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      Why Is Foreign Investment Flooding Into India?

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      For years, India suffered from what came to be called the “Hindu rate of growth” — a result of Jawaharlal Nehru’s policy choices. India’s first prime minister had a fascination for the Soviet Union and championed socialism. In India, this socialist economic model was incongruously implemented by a colonial bureaucracy with a penchant for red tape.

      Consequently, the license, quota and permit raj, a system in which bureaucrats commanded and controlled the Indian economy through byzantine regulations, throttled growth for decades. Once the Soviet model started collapsing in 1989, the Indian economy came under increasing pressure. A balance-of-payments crisis led to the 1991 economic reforms. Thereafter, India consistently grew at a rate of more than 5% per year until 2019.

      What Ails Corporate Governance in India?

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      During the COVID-19 pandemic, that growth has stalled. In the first quarter of India’s financial year that begins on April 1, the economy shrunk by a record 24%. Forecasts estimate that it will shrink further, although the rate of the contraction will decelerate considerably over the next two quarters. This contraction has left little elbow room for a government fixated on redistributive policies and fiscal restraint. This fixation is a hangover from the past.

      Historically, the Bharatiya Janata Party (BJP) has been more market-friendly than other political parties. In fact, the BJP broke new ground in the early 2000s by targeting and achieving a growth rate in excess of 8% when Atal Bihari Vajpayee was prime minister. Despite such high growth, the BJP lost the 2004 election. 

      Foreign Investment Hits Record Figures

      The BJP has not forgotten Vajpayee’s defeat. In particular, Prime Minister Narendra Modi has drawn a key lesson and focused on providing services to the masses. As a result, the government has focused on redistribution and taxation. It has put growth on a backburner. In 2018, the Modi government embarked upon what these authors termed Sanatan socialism, a policy that courts the poor with financial transfers and private provision of services. This strategy was vindicated by a resounding electoral victory in 2019.

      Today, COVID-19 is posing fresh challenges to the economy and to the Sanatan socialism policy. The growth slowdown in India is greater than in other emerging economies. The opposition has upped the ante and is blaming the government. Some business leaders are questioning the government’s lockdown strategy. This puts the BJP on the defensive regarding the economy.

      Yet even during such a growth shock, foreign direct investment (FDI) and foreign portfolio investment (FPI) have been pouring into India. Surprisingly, the FDI has hit record figures. In the first five months of this financial year, $35.7 billion has come into India. The FPI figures are also at an all-time high. In November, foreign investors plowed $6 billion into Indian capital markets, beating figures for Taiwan and South Korea. What is going on?

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      Three key facts explain this inflow. First, corporations from the US and the Gulf have bought big stakes in Reliance Industries, India’s biggest conglomerate. They are also buying shares in Indian companies. In effect, they are betting on future growth.

      Second, the Performance Linked Incentive (PLI) scheme has gained some traction. The purpose of the PLI is to boost electronic manufacturing in the country. So far, India has been too dependent on China. Current tensions along the border have led India to change tack and give financial incentives to companies who manufacture in-house. Players like Samsung, Pegatron, Foxconn, Wistron and AT&S have responded well to the PLI.

      Third, global corporations might be diversifying their supply chains to mitigate the risk of manufacturing exclusively or mainly in China. This strategy to tap alternative supply chains to China is widely known as China Plus One, and India might be benefiting from it.

      Modi has doubled down on an advantageous situation. Sovereign wealth funds, pension funds and organizations with over $6 trillion of assets under management attended a summit organized by the prime minister in the first week of November. In addition to Modi, India’s business leaders such as Mukesh Ambani of Reliance Industries Limited, Ratan Tata of the Tata Group and Deepak Parekh of Housing Development Finance Corporation pitched to these investors. More foreign investment might follow soon.

      What Lies Ahead?

      If investment is flowing in, what are its implications for the Indian economy? First, India will experience a growth spurt within three to four quarters from now. In recent years, private investment has been weak because of a banking crisis. Indian banks lent large sums to big borrowers who had no intention or ability to pay back their debts. This meant that they had no money or appetite to lend to bona fide businesses. A credit crunch ensued, investment suffered and so did growth. Increased FDI will reverse this trend and fuel growth by restoring investment.

      Second, India will experience job growth thanks to higher FDI. The entrance of new players and the revitalization of older ones will increase employment. The government has already instituted major labor market reforms to encourage manufacturing and other labor-intensive activities. 

      Third, increased employment could boost domestic demand, raising growth rates. These might materialize by the 2022-23 financial year, just in time for the next general election. The FDI flowing in right now might be boosting the BJP’s 2024 reelection chances.

      Finally, the record FDI is giving the Modi administration a leeway to achieve geopolitical goals. With cash coming in from friendly economies, the government is limiting economic engagement with nations hostile to India, especially in core sectors such as power, telecommunications and roads. Aimed largely at Chinese and probably Turkish entities, the move could benefit European, American and East Asian companies from Japan, South Korea and Taiwan.

      India’s new economic direction reflects the seismic shift in the global economy. The post-1991 era is over. As during the Cold War, countries are now mixing politics and business again.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in World Politics

      In Asia, a New Kid on the Trade Bloc

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      History undergoes serious change thanks in particular to slow events that fly below the media’s radar. Focusing on dramatic, immediate events, the media tends to neglect the major shifts that unfold over time. Paradoxically, slowly developing events that often go unreported tell the true story of history. Most often, the exciting, explosive events that dominate the news merely serve to accelerate longer-term trends.

