Global Economies

Afghanistan in Transition: Great Opportunities and Challenges

Brussels Center Holds Panel Discussion and Releases In-depth Report 

The EastWest Institute’s Brussels Center convened a roundtable discussion on “Afghanistan in Transition” on June 11. EWI organized the event to assess the county’s current political and security transitions prior to the final round of presidential elections on June 14 and to launch the institute’s latest report, Afghanistan Reconnected: Regional Economic Security Beyond 2014, which focuses on the great economic opportunities and regional challenges the transition offers.

“EWI will move the Afghanistan reconnected process forward by giving a major role to the private sector in 2014 and beyond,” said EWI’s COO James Creighton.  “We will make sure that projects and recommendations mentioned in the report are endorsed by the business community and members of parliament. We will undertake regional advocacy in order to sustain the momentum we have created in 2013.”

The ambassadors of Afghanistan and Tajikistan; senior diplomats of permanent missions of foreign states to the European Union; and representatives of the European Union, science-policy research centers and non-governmental organizations attended the roundtable. Panelists, including the Economic Minister of the Pakistan Embassy Dr. Safdar A. Sohil. applauded the report and EWI’s effort to stimulate regional economic cooperation.

Ambassador of Afghanistan to the European Union, Belgium and Luxembourg, H.E. Mr. Homayoun Tandar, tackled the issues first, stressing that Afghanistan’s security situation has improved, and that the country offers great opportunity for investment and regional cooperation.

Tandar emphasized that the Afghan security forces are capable of ensuring security for future investment in Afghanistan’s untapped natural resources, notably gas and mining. The security provided by the Afghan security forces in the first round of elections was a good sign of their capabilities according to Ambassador Tandar.

“In a relaxed atmosphere, roughly 7 million of Afghani have cast their votes on the April 4 first round of elections; at least the same number of people took part in last Saturday’s, June 14 second round,” said Tandar. He noted, however, the challenge will be to financially support the security forces, as they will take full responsibility from the International Security Assistance Force (ISAF) on December 31, 2014. Tandar also stressed that the cooperation with Pakistan is crucial for regional economic development and stability.

H.E. Mr. Rustamjon Abdulloevich Soliev, ambassador of Tajikistan to Belgium, the Netherlands, Luxembourg, the European Union, NATO and UNESCO then proceeded to express the position of Tajikistan, a neighbor to Afghanistan with 1400 kilometers of common borders.

There are number of initiatives and projects where Tajikistan can help Afghanistan navigate through economic transitions. In the energy sector, Tajikistan can be a reliable energy supplier to both Afghanistan and Pakistan. The CASA-1000 regional project allows Tajikistan and Kyrgyzstan to sell surplus hydropower to Afghanistan and Pakistan. Afghanistan’s infrastructures and transport systems are essential to boost its trade and to take full advantage of its key location as a landbridge between South and Central Asia.

Dr. Safdar A. Sohail, economic minister, Embassy of Pakistan to Belgium, underlined that Afghanistan’s position should allow it to become a transit road from Europe to China. No country should be excluded.  Solving common issues by dialogue is still a challenge, with zero-sum game thinking still prevailing. These roadblocks need to be overcome. It will be otherwise impossible to move common projects forward in any meaningful way.

At the conclusion of the event, a Russian delegate affirmed that the stability and security of Afghanistan is in the national interest of the Russian Federation. The delegation said that their country is ready to share the burden of participation in regional projects aimed at stabilizing Afghanistan and the countries around it. Final remarks highlighted agreements among participants on the need for trust and confidence building in order to secure foreign long-terms investments. All agreed that a tremendous potential for energy and trade is possible, but the lack of local funds and resources could hamper full economic development, both internally and regionally, with negative consequences for all players involved.

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Click here to read Afghanistan Reconnected: Regional Economic Security Beyond 2014.  

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Afghanistan Reconnected: Regional Economic Security Beyond 2014

EWI's latest report—a culmination of two years work—illustrates how regional collaboration would strengthen economic, political and social ties between Central Asia and South Asia and contribute to a more stable Afghanistan in 2014 and beyond. 

