRICS Summit was held in Brasilia, capital of Brazil, where Chinese President Xi Jinping alongside the leaders of Russia, India, South Africa and the host country—Brazil—met and discussed the issues of global and regional dimensions. According to the data in 2018, the BRICS member states have already accounted for 23.6% of the world economy (GDP) and nearly 20% of all world trade, in addition to contributing more than half of all global economic growth. Now, as it enters the second decade of cooperation, BRICS aims to enhance intra-bloc cooperation covering all economic, political and security cooperation as well as cultural and people-to-people exchanges. Can the BRICS members stand together in international affairs?

The concept of the “BRIC” came to the limelight in 2001. Since then, it is argued that the relative size and share of those countries in the world economy has risen exponentially, and most likely it would gradually imply that the G7’s economic hegemony would be rearranged. Scholars like Dominic Wilson further echoed this in his study on “Dreaming with BRICS: The Path to 2050”. He put it that, in all likelihood, by 2025 the BRICS could account for over half of the size of the G7 in terms of GDP. And in less than 40 years the BRICS’ economies together could be larger than the G7.

Although it was debatable, the key assumption behind all the discourse is that China and India have risen as the world’s principal suppliers of manufactured goods and services, while Brazil and Russia are already becoming equally dominant as suppliers of raw materials.In addition, what the BRICS have in common is that they all have an enormous potential consumer market, complemented by access to regional markets and to a large labor force. Wilson argues that three key issues the BRICs have to embrace for their partnership development are as follows: Inclusive growth, sustainable solutions and foreign policy consultations in the post-Western world. Echoing his discourse, Andrew Hurrell put it, “since all the BRICS nations are now members of the G20 which is a major symbol of the structure of global governance, the bargaining power of the BRICS vis-à-vis US-dominated global institutions is inevitably growing.”

It is quite coincident that during the 2017 G20 Summit in Germany, the leaders of the BRICS held an informal meeting reaching key agreements on building an open world economy and improving global economic governance. On the occasion, Chinese leader called on that the BRICS itself would establish an open economy, maintain a multilateral trade system and advance inclusive, balanced and win-win economic globalization with a view to making the fruits of economic growth accessible for all people. There is no doubt that the BRICS countries also have their own internal challenges and external divergences on many issues. Yet, the central point of the role of the BRICS in global affairs is not where the world order is now, but where it will be in the near future, say by 2050.Building on the common sense that “a shared voice is stronger than a single shout”, the emerging powers are well-aware of the closer cooperation among them and even beyond in order to push forward their own agenda.

Yet,  no matter which theory, realism or constructivism, is used to assess the BRICS, it is unlikely the bloc having moved to a geopolitical organization like NATO, but only a new-typed geo-economic forum that incorporates a strong component of people-to-people relations between institutions and individuals. Two of its main goals are as follows: to bring people closer together through socio-economic means, and to take a constructive part in settling geopolitical flashpoints. As such, the BRICs is generally regarded inclusive and its members are willing to cooperate with other countries or institutions that share their interest in making the world a fairer, and therefore a better place. In line with this spirit, the BRICS, though a grouping of five major emerging national economies, aims from its inception to establish an equitable, democratic and multilateralism-based world order.

If the first decade of the BRICS has formalized its existence and also represented many opportunities for the 21st century, the key concern remains how to turn the bloc into a functional grouping rather than just a global forum in the next decade. Strategically, it is vital for the BRICS to become a knowledge base for other developing countries, such as the areas of solar energy, ethanol products, urban landscape development, slum alleviation and biotechnology use, and share their best practices with southern countries. To that end, it is essential for the BRICS to act and talk differently from the G7 and other Western institutions, which are deemed to retain economic hegemony over the vast developing areas. Put it more bluntly, the BRICS should be committed to multilateralism, human development and social welfare in accordance with UN charters and the relevant resolutions.

Given this, looking ahead into the next decade, the BRICS is supposed to follow this line as proposed by Xi when he addressed the current global challenges such as unilateralism and protectionism, and he called on BRICS countries to champion and practice multilateralism. Thus he put three-point suggestions as follows: first, he urged the five members to safeguard peace and development for all, uphold fairness and justice and promote win-win results. Globally, it is vital for the BRICS to uphold the purposes and principles of the UN Charter and the UN-centered international system, which rejects any sort of hegemonic order and power politics and take a constructive part in settling geopolitical issues.