      There is a simple scientific reason for this. Systems react immediately to dramatic events that occur quickly and unexpectedly. They typically mobilize their defenses to improvise a rapid reply. Rather than signaling change, such actions serve to protect and reinforce the status quo.

      The 9/11 attacks, clearly the most dramatic event of the past two decades, provoked a massive response from the US government. The effort to oppose the emergence of the new shape of terrorism appeared to mark a decisive shift in contemporary political history. The response consisted of a global military alliance intent on defending the prevailing “rule of law” and the elaboration of a powerful security state.

      Will Laos Become a Model for China’s Economic Colonialism?

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      The effort piloted by George W. Bush and Tony Blair ended up simply reinforcing the focus of Western nuclear powers on the idea that sophisticated military technology provided the key for governing the world. It confirmed and consolidated the long-term trend of building the entire Western economy and culture around the American military-industrial complex.

      Distracted by a relatively meaningless transfer of power in the US following Joe Biden’s election and other colorful events such as the comic melodrama of relations within British Prime Minister Boris Johnson’s chaotic Brexit team, today’s media have paid scant attention to one event of monumental importance that took place on Sunday. The event itself was unremarkable, but it is a powerful indicator of historical change. The signing on Sunday of the act that brought Asia’s Regional Comprehensive Economic Partnership (RCEP) into existence marked a crucial moment in a slowly evolving shift that began nearly a decade ago and will have a profound impact on history in the coming years.

      In its article on the event, Al Jazeera quotes one American expert, Jeffrey Wilson, who sees RCEP as “a much-needed platform for the Indo-Pacific’s post-COVID recovery.”

      Today’s Daily Devil’s Dictionary definition:

      Post-COVID recovery:

      The idea which some people consider to be phantasy that the global economy may some day return to normal once COVID-19 is eradicated.

      Contextual Note

      The New York Times notes that RCEP has been in the plans for eight years and describes it as “designed by Beijing partly as a counterweight to American influence in the region.” In other words, this is a chapter of a story that lives within the context of a massive and continual decades-long shift of momentum in the global economy. The center of gravity of the global economy has been silently but steadily migrating from the North Atlantic following World War II on a south-eastward course toward Asia.

      Back in 2015, Reuters market analyst John Kemp pointed to the West’s failure to sense this movement, stating that “Most western policymakers and journalists view the world economy through a framework that is 10-15 years out of date.” He further points out that “India’s economy has also started to become a major source of global growth, which will ensure the centre of gravity continues to move more deeply into Asia over the next 50 years.” Analysts who have even attempted to assess the speed of the shift appear to agree on a “rate of about 100 kilometres or more per year.” It may have accelerated since 2015, and even intensified as a consequence of the implicit isolationism of Trump’s “America First” philosophy.

      Embed from Getty Images

      Fearful of the threat to US hegemony posed by the RCEP, the Obama administration launched the Trans-Pacific Partnership (TPP), designed to eclipse the RCEP and protect some of the key historical advantages that underpinned US economic hegemony. Once Trump decided to leave the TPP, the US could no longer take advantage of its provisions to protect industrial property rights or oblige other nations to respect unified labor standards.

      The US has literally been left behind in the race to define and enforce the rules that will govern commerce and economic development throughout the Asia zone over the next 50 years. Most commentators suspect that once president-elect Joe Biden is in office, he will not in the short term make an effort to catch up. In the midst of a complex health and economic crisis, there are other priorities. But Jeffrey Wilson’s comment about “Indo-Pacific’s post-COVID recovery” reveals that Asia, under China’s leadership, today has a clear head start and can set the tone for what a post-coronavirus world will look like. This is a question every nation is grappling with. There are no obvious answers. But there can be little doubt that the world that emerges once COVID-19 is completely under control or eradicated will be very different from what preceded the pandemic.

      The Times signals the fact that “to some trade experts, the signing of the R.C.E.P. shows that the rest of the world will not wait around for the United States.” Many commentators have noted that four years of Donald Trump have convinced European leaders that depending on the ideological and geopolitical framework provided by the US is too risky an engagement. It may even transpire that, despite the intensified military cooperation between India and the US directed against the Chinese threat, as reported in this column by Vikram Sood, Atul Singh and Manu Sharma, India could eventually be attracted to the RCEP. Security is one thing. A humming economy is another.

      India could, for example, be positioned to profit from a key feature of RCEP. The Times quotes Mary Lovely, a senior fellow at the Peterson Institute for International Economics in Washington, who notes that “R.C.E.P. gives foreign companies enhanced flexibility in navigating between the two giants. Lower tariffs within the region increase the value of operating within the Asian region, while the uniform rules of origin make it easier to pull production away from the Chinese mainland while retaining that access.” Narendra Modi’s India has not yet managed to fulfill its promises to expand manufacturing in India. Could RCEP be the key to providing conditions favorable to that evolution?

      In short, the world is faced with a formidable number of variables that combine in a variety of different ways. As Brexit demonstrated, today’s political alignments can be nullified in a trice as the perception of economic opportunities and the pressure of uncontrollable crises such as the COVID-19 pandemic lead to new geopolitical configurations. Those trends are far more powerful than bilateral agreements.

      Historical Note

      Asia’s Regional Comprehensive Economic Partnership will only begin to produce practical effects two or three years down the line. But it already opens channels of communication and coordination between fifteen countries. This will not only confirm the shift of the global economy’s center of gravity but also accelerate the shift toward a new power relationship between the US and China. As the recent presidential campaign highlighted, Americans tend to see this as a binary relationship. Yet all the indicators point toward a multipolar reordering.