Afghanistan’s economic development is at a critical and exciting juncture as international troops withdraw at the end of this year, and the country elects a new president. The EastWest Institute Brussels Center proudly presents Afghanistan Reconnected: Regional Economic Security Beyond 2014, which focuses on the economic opportunities of the country’s transition from a security and aid-dependent economy to one reconnected to the region. This report’s findings are the culmination of four meetings organized by EWI, which occurred in Istanbul, Islamabad, New Delhi and Berlin, over the last two years, on cross-border economic challenges and opportunities. These engagements enabled leaders from Afghanistan, Pakistan, India, Turkmenistan, Iran, China, the European Union, the United States and other nations to exchange ideas, identify opportunities and clarify obstacles to growth.

Afghanistan’s considerable prospects exist in agriculture, in mining and as an energy transit hub at the crossroads of Asia, through which resources can pass to the fast-growing markets of East and South Asia. 

“Afghanistan has billions of dollars of mineral resources, such as iron, copper, gold, rare earths, lithium, which can be an important foundation for economic development,” EWI’s Chief Operating Officer James Creighton said. “The prospects for hydrocarbon industry development, mining sector growth and trade and transport expansion are recognized as sources of tremendous potential,” Creighton added.

He also stressed that the prospects for business development in these sectors combined with an energetic, increasingly educated and young population offer a climate for positive change.  

“We wanted to generate knowledge and interest in the region in Afghanistan’s economic potential and highlight the win-win potential,” Ambassador Dr. Beate Maeder-Metcalf, EWI vice president and director for Regional Security, said. 

EWI engaged high-level stakeholders—decision-makers from the government and the business sectors—to revitalize economic cooperation within the region. The World Bank and the European External Action Service participated at these meetings, stressing the transformative potential of this opportunity, including access to new markets, enhanced energy security and greatly increased job opportunities for the entire region.

Afghanistan Reconnected illustrates how this regional cooperation and collaboration would strengthen economic, political and social ties between Central Asia and South Asia and contribute to a more stable Afghanistan for years to come.

Read the one-page executive summary.

Click here to download the report. 

China-Russia Gas Deal is More Practical than Political

On May 21, Presidents Putin and Xi Jinping signed a $400 billion Russian–Chinese gas deal in Shanghai. According to the contract, Gazprom will supply the China National Petroleum Corporation (CNPC) via Power of Siberia gas pipeline with 38 billion cubic meters (bcm) over 30 years, from 2018/2020. Gazprom’s largest contract will be based on the supplies originating from the Kovykhta and Chayanda gas fields in Eastern Siberia. The project will cost $75 billion, with the Chinese share amounting to $45 billion ($20 billion—in direct investment and $25 billion in pre-payment for the Russian gas). Gazprom will have to spend $30 billion on this project, which is already labeled the largest construction site in Russia.  The deal is frequently seen as a skillfully planned political response to the sanctions imposed on Russia by the U.S. and the EU, and also as a means of diversifying away from the European energy market. While these considerations indeed played a significant role in an expedient conclusion of ten years of negotiations, it is possible that they were not the key arguments that closed the deal. In reality, it may be that commercial and geographic interests played a greater role than pure politics did.

There are six factors that played key roles in the rapid advancement of this deal:

1. “It is geography, stupid.”

According to the contract, Gazprom will supply the China National Petroleum Corporation (CNPC) via Power of Siberia gas pipeline with 38 billion cubic meters (bcm) over 30 years, from 2018 through 2020. Gazprom’s largest contract will be based on the supplies originating from the Kovykhta (number two on map) and Chayanda (number three on map) gas fields in Eastern Siberia. The project will cost $75 billion, with the Chinese share amounting to $45 billion ($20 billion—in direct investment and $25 billion in pre-payment for the Russian gas). Gazprom will have to spend $30 billion on this project, which is already labeled the largest construction site in Russia.        

Why go to China? One reason is that East Siberian gas is too far away from Europe. Local gas demand is too low to justify development of the Chyanada and Kovykhta fields with a total reserve base of over 3 trillion cubic meters (tcm). China, with its booming economy and rapidly increasing usage of natural gas, seems to be the perfect client for Gazprom. 