Second, the BRICS en bloc should pursue greater development prospects through openness and innovation. Therefore, it should uphold the WTO-centered multilateral trading system and increase the voice and influence of emerging markets and developing countries in international affairs. In addition, BRICS member states should prioritize development in the global macro policy framework, follow through the UN 2030 Agenda for Sustainable Development and the Paris Agreement on climate change. All in all, the BRICS makes all efforts to promote coordinated progress in the economic, social and environmental spheres. Third, in a long run, the BRICS needs to be more proactive in promoting mutual learning through people-to-people exchanges and take their people-to-people exchanges to greater breadth and depth. Xi did indeed appeal to other four partners that “BRICS Plus” should serve as a platform to increase dialogue with other countries and civilizations to win BRICS more friends and partners.

This is a truly strategic proposal. People agree that the next decade will see accelerating change in global patterns of economic growth, development, and governance. The BRICS can achieve a second golden decade if they can remain united and work together in the face of the challenges and opportunities to come. Although all BRICS members have no intention to challenge the status quo which is still dominated by the U.S.-led globalization system, the first decade of self-discovery of the BRICS has paved the way for the second decade of confident outreaches to other countries and institutions and will predictably see the new bloc becoming a powerful global platform for change by 2029.

In summary, the huge potentials of the BRICS are far beyond the current five powers. In effect, Valdai Club, a Russia’s top think tank, once put it, the BRICS starts by bringing together the regional integration groups that each country is a part of (e.g. Russia, the Eurasian Economic Union, Brazil and Mercosur) through the BRICS+ framework in order to broaden its reach in the most realistic way possible without overextending itself. In view of its one-decade vicissitude, it can say that this visionary outlook is definitely doable since all the BRICS members certainly have the political will to pull it off, plus their combined economic power is attractive enough to naturally make their counterparts interested in cooperating. The BRICS could therefore transform into the core of a larger global reform structure bringing together non-Western countries and even those within the West that are dissatisfied with the U.S.-led status quo, which would then enable it to truly become a global force capable of carrying out meaningful development governance. It has actually exercised a positive impact on each of its five members, so it’s time to spread the benefits beyond the original five. Considering the second decade of its development, the BRICS would aim to make further reform in terms of the fairer governance.

*Francis Kwesi Kyirewiah, a PhD student in International Affairs, at SIPA, Jilin University, China.

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CHETRA Eyes Africa for Expansion

Kester Kenn Klomegah

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CHETRA is a Russian company that sells industrial equipment and spare parts under the brand “CHETRA” produced by the Promtractor plant, as well as supplies spare parts and components from the company. It uses a unique technique in the construction of production sites, seaports, development of natural resources and pipelines in 30 countries and in all climatic zones.

The goal is to provide its partners and customers with modern high-performance equipment for successful projects, even in areas with complex climatic and geological backgrounds. More than 3,000 units of equipment under the brand “CHETRA” are now in operation in the Russian Federation and beyond.

Executive Director Vladimir Antonov has been working in engineering industry for 19 years. He has successful experience in product export to the CIS countries and Ukraine, the Baltic States, Europe, Argentina, Africa and Cuba. He has been leading company as its Executive Director since 2018. During his leadership, the share of the company’s machinery in the Russian market has doubled.

In this snapshot interview, Vladimir Antonov talks about his company’s plans in the direction of Africa. Here are the interview excerpts:

Q:First, tell us briefly about tPlants previous working connection with Africa? What are your products and services, what African regions or countries are keen using products?

A:Our company has a long experience of cooperation with African countries which began in the Soviet times and continues today. Traditionally we collaborate in the African continent with such partner countries of Russia as Egypt, Algeria, Zimbabwe. About 50 units of CHETRA machines have been supplied to these countries over the last ten years. Our goal is to enlarge our footprint in the African continent. Nowadays, we are negotiating cooperation with potential partners in West Africa and the SADC region (Southern African Development Community, South Africa).

Q:Compared to other foreign players, how competitive is the African market? From the previous experience in the African regions, what key problems and challenges the company faces in Africa?

A:Today the market of mining and construction equipment in Africa is characterized by high competition, all our competitors work in the region, both from the West and from the East. This has led to the fact that the market applies high requirements to new products. For that reason today we do not just sell our machines to customers: we offer a range of services, which includes commissioning of the machines, training of local staff, organization of after-sales maintenance service at the customer’s site. The main challenge for us today when working in Africa is the need to find a local partner who has qualified staff, equipment, maintenance facilities and not bound by contracts with other manufacturers of similar machines.