      The Times article reminds readers of the historical situation when RCEP was first proposed: “The prospect of China’s forging closer economic ties with its neighbors has prompted concern in Washington. President Barack Obama’s response was the T.P.P.” Trump’s action upon taking office of killing the TPP before it could be signed opened the door to the eventual 15 nation agreement, with the roles of the US and China inverted. Obama designed the TPP to allow China in through the back door. RCEP is designed to allow the US in through the back door.

      The world awaits the evolution and hoped-for denouement of a series of crises nested each within the other. However painful and disruptive, these crises have the merit of signaling the existence of a common interest for all of humanity in stark contrast with the traditional model of geopolitical reasoning based on national rivalries. It is in everyone’s interest to keep our eyes fixed on the slow but deep movements of history as well as the superficial ones that the media throw in our faces every day.

      *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Read more of The Daily Devil’s Dictionary on Fair Observer.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 150 Shares119 Views

      in US Politics

      US blocking selection of Ngozi Okonjo-Iweala to be next head of WTO

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      The US is blocking the appointment of Ngozi Okonjo-Iweala as the next head of the World Trade Organization despite the former finance minister of Nigeria winning the overwhelming backing of the WTO’s 164 members, it has emerged.
      Dr Okonjo-Iweala had moved a step closer to becoming the first woman and the first African to be director of the global trade watchdog after securing the support of a key group of trade ambassadors in Geneva. Soundings taken by a selection panel of three WTO trade ministers found she had far more support than her South Korean rival, Yoo Myung-hee.
      Sources said Okonjo-Iweala was backed by countries in the Caribbean, Africa, the European Union, China, Japan and Australia.
      However, her candidacy failed to win the support of Washington, which raised last-minute objections to the process by which the new director general was being picked. An original list of eight candidates, which included the former Britishinternational trade secretary Liam Fox, has been whittled down to a final two since the summer.
      By tradition, the WTO chooses its director general by consensus, with all 164 members having to approve a candidate. The US has been unhappy with the way the WTO has operated for some time, objecting to China’s designation as a developing country and blocking the appointment of new judges to the organisation’s appeals body.
      Sources said it was unclear whether Washington’s opposition to Okonjo-Iweala was a deliberate attempt to sabotage an organisation much criticised by Donald Trump.
      A WTO spokesman said her candidacy would be put to a meeting of the body’s governing general council on 9 November, adding that there was likely to be “frenzied activity” in the meantime to secure consensus.
      In the event that Washington maintains it will not support Okonjo-Iweala, the WTO’s constitution does eventually provide for a vote, although every previous director general in the organisation’s 25-year history has been appointed by consensus, and trade experts said life would be difficult if an appointment was made against the wishes of the US.
      [embedded content]
      Sources in Geneva said it was possible the US position may be affected by the result of next week’s presidential election, which Joe Biden is currently expected to win.
      A spokesperson for Okonjo-Iweala said: “Dr Ngozi is immensely humbled to receive the backing of the WTO’s selection committee today.
      “Dr Ngozi looks forward to the general council on 9 November when the committee will recommend her appointment as director-general. A swift conclusion to the process will allow members to begin work together, on the urgent challenges and priorities.” More

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      in World Politics

      Will Laos Become a Model for China’s Economic Colonialism?

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      The small Southeast Asian nation of Laos stands out as a success story in COVID-19 control. With only 23 confirmed cases, it has gradually lifted lockdown measures. Success on the medical front, however, will not be enough to carry the country through the economic whiplash that pandemic containment had on the informal economy. Laos’ reliance on remittances from abroad is not unique in the region, and while it has thus far averted a coronavirus-induced health crisis, its economy is expected to contract, according to World Bank estimates.

      Incomes from tourism, remittances and the informal gig economy are expected to be hit hardest by the pandemic. Director general of the Laotian Department of Labor Skill Development at the Ministry of Labor and Social Welfare, Anousone Khamsingsavath, has voiced concerns about exacerbated poverty under COVID-19. Migrant workers have been returning from abroad due to evaporated opportunities, and the sudden influx of job seekers, coupled with a precarious economy, makes countries like Laos particularly susceptible to economic — and thus political — influence from outside.

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      Against the backdrop of the pandemic, countries whose economies are large enough to weather the storm have a unique opportunity to extend their influence vis-à-vis their smaller neighbors. A case in point: China and Laos. Earlier this year, Beijing began to build diplomatic goodwill in Vientiane by sending supplies, health advisers and medical staff, as well as offering loans and development opportunities to help Laos recover from the crisis. Existing power imbalances between the two states will likely be exacerbated, and China is well positioned to further consolidate support for its ally.

      Golden City

      China was the first country to be hit by the pandemic, and its economy, the second largest in the world, is now showing signs of recovery. Beijing has already unveiled a 3.6-trillion yuan ($506-billion) stimulus package, suggesting that China intends to continue work on its existing projects, with the Belt and Road Initiative being the crown jewel among them. As part of this initiative unveiled in 2013, China has been working to extend its land and maritime transportation networks through infrastructure built with the agreement of partner countries.