The geographical imperative also played an important role in China’s decision to go ahead with the gas deal— Power of Siberia will go directly into the northeast China with a particularly high natural gas demand. Furthermore, security of supplies plays an important role in China’s “energy thinking.”  Most of the gas imported by Chinese energy companies is either shipped/transited from potentially unstable Central Asia or transported in the form of liquefied natural gas (LNG) via unprotected sea-lanes and easily lockable “choke points.” These choke points include locations such as the Ormuz Strait in the Persian Gulf or the Strait of Malacca in the Southeast Asia. Therefore, from a security of supply point of view, Russian gas allows China to mitigate the transit/transport risk and to diversify the imported energy supplies.     

2. The ”Gas Glut” in Russia and Europe pushes Gazprom towards new markets in Asia.

Russia’s internal market is oversupplied with natural gas, with the glut amounting to about 20 billion to 30 billion bcm (billion cubic metres) of supply per year. Several factors have contributed to this surplus: Slower industrial growth, particularly in Russia’s energy-intensive industries, sent annual gas consumption sharply down. In 2011, demand was 496.3 bcm, compared to last year’s record of just 456.3 bcm. While Gazprom’s exports to Europe rose unexpectedly last year to a record of 162.7 billion cm, it continued to shed market share in Russia, which fell by about 6 percent during the course of 2012. Gazprom’s Chief Executive Alexei Miller even indirectly admitted the existence of under-used spare production capacity, when he said the company’s output capacity could be rapidly increased by 130 bcm/year.

European gas markets are also over-regulated, and EU internal gas consumption is unlikely to grow fast, at least in the years to come. Present market conditions coupled with often-excessive subsidies for renewables renders the immediate future for gas in Europe rather bleak. On the contrary, natural gas consumption in Asia is set to grow as the region’s economies expand. Asian customers are often happy to pay higher prices and even provide necessary investment for the upstream hydrocarbon projects in order to attract additional supplies.    

3. Russia’s trade deficit is offset.

China is Russia’s single largest trade partner. The trade between the two countries accounted for $90 billion in 2013, and is set to increase to $200 billion by 2020. Russia has a surplus in trade with its main commercial partners—the EU, Turkey, Ukraine, the U.S. and Japan—but not with China. In 2013, Moscow had a $10 billion trade deficit in its trade with Beijing and this gap is rapidly widening. Gas exports to China which would easily reach $13-14 billion a year will help to offset growing imbalances in the trade relations between the two countries.  

4. Lack of clarity exists on prospects for a rapid shale gas revolution in China.

In 2012, the Chinese government released its Five-Year Plan for the development of unconventional gas, setting ambitious production targets. Shale gas production is set to grow from 6.5 bcm per year in 2015 to at least 60 bcm per year in 2020. However, at present only two companies—China Petroleum & Chemical Corporation (Sinopec) and a joint venture between Royal Dutch Shell and CNPC—have made visible progress with a total of 100 wells drilled in China. The progress in shale gas development is being compromised by the difficult geological structure of China’s shale gas reservoirs, lack of water supplies for fracking activities and insufficient technological base. Furthermore, China’s gas consumption is growing at a faster rate than forecasted—the country’s natural gas use increased by 13.9 percent to 167.6 bcm last year and this number is expected to reach 186 bcm by the end of 2014. In these circumstances, Beijing is forced to use all possible sources of gas, whether they might be domestically produced or bought abroad.

5. The gas deal sets LNG “Price Floor” for China and helps grow the Russian economy.

China is expected to pay for Russian gas at a rate of $10.5 - $11 per million British thermal units (BTU) or $370-$390 per thousand cubic meters. This is significantly cheaper than what Chinese companies are currently paying for their LNG imports. The LNG import price in northeast Asia oscillates between $13.5 and $19.7 per million BTU—affordable Russian gas supplies increases Beijing’s bargaining power vis-à-vis liquefied gas exporters, potentially forcing them to lower gas prices.

Russia's economy will also benefit from this deal. According to Bank of America’s report released on May 27, 2014, and the Moscow business daily paper Vedomosti, the Russia-China gas project will boost investment in Russia’s economy and might increase its’ GDP growth to 2.1 percent in 2015.