Q:What kind of business perceptions and approach could be considered as impediments or stumbling blocks to business between Russia and Africa?

A:Another challenge for us when working in Africa is that many consumers have no free funds to purchase new machines. This often diverts our partner from the renewal of the fleet or makes them buy used machines on the after-market. We are trying to solve this problem by attracting Russian government agencies of export support, such as the Russian Export Center, in order to finance transactions. 

Q:Business needs vital information, knowledge about the investment climate and so forth. Do you think that there has been an information vacuum or gap between the two regions?

A:Taking into account the level of development of information technology today there are no particular problems in obtaining information about the investment level of any country or about business situation of a particular company. Besides that, we are in constant contact with Trade missions at the Embassies of the Russian Federation in the countries of our interest, which are also a good source of information about the conditions of the market.

Q:And now how would you envisage the level of investment and business engagement with Africa? Is Sochi an opportunity for expanding business to Africa?

A:In my opinion the Economic Forum in Sochi was organized at the highest level. A lot of guests from Africa visited it. We held a number of meetings with companies that are new to us, and I hope that these will lead to long-term cooperation and geographic growth of supplies of CHETRA machines in Africa.

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Economy

The Bust: WeWork’s diminishing stature of the perfect “start-up”

Sisir Devkota

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Until recently, the globally acclaimed startup, WeWork was transforming the future of office spaces and staff hiring processes. Truly, it was transformational in the sense that the startup was providing a vital service point to many multinationals around the world. However, Mark Dixon, the cofounder of IWG, another workspace solutions company, was not getting the trick. Here was IWG, a decently profitable startup with consistent annual growth, still unable to compete with the superstar of the industry. Soon after SoftBank poured cash into the company, WeWork was valued for more than $40 bn. Then, it was making headlines for overwhelm; now, WeWork is in a state of awe. As market reports suggest, WeWork even lacks the cash to fire its existing employees.

As Adam Neumann, the chastened cofounder of the dwindling company once proclaimed, co-working was the future and that employees would prove to become more productive and efficient. In his own words, different cultures and organizational goals would inspire the entire floor. Much as the concept is about renting an office space, Mr. Neumann deliberately did not elaborate on the nuisances of dealing with office neighbors, as seen from a tenant’s perspective. The idea would have charmed many organizations; it was a great opportunity to redeem operating costs or dealing with unwarranted office culture problems. Or, as many renting executives thought, WeWork would define the ground rules, aptly in accordance with global standards. For many, it was also an experiment for the future. Also, nobody could take away the fact of losing varied insights from “not” participating in what at first seemed like a once in a time revolution.

SoftBank, a Japanese conglomerate investing fund is writing the most important plot in the story. Strangely, both the rise and fall of WeWork has been catalyzed by SoftBank. However, the fact that WeWork was blessed by an investing fund is not strange, or surprising. Amongst sovereign funders, there is competition to stay one foot ahead of another. The Europeans have long stressed on how very few startups from their region go onto becoming a global giant. SoftBank’s associations elsewhere is a testimony to its deliberate strategy of staying ahead in the future. Notwithstanding the fact that the Japanese investors would have loved the idea of co-working space more than others. In early 2017, WeWork’s market value, shot over $40 bn, even though the company was registering profits below what Mr. Dixon’s firm were accounting to. There was a strange gossip in the market around why other investors were not jumping to what the SoftBank deemed as highly profitable. For many like Mr. Dixon and other investors, answers were soon to be found. If it could only be timely, Japanese angels would have anticipated why Mr. Neumann would sell his rights of the name, “We” in WeWork. It was a five million dollar (plus) exit for the charismatic man, whose venture was taken over by those who thought of multiplying their fortunes. SoftBank will be sorry for its decision to trust the hierarchy in Mr. Neumann’s leadership. Nevertheless, post takeover, Mr. Dixon will not be contemplating any further on why it has decided to appoint two CEO’s. Nor will there be any sort of contemplation on why the new appointees have secured their severance package before paying out dues.

As it stands, IWG is not doing a bad business in comparison to WeWork’s downfall. The American start-up was destined for success from its early years. Co-working will still be a grand idea in our times but filthy abundance in a short period of time has brought a winning project to a standstill. There will be other co-working competitors for IWG, but it will learn from the mistakes of a competitor who was bigger than the entire industry. If anything, Mr. Dixon will be smelling opportunities ahead.

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