      One of the initiative’s branches that has thus far received little attention is the China-Laos railway, which stretches from Mohan, in China’s Yunnan province, to the Laotian border town of Boten, before reaching the capital, Vientiane. Once adjoining railways are complete, the segment is projected to be part of a pan-Asian network that joins Yunnan’s capital Kunming with Bangkok, Kuala Lumpur and Singapore. The project has been underway since 2016. Laos is the only landlocked country in Southeast Asia, and due to the lack of ports that can offer counterbalancing sources of income and connectivity, it is particularly dependent on Chinese investment in towns like Boten. The town was designated a special economic zone (SEZ), its casinos drawing in massive numbers of tourists from mainland China, where gambling is illegal.

      Embed from Getty Images

      Touted by both governments as a partnership of mutual prosperity, local Laotians complained of the disrespect and one-sided decision-making from the new arrivals. This was the case when casinos in Boten were shut down in 2010 by the Chinese Ministry of Foreign Affairs over accusations of crime and prostitution. The town, whose economy centered around gambling, went into decline even as construction of the railroad continued. Two years later, however, Laotian officials decided to give the original sponsor of Boten’s failed project a second chance. The sponsor partnered with another industrial group and signed a new agreement to shift the town’s focus from gambling to commerce, rechristening “Golden Boten City” as “Beautiful Boten Specific Economic Zone.”

      It is unclear whether this new venture is a result of or is intended as an extension of the railway being constructed. What is clear is that China does not intend for the BRI to be an isolated transportation framework in Boten’s case. Railway construction naturally brings an influx of Chinese laborers who prefer Chinese goods and Chinese services, but an injection of Chinese cash into the local economy could also add to the local government’s incentive to cooperate with construction. The businesses and the railway can then form an economic feedback loop that justifies each other’s existence.

      Business Model

      This business model would not be so worrying if the local Laotian government retained significant regulatory power over the venture. However, the Chinese-funded Boten Economic Zone Development and Construction Group has been given the responsibility of charging taxes and building both utility and telecommunications infrastructure. This calls into question the sovereignty of the host nation’s government, and one of the group’s buyers stationed in Boten went so far as to say the company basically controlled the entire growing city.

      SEZs like Boten may become the next model of economic colonialism in Southeast Asia, where Chinese investors lease large tracts of land for a substantial period, import Chinese workers to build infrastructure around railway stations, and create economies that cater specifically to Chinese patrons and Chinese interests. This form of colonialism doesn’t have to be directly affiliated with the Communist Party, as China has more than enough corporations with deep pockets that can withstand the risk of investment and provide the much-needed capital to rural areas whose native government do not have the means for development.

      As COVID-19 ripples through Southeast Asia, countries in the region can be expected increasingly to look abroad for any kind of financial buffer that will help them survive the economic shockwaves. Even countries like Laos that have avoided a health crisis cannot avoid suffering indirectly from the economic contractions of their less proactive neighbors. Regional governments will be tempted to grant more concessions in the hopes of bringing more jobs to locals out of work, and capital from China will be alluring, even as it inevitably comes with economic dependence and the local influence of powerful Chinese corporations.

      Developments in little-known outposts with potential, such as Boten, rarely make the headlines. But make no mistake: China was already making its way steadily through Southeast Asia, and the ongoing pandemic is only likely to increase its pace.

      *[Fair Observer is a media partner of the Young Professionals in Foreign Policy.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

    • 125 Shares99 Views

      in World Politics

      What Turkey Stands to Gain From Its Natural Gas Discovery

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      Turkey’s first natural gas discovery was undoubtedly breaking news. As the world focused its attention on the escalation between Ankara and Athens in the eastern Mediterranean over natural resources and maritime borders, President Recep Tayyip Erdogan made the announcement on August 21 that marked the end of Turkey’s unsuccessful quest for indigenous oil and gas. If confirmed, the discovery of a 320-billion-cubic-meter natural gas deposit off Turkey’s Black Sea coast will enhance the country’s energy security and could help shape Ankara’s foreign policy trajectory.

      For years, Turkey has been tirelessly looking for oil and gas. To do so, Ankara mainly relied on the expertise of foreign companies. Encouraged by the recent discoveries of significant gas fields in the eastern Mediterranean, Ankara stepped up its efforts in the region as well as the Black Sea. This time, however, the state-owned Turkish Petroleum Corporation (TPAO) decided to explore opportunities on its own. As a result, TPAO purchased three drilling ships — Fatih, Yavuz and Kanuni, all named after Ottoman sultans — between 2017 and 2020, and deployed them in both the eastern Mediterranean and the Black Sea. The plan worked: Fatih was instrumental in making the August discovery.

      Discovery of Natural Gas Exposes Turkey’s Political Rifts

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      The finding could alleviate Turkey’s energy import options and equip Ankara with a powerful bargaining chip in negotiations with traditional suppliers. It could also help to transform TPAO into a significant player in the industry. The petroleum company has already made strides in this regard. During the last several years, the TPAO has intensified its efforts in oil and gas exploration and production.

      The company has also taken advantage of rapprochement between Ankara and the UN-recognized Libyan government in Tripoli in order to resume projects halted in 2014. Back then, the TPAO announced the successful completion of wells in Sirte and Sebha. In April, partnered with Russian Zarubezhneft, TPAO signed preliminary deals to participate in its upstream sector and has made strides in Algeria by signing up to an onshore project together with Sonatrach and Zarubezhneft. Furthermore, Turkish authorities have been vocal about their intentions to invest in Somalia’s and Ethiopia’s oil and gas sectors.