6. The Growing Strategic Significance of China’s Economy.

This agreement, conditioned mostly by economic and geographical imperatives, highlights the growing strategic significance of China’s economy. Traditionally Soviet and Russian policies were Euro-centric, which reflected the key role the Euro-Atlantic region had played in the world affairs since the 16th century. However, in the last decade the power and economic balance was rapidly shifting towards the Asia–Pacific region, with China becoming the world’s second biggest economy. Washington was quick in responding to this shift, by partially “switching” to Asia. Until now Moscow had little to offer except rhetoric. Last year’s Rosneft deal and Gazprom’s contract were the first real steps towards this new Asian policy.        

Indeed, it would have been strange to see two neighboring countries—the world’s largest energy consumer (China) and the world’s largest energy exporter (Russia)—being engaged in anything other than a  full-scale energy trade. The deal also proves that all is not lost for pipeline gas, as it could still compete with LNG. The China-Russia deal revived Tokyo’s interest in building a pipeline link between Russia’s Sakhalin Island and Japan. The project could lower Japan’s energy bill substituting LNG supplies with a less expensive pipeline gas.

Photo credit: greg westfall via Flickr 

2014 - Afghanistan in Transition

Overview

On the eve of the second round of presidential elections in Afghanistan, the EastWest Institute is organizing a panel discussion on "2014 - Afghanistan in Transition."

EWI Releases 2013 Annual Report

Our 2013 Annual Report highlights EastWest Institute’s accomplishments of last year. The institute’s goal of building cooperation and forging real solutions to daunting international problems continues to be as relevant as it was at its founding more than 33 years ago.

President and CEO John Mroz states in his President’s Report,  “It is clear that the East and West must work more closely with one another to address issues that affect us all, and establish a new world order that reflects current economic, military and political realities. We have recently seen the dangers when this does not happen.” He emphasizes EWI’s continued key role as a bridge between major powers. 

This report summarizes, among other key efforts, the expanded scope of EWI’s Global Cooperation in Cyberspace program, a cornerstone of the institute’s work. Our Regional Security Initiative continues to push for private and public sector collaboration in Afghanistan and the surrounding region, securing a peaceful, prosperous transition post-2014 troop withdrawal.  Our ongoing U.S.- China high-level dialogues continue to explore ways to manage critical differences over Taiwan, cybersecurity and regional tensions, and we released a well-received Taiwan arms sales policy recommendation that presents a creative way forward to reduce cross-Strait military tension.

In 2014, EWI is forging ahead with these and other conflict reduction initiatives. We are deeply grateful for the continued support of our board, advisors and donors. 

Amb. Sibal on Modi's New Indian Foreign Policy

India's election of Narendra Modi and the Bharatiya Janata Party (BJP) party brings with it a new foreign policy approach. Writing for MailOnline India, EWI Board Member Amb. Kanwal Sibal offers his opinion on Modi's potential policies across a range of issues. Amb. Sibal was a member of the Indian Foreign Service who went on to serve as the country's foreign secretary. 

Read the full story here on MailOnline India.  

 

Foreign Ties will Blossom Under the New Modi Government 

The BJP's massive electoral victory brings us foreign policy gains. The prospect of a strong and stable government in India makes our external image more positive.

Other countries could conclude that the new government will have a more self-confident foreign policy, and will defend the country's interests with greater vigour. Since the BJP is widely characterised at home and abroad as a Hindu nationalist party, it will be assumed that the Modi-led government will be more "nationalistic" in its thinking and actions, and will pursue national goals more sturdily. 

Decisive

Notwithstanding their rhetoric about India's global role, big powers have for long seen us as a country too preoccupied by internal problems to be able to act on the international stage sufficiently energetically. 

Issues of poverty and managing our complex diversities apart, coalition politics in India has been seen by our external interlocutors as contributing to governmental delays in decision making and failures in implementation even in the foreign policy domain. Modi's personality gives us cards to play externally with advantage. He is seen as a strong and decisive leader, committed to making India vibrant economically, and more secure. 