      Given the complexity of deep-water drilling, TPAO’s inexperience when it comes to offshore projects and the costliness of such endeavors, the development of the Black Sea fields may require partnerships with more experienced companies. Turkish authorities have already mulled over a potential collaboration with Russian and Iranian companies, but it seems less likely given the state of Ankara’s relations with both countries. Ankara has diverging interests with Tehran and Moscow in Syria and is also trying to reduce dependence on both Russian and Iranian gas supplies. Therefore, Turkey will likely be reluctant to add another dimension to this complex web of relations by inviting a Russian or Iranian company to the project. It is more likely for Turkish companies to partner with companies from friendly states with experience developing such complex and costly projects.

      TPAO has already partnered with the State Oil Company of the Azerbaijan Republic (SOCAR) in upstream projects in the Caspian Sea. Given the fraternal relations between the two countries, which have only solidified in light of the recent fighting between Armenia and Azerbaijan over the disputed Nagorno-Karabakh region, SOCAR’s engagement in the project is not excluded. Ankara’s unequivocal support for Baku in the conflict with Armenia and Azerbaijan’s increasingly growing share in natural gas supplies to Turkey could be easily translated into cooperation in the oil and gas sector as well.  

      TPAO may also partner with Qatar Petroleum, which has extensive experience in managing such complex deep-water projects. Turkish authorities have already suggested such a possibility. In March, Turkish Foreign Affairs Minister Mevlut Cavusoglu stated that Ankara is considering a partnership with Malaysian, British and Qatari companies in the eastern Mediterranean. Qatar Petroleum has decades of experience in operating the North Dome, the largest natural gas field in the world. Turkey and Qatar may use the opportunity to capitalize on their political relations and channel the geopolitical alignment into cooperation in the business sector.

      If the findings are confirmed, aside from providing a strategic advantage in the energy sector, the deposits will be a crucial element in bolstering Turkey’s foreign policy efforts, such as the Blue Homeland strategy and the pivot to the Maghreb and the Sahel. TPAO’s recent expansion abroad, especially in Africa, indicates the prerogatives of Ankara’s foreign policy goals. Turkey already faces strong opposition from almost all eastern Mediterranean littoral states that have collectively aligned to resist Ankara’s endeavors. To cope with these challenges, Turkey will need to build geopolitical alliances and economic partnerships of its own.

      *[Fair Observer is a media partner of Gulf State Analytics.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in World Politics

      Taking American Carnage to the Next Level

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      It is a recent tradition among occupants of the White House, as they head out of office, to play a few practical jokes on their successors. The Clinton administration jesters, for instance, removed all the Ws from White House keyboards before handing over the keys to George W. Bush’s transition team. The Obama administration left behind books authored by Barack Obama for Trump’s incoming press team.

      Donald Trump has no sense of humor. His “gift” to the next administration is dead serious. With his recent foreign policy moves, the president is trying to change the facts on the ground so that whoever follows in his footsteps will have a more difficult time restoring the previous status quo. Forget about pranks. This is a big middle-finger salute to the foreign policy establishment and the world at large.

      The Next President Needs to Learn From Past Mistakes

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      Of course, Trump is not preparing to leave office, regardless of the results of the November election. But in his policies in the Middle East and East Asia, the president is attempting to change the very rules of the game just in case he’s not around next year to personally make more mischief. The man is not going to win a Nobel Prize for his efforts — despite the recent nominations coming from a pair of right-wing Scandinavians — but he’ll do whatever he can to achieve the next best thing: putting the Trump brand on geopolitics.

      It cost about $5,000 to replace all those W-less typewriters. The bill for all the damage Trump is doing to international affairs in his attempt to make his Israel, Iran and China policies irreversible will be much, much higher.

      Israel Up, Palestine Down

      For several years, the Trump administration promised a grand plan that would resolve the Israel-Palestine stand-off. According to this “deal of the century,” Palestinians would accept some economic development funds, mostly from Gulf states, in exchange for giving up their aspirations for an authentic state.

      The hoops Palestinians would have to jump through to get even such a shrunken and impotent state — effectively giving up Jerusalem, relinquishing the right to join international organizations without Israel’s permission — are such obvious deal-breakers that Jared Kushner and company must have known from the start that their grand plan was not politically viable.

      But finding a workable solution to the Israel-Palestine conflict was not the purpose of the plan. It was all an elaborate shell game. While the administration dangled its proposal in front of world leaders and international media, it was working with Israel to create “new realities.” Trump withdrew the United States from the UN Human Rights Council for its “chronic bias against Israel.” The administration closed the PLO’s office in Washington, DC, and eliminated US funding for the UN agency that supports Palestinian refugees. And in perhaps the most consequent move, Trump broke a global convention by moving the US embassy from Tel Aviv to Jerusalem. Until recently, only one country, Guatemala, had followed suit.

      But then came a flurry of diplomatic activity this fall as both the United Arab Emirates and Bahrain extended diplomatic recognition to Israel. The Trump administration also pushed Serbia and Kosovo, as part of a new economic deal, to include clauses about Israel: Serbia will move its embassy to Jerusalem and Kosovo will establish one there after establishing diplomatic relations with Israel.

      Astonishingly, the Trump administration has promoted this diplomatic activity as restraining Israel. In May, Netanyahu announced that he was moving forward with absorbing sections of the West Bank that already featured large Israeli settlements. He subsequently stepped back from that announcement to conclude the new diplomatic deals with the Gulf states. But it was only reculer pour mieux sauter, as the French say — stepping back to better leap forward. Netanyahu had no intention of taking annexation off the table.

      “There is no change to my plan to extend sovereignty, our sovereignty in Judea and Samaria, in full coordination with the United States,” Netanyahu said in mid-August. Some further to the right of Netanyahu — alas, they do exist — want to annex the entire West Bank. But that’s de jure. As writer Peter Beinart points out, Israel has been annexing the West Bank settlement by settlement for some time.

      Where does this leave Palestinians? Up a creek without a state. The Trump administration has used its much-vaunted “deal of the century” to make any future deal well-nigh impossible. In collaboration with Netanyahu, Trump has strangled the two-state solution in favor of a single Israeli state with a permanent Palestinian underclass. The cost to Palestinians: incalculable.

      Permanent War With Iran

      Strengthening Israel was a major part of Trump’s maneuverings in the Middle East. A second goal was to boost arms sales to Gulf countries, which will only accelerate the arms race in the region. The third ambition has been to weaken Iran. Toward that end, Israel, Bahrain and the UAE now form — along with Saudi Arabia — a more unified anti-Iran bloc.

      But the Trump crowd has never been content to contain Iran. It wants nothing less than regime change. From the get-go, the Trump administration nixed the Iran nuclear deal, tightened sanctions against Tehran and put pressure on all other countries not to engage Iran economically. In January, it assassinated a leading Iranian figure, Major General Qassem Soleimani of the Iranian Revolutionary Guard Corps. And this summer it tried, unsuccessfully, to trigger “snap-back” sanctions against Iran that would kill the nuclear deal once and for all.

      Even as the Trump administration was celebrating the diplomatic deal between the UAE and Israel, it was going after several UAE firms for brokering deals with Iran. Trump recently castigated the Iranian government for going through with the execution of wrestler Navid Afkari for allegedly killing a security guard during a 2018 demonstration.

      And US intelligence agencies have just leaked a rather outlandish suggestion that Iran has been thinking about assassinating the US ambassador to South Africa. According to Politico, “News of the plot comes as Iran continues to seek ways to retaliate for President Donald Trump’s decision to kill a powerful Iranian general earlier this year, the officials said. If carried out, it could dramatically ratchet up already serious tensions between the U.S. and Iran and create enormous pressure on Trump to strike back — possibly in the middle of a tense election season.”

      Hmm, sounds mighty suspicious. Sure, Iran might be itching for revenge. But why risk war with a president who might just be voted out of office in a couple of months and replaced with someone who favors returning to some level of cooperation? And why would the unnamed US government officials leak the information right now? Is it a way to discourage Iran from making such a move? Or perhaps it’s to provoke one side or the other to take the fight to the next level — and take off the table any future effort to repair the breach between the two countries?

      Cutting Ties With China

      At a press conference earlier this month, Trump laid out his vision of US relations with China. Gone were the confident predictions of beautiful new trade deals with Beijing. After all, Trump had canceled trade negotiations last month, largely because the Phase 1 agreement hasn’t produced the kind of results the president had predicted (in terms of Chinese purchases of US goods). Nor did Trump talk about what a good idea it was for China to build “reeducation camps” for Uighurs in Xinjiang (he reserves such frank conversation for tête-à-têtes with Xi Jinping, according to John Bolton).

      Rather, Trump talked about severing the economic relationship between the two countries. “Under my administration, we will make America into the manufacturing superpower of the world, and we’ll end our reliance on China once and for all,” he said. “Whether it’s decoupling or putting in massive tariffs like I’ve been doing already, we’re going to end our reliance on China because we can’t rely on China.”

      Embed from Getty Images

      As with virtually all things, Trump doesn’t know what he’s talking about. China has been largely unaffected by all of Trump’s threats and posturing. As economist Nicholas Lardy explains, “for all the fireworks over tariffs and investment restrictions, China’s integration into global financial markets continues apace. Indeed, that integration appears on most metrics to have accelerated over the past year. And U.S.-based financial institutions are actively participating in this process, making financial decoupling between the United States and China increasingly unlikely.”

      In fact, decoupling is just another way of saying “self-inflicted wound.” On the non-financial side of the ledger, the United States has already paid a steep price for its trade war with China, which is only a small part of what decoupling would ultimately cost. Before the pandemic hit, the United States was already losing 300,000 jobs and $40 billion in lost exports annually. That’s like a Category 3 hurricane. A full decoupling would tear through the US economy like a Category 6 storm.

      Geopolitical Carnage

      American presidents want to leave behind a geopolitical legacy. Bill Clinton was proud of both the Dayton agreement and the Oslo Accords. George W. Bush touted his response to the September 11 attacks. Barack Obama could point to the Iran nuclear deal and the détente with Cuba. Donald Trump, like the aforementioned twisters, has left destruction in his path. He tore up agreements, initiated trade wars, pulled out of international organizations and escalated America’s air wars.

      But perhaps his most pernicious legacy is his scorched-earth policy. Like armies in retreat that destroy the fields and the livestock to rob their advancing adversaries of food sources, Trump is doing whatever he can to make it impossible for his successor to resolve some of the world’s most intractable problems.

      His diplomatic “achievements” in the Middle East are designed to disempower and further disenfranchise Palestinians. His aggressive policy toward China is designed to disrupt an economic relationship that sustains millions of US farmers and manufacturers. His bellicose approach to Iran is designed not only to destroy the current nuclear accord but make future ones impossible as well.