For those eyeing more economic engagement with India, Modi's development agenda offers greater investment opportunities. For those seeking more engagement on security issues, Modi's India will appear as a more confident partner. For adversaries, habituated to passive and defensive responses to deliberate provocations, the likelihood of a less tolerant Indian response under a Modi-led government might induce rethinking on their part about the price they may have to pay for aggressive or assertive policies. 

These real and psychological advantages that India obtains under Modi's leadership should not be frittered away needlessly. Prudence and "responsible" conduct are often used as a cloak to cover diffidence and timidity. There will be those who would advise that having won such a massive mandate, with all the political strength that comes with it, a Modi-led government, burdened by a negative ideological image that worries sections at home and abroad, should send re-assuring signals to all. 

There should be no requirement for this, as it is India that has been long sinned against. Sections of our political class, intellectuals and media personalities have done great disservice to the country by their incessant vilification and demonisation of Modi, making untenable historical parallels with the rise of fascism in Europe and making egregious references to Hitler and abusively using words like "genocide" to castigate him.

Initiatives

That otherwise sensible people should have for so long lost all sense of proportion remains a puzzle. Maybe they felt their self-esteem rise in proportion to their revilement of Modi. This calumny of Modi has naturally coloured outsiders' views of him, which explains the negative commentaries on him in the liberal western press. 

Modi's exceptional mandate, however, is derived from the masses of India, and they have chosen him for what he is and stands for, unbothered by the obloquy of his detractors. 

Questions are being asked as to what "initiatives" Modi could take on the foreign policy front now that he has got a strong mandate. This suggests it has become somehow incumbent on the new government to prove its credentials in some way to the international community. It also carries the nuance that India could not meet the expectations of select countries because his party hobbled the choices of the previous Prime Minister. 

A feeling also exists that the previous government missed opportunities and was too passive in its foreign policy, a situation that the new government should redress. The sub-text of most such criticism is that India failed to live up to US expectations and allowed the relationship to slip into a lower gear, besides not being able to push the then prime minister's vision of peace with Pakistan. 

Assertiveness

Not having engaged in any provocative act against either China or Pakistan, India would be right to wait for China and Pakistan to signal a change of thinking towards it. In reality, repeated provocations have come from their side, which the previous government preferred, in China's case, either to downplay or not counter, or, in Pakistan's case, avoid retaliation in order not to have to admit the failure of the policy of engagement despite terrorism and Pakistan's enduring hostility towards us. 

China's assertiveness on the border will have to be watched, especially because its conduct in the South China and East China Seas flashes red signals to us that at a time of its choosing its posture towards us can suddenly harden.

The recent signals from Pakistan have been uniformly negative, whether on Kashmir, curbing anti-Indian religious extremists, trade and water, and these have been capped by the expulsion of two Indian journalists despite the much touted media role in improving relations as signified, for example, by the "Aman ki Asha" initiative. Nawaz Sharif's congratulatory message to Modi should be taken as a routine diplomatic exercise, with the invitation to visit Pakistan as a way of making himself look good and win an easy diplomatic point.

Our relationship with the US remains very important, but to reinvigorate it the US should not let short-term transactional considerations take precedence over the logic of the strategic relationship. Modi being the sole victim of the US legislation on religious freedom, the White House should be issuing an Executive Order to annul the State Department's decision to blacklist Modi in the first place. 

While Obama's gesture of telephoning Modi and alluding to a Washington visit by him can be appreciated, the fact that as Prime Minister he can now obtain an "A" category US visa does not erase the original insult.

Photo Credit: Al Jazeera English via Flickr. 

Gady Interviewed on U.S.-China Cyber Espionage Case

Senior Fellow Franz-Stefan Gady was interviewed on Southern California Public Radio about U.S. cyber espionage charges against China. 

Larry Mantle and Gady discussed justifications for the Justice Department's charges alleging that Chinese hackers targeted U.S. corporations. "Both China and the U.S. have an interest in de-escalating tensions in cyberspace," said Gady.  

Listen to the full interview here on 89.3 KPCC. 

Photo credit: Chuck Hagel via Flickr. 

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