      If he wins a second term, Trump will bring his scorched-earth doctrine to every corner of the globe. What he is doing to Iran, China and the Palestinians, he will do to the whole planet. The nearly 200,000 pandemic deaths and the wildfires destroying the West Coast are just the beginning. Donald Trump can’t wait to take his brand of American carnage to the next level.

      *[This article was originally published by Foreign Policy in Focus.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      What Can the Gulf States Learn from the Belarus Crisis?

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      It might come as a surprise that the Gulf states have more than a passing interest in events in Belarus. Beyond growing economic ties, the political drama provides valuable lessons for the region’s monarchies and their efforts to maintain standards of living for their citizens without compromising power and influence. The Belarus crisis also offers useful pointers for Gulf states in their dealings with Russia.

      Over the past three decades, Belarusian domestic politics has been defined by its predictability. Despite the emergence of opposition candidates around election time, President Alexander Lukashenko’s grip on power was such that there was only one outcome. Yet, as with so much of 2020, life as Belarusians know it has been turned on its head.

      Big Blow for a Stable Dictatorship: Major Protests Hit Belarus

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      While the veracity of past elections has been called into question, a mixture of political complacency and COVID-19-related turmoil has breathed new life into Belarus’ opposition movement. Beyond disputing Lukashenko’s winning margin in July’s poll, hundreds of thousands of ordinary Belarusians have taken to the streets calling for change. Mostly born after the collapse of the Soviet Union, this generation does not regard the stability offered by Lukashenko as an asset. As they see it, state control of Belarus’ economy and society is incompatible with their aspirations.

      Lukashenko’s response to what has effectively become a matter of life and death for his regime has fluctuated between incoherency and heavy-handedness. The president’s disappearance from the public gaze at the start of the unrest, coupled with the disproportionate use of force against demonstrators, suggests that he did not seriously consider the possibility of mass protests. Continued police brutality and opposition candidate Svetlana Tikhanovskaya’s flight into exile make it difficult to use “external forces” as justification for the crackdown.

      “Family” Comes First

      Much like Belarus, the Gulf states have relatively young populations, particularly Saudi Arabia, where over two-thirds of citizens are under the age of 35. Many have benefited from access to higher education systems that have grown exponentially since the early 2000s, both in terms of state and private universities. With this in mind, the region’s political elites can use the lack of meaningful opportunities for so many Belarusians to underscore the importance of their development plans and national visions.

      Embed from Getty Images

      Designed to meet the specific needs of Gulf countries, these strategies nevertheless have several objectives in common. In an effort to counter faltering prices and technological obsolescence, the region is attempting to diversify its dependence on oil and gas revenues by facilitating high-knowledge-content jobs in different industrial sectors. Doing so also requires the greater incorporation of indigenous populations into national workforces at the expense of expatriate workers. In this respect, Kuwait’s plans to drastically reduce its migrant population offers a glimpse into the future shape of the Gulf’s workplaces. While never explicitly mentioned in strategic documents, the Gulf states anticipate that encouraging their own populations’ development will offset opportunities for the type of political dissent that’s currently gripping Belarus and which rocked Bahrain almost a decade ago.

      The Gulf’s rulers have no appetite for an Arab Spring 2.0, a scenario that some warn is a distinct possibility thanks to COVID-19. Accordingly, local development opportunities will continue to be encouraged during these chastened times. When it comes to wider political participation, Kuwait will remain something of an outlier for the foreseeable future.

      The Gulf states’ responses to COVID-19 also merit consideration. Once dismissed by Lukashenko as an ailment that can be treated with saunas and vodka, Belarus was among the last in Europe to enact lockdown measures. While it remains to be seen what impact ongoing protests will have on infection rates, a spike in cases could be used by Gulf states to justify their no-nonsense approaches to tackling the virus. Qatar, for example, was one of the first to completely lock down all but the most essential public services. The country’s return to normal rests on the public’s strict compliance with a four-phase reopening plan.

      Don’t Annoy Next Door

      International reaction to the political crisis in Belarus has so far been muted, with presidents Vladimir Putin of Russia and China’s Xi Jinping leading the congratulations for Lukashenko’s re-election. For its part, the European Union’s response has been cautiously led by the likes of Lithuania and Poland. Their approach reflects two important points. First, the protests are highly internalized and not about pivoting Belarus further East or West. Second, direct support for the opposition risks a Ukraine-type scenario whereby Moscow directly intervenes to safeguard its interests.

      Point two is of particular relevance to the Gulf states, whose economic ties with one of Russia’s closest allies continue to grow. Cooperation between Belarus and the United Arab Emirates is a case in point. According to government statistics, the volume of trade between both countries amounted to $121 million in 2019, up from $89.6 million the previous year. Minsk has also made overtures to Oman regarding joint manufacturing opportunities and the re-export of products to neighboring markets.

      Saudi Arabia undoubtedly has the most to lose from antagonizing Russia in its own backyard. Last April, the kingdom sold 80,000 tons of crude oil to Belarus. This purchase, first of its kind, not only reflects Minsk’s determination to lessen its reliance on Russian supplies, but also happened against the backdrop of faltering demand and an oil price war between Moscow and Riyadh. Since then, both sides have brokered a fragile peace designed in part to ensure that OPEC+ members respect industry-saving production cuts.

      Accordingly, the “softly, softly” approach currently being employed by the EU’s eastern flank provides a blueprint for how the Gulf states should continue to manage their responses to the Belarus crisis. Not only does it offer the best chance of maintaining economic relations irrespective of the final outcome, but it also keeps regional oil supplies in still uncharted waters at a time of great uncertainty in global markets. Antagonizing Russia with even the most tacit support for Belarus is, put simply, too risky a proposition.

      Belarus’ unfolding crisis is ultimately about replacing an unmovable political leader and system that have dominated the country for decades. In a region defined by its own version of long-term political stability, a similar scenario among Gulf states is unpalatable. Fortunately, the region still has resources at its disposal to prevent this from happening and protect much-needed economic victories in new markets. While always important, the Gulf’s indigenous populations are increasingly being reconfigured as the most essential features of the region’s future prosperity and stability.

      *[Fair Observer is a media partner of Gulf State Analytics.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Unintended Economic Impacts of China’s Belt and Road Initiative

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      China’s footprint in global foreign direct investment (FDI) has increased notably since the launch of the Belt and Road Initiative (BRI) in 2013. That served to bring Chinese overseas FDI closer to a level that one would expect, based on the country’s weight in the global economy. China accounted for about 12% of global cross-border mergers and acquisitions and 9% of announced greenfield FDI projects between 2013 and 2018. Chinese overseas FDI rose from $10 billion in 2005 (0.5% of Chinese GDP) to nearly $180 billion in 2017 (1.5% of GDP). Likewise, annual construction contracts awarded to Chinese companies increased from $10 billion in 2005 to more than $100 billion in 2017.

      Interestingly, however, the American Enterprise Institute’s China Global Investment tracker recorded $420 billion worth of investment and construction in BRI countries versus $655 billion in other countries between 2013 and 2018. So China actually invested more in countries outside the BRI during the period, given that Chinese investment in developed countries tends to have larger market values, particularly for mergers and acquisitions.

      Additional Pain

      Based on other measures, however, Chinese investment in BRI nations was much larger as a percentage of its total investment for the period. For example, greenfield investment represented almost half of all investment in BRI countries, but only 13% in other markets. Chinese firms were awarded $268 billion worth of construction contracts in BRI countries versus $166 billion elsewhere. Greenfield investment and construction in BRI countries amounted to $340 billion versus $230 billion in non-BRI countries.

      The subsidies that Beijing contributes to its state-owned enterprises implies that many of the BRI projects actually cost it far more than the face value of the construction and investment, meaning that loan defaults — a common occurrence — add that much more additional pain to Beijing’s coffers.

      The BRI: Keeping the Plates Spinning on China’s Economy

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      Asia attracted the majority of BRI-related investment and construction contracts between 2013 and 2018, receiving just over half of such activity, with Southeast Asia taking 46% of that amount. Africa received 23%, followed by the Middle East at 13%. Overall, approximately 38% of total investments and construction contracts were targeted at the energy sector in host nations, with 27% ending up in transport and 10% in real estate.

      The largest BRI project as of 2018 was the China-Pakistan Economic Corridor, which links Kashgar in China’s Xinjiang province with the port of Gwadar in Pakistan. Investments and construction contracts worth nearly $40 billion had been devoted to the project, with total spending likely to reach in excess of $60 billion by the time it is finished, equivalent to about 20% of Pakistan’s nominal GDP. The country endured a large increase in imports of materials and capital as a result, which aggravated its trade imbalance. By 2018, its current account deficit had expanded to more than 6% of GDP from less than 2% in 2016.

      Expensive Membership

      While Pakistan’s economic challenges were not and are not entirely attributable to the BRI, the strains added to it by the BRI became highly problematic. That turned out to be a common byproduct of the initiative among the countries receiving the largest amounts of investment. Large debts in countries with limited financial resources and means of generating revenue often undermine governments’ ability to successfully manage their economies. Rather than benefiting from the infrastructure investments made by China, they sometimes end up perpetually treading water.

      Rising debt service often increases a country’s borrowing costs, can raise doubt about its solvency, contribute to a depreciating currency and increase the local currency value of the external debt burden. Consequently, the macroeconomic fallout of being a recipient member of the BRI “club” can be severe, particularly for the smallest and poorest countries.

      A 2018 study from the Center for Global Development has noted, for example, that in the case of Djibouti, home to China’s only overseas military base, public external debt had increased from 50% to 85% of GDP in just two years — the highest of any low-income country. Much of that debt consists of government-guaranteed public enterprise debt owed to China’s Export-Import Bank (EXIM).

      In Laos, the $6-billion cost of the China-Laos railway represents almost half the country’s GDP. Debt to China, Tajikistan’s single largest creditor, accounted for almost 80% of the total increase in Tajikistan’s external debt between 2007 and 2016 period. And in Kyrgyzstan, China EXIM is the largest single creditor, with loans of $1.5 billion, or about 40% of the country’s total external debt.

      It certainly does not appear that Beijing put sufficient effort into contemplating the likely economic impact of the BRI prior to commencing it, either upon host nations or upon itself, for all concerned have borne the consequences of excessive and imprudent lending. Could it be that that Communist Party of China did not care, and that all that mattered was rolling the Initiative out as quickly as possible once it decided to do so?

      It is truly surprising that Beijing did not do a better job of envisioning the multiplicity of potential outcomes. That is undoubtedly the overriding reason why the Chinese government decided to pivot in 2018 and adopt a seemingly more rational, moderate and achievable approach to unleashing the remainder of the BRI upon the world. It now realizes that its reputation and legacy are at stake, never mind the hardship it has placed on scores of developing countries around the world in the process.

      *[Daniel Wagner is the author of “The Chinese Vortex: The Belt and Road Initiative and its Impact on the World.”

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More