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18 Nov 22. Kazakhstan: Unreast.
- President Kassim-Jomart Tokayev is seeking re-election in early presidential elections on 20 November, and is almost certainly going to secure a new seven-year term in office.
- Despite presenting himself as a reformist candidate, Tokayev’s crackdown on former president Nursultan Nazarbayev’s clan is unlikely to herald meaningful democratic and governance reforms – though next year’s parliamentary elections will likely stand as a greater test of Tokayev’s willingness to increase political plurality and transparency.
- Following the unprecedented unrest in January, recent arrests of individuals allegedly plotting ‘mass riots’ underline the potential for anti-government protests during and after the election.
- While Tokayev’s populist policies and robust security procedures will mitigate the threat of January 2022-style unrest, restive industrial regions in the west will remain vulnerable to small-scale protests transitioning to mass riots; and Astana can no longer rely upon external Russian military support.
Early presidential elections will take place on 20 November, during which incumbent President Kassim-Jomart Tokayev is seeking re-election, but under a new seven-year term. Kazakhstan’s Central Electoral Commission have approved six presidential candidates, including Tokayev, and while Tokayev is presenting these elections as a departure from the era of his predecessor Nursultan Nazarbayev, it is almost certain Tokayev will secure a large share of the vote.
President Tokayev is entering this race as a representative of a broad coalition of public organisations, as his predecessor Nazarbayev did during his tenure. However, despite introducing constitutional amendments earlier this year that aimed to illustrate Tokayev’s reformist credentials, enduring corruption, governance and humanitarian issues are likely to Tokayev’s attempts to recalibrate his image as a reform candidate amidst civil society. Despite this, opinion polls currently give Tokayev an approval rating of around 75-80%. Although this election will ostensibly provide the incumbent president with a new mandate to implement governance and political reforms, the prospect of genuine reform and transparency remains relatively low, with next year’s parliamentary elections set to be a more significant test of the government’s willingness to increase political plurality and transparency. Despite presenting himself as a reformist candidate, Tokayev’s expected victory is unlikely to herald in substantial political and governance reforms
This month’s election follows a series of constitutional amendments introduced earlier this year that aimed at illustrating positive steps forward in improving political transparency and curbing the powers of the presidency. A referendum in June 2022 limited the privileges of the former president, Nursultan Nazarbayev, with the nation’s capital Nur-Sultan also renamed Astana earlier this year. More specifically, Nazarbayev has been removed as the named founder of independent Kazakhstan, a position which had previously formed the legal basis for the inviolability of his and his family’s influence and property.
In addition, a series of notable other political reforms have been made to national legislation in the run-up to this week’s election, although the majority are arguably piecemeal given the controlled nature of Kazakh democracy. For instance, an alteration to the length of the presidential term from five years to seven and a ban on relatives of the President from holding public office were both announced on the same day as the election itself. Framed as an opportunity to increase political plurality and cement longer-term constitutional and legislative reforms, the development is in the meantime likely to consolidate Tokayev’s grip on power and allow his supporters to entrench themselves at the expense of the Nazarbayev clan.
Whilst these developments are clearly aimed at distancing President Tokayev from his predecessor and former mentor, the reforms are unlikely to represent serious and meaningful governance and democratic reforms. It remains unlikely that the next seven years will result in the strengthening of various issues such as human rights or greater political and economic transparency, with existing concerns around endemic corruption and telephone justice likely to remain fixtures of the Kazakh operating environment for the foreseeable future.
Nonetheless, the legislative elections scheduled for early 2023 may in fact prove to be a greater determinant of whether Kazakhstan can consolidate an actual competitive political system, as opposed to the decades of rubber-stamping authority. These elections specifically will be likely complicated further by the large quantity of pro-Nazarbayev candidates due to stand for election, and will likely prove a more substantial test of Tokayev’s reformist agenda and readiness to increase political plurality.
Changes to the entrenched power and influence networks of the Nazarbayev era. As mentioned above, the 2022 presidential election is likely to further dissipate the power of former president Nazarbayev and his close business associates, with the family’s grip on power and business across Kazakhstan significantly decreasing in light of the aforementioned constitutional changes and Tokayev’s crackdown on their clan. There is a high probability of a continued clampdown on the former president’s influence networks, as demonstrated by the conviction of Nazarbayev’s nephew Kairat Satybaldy on charges relating to major embezzlement of public finances, and the trial of former security chief Karim Massimov, who is currently being tried for treason following his alleged role in the political unrest of January 2022.
In the highly probable event of a Tokayev victory, the administration will most likely maintain focus on distancing itself, both constitutionally and politically, from the previous leadership and attempt to disrupt the historic network of business influence and preferment amongst the elite in Kazakhstan. In the short-to-medium term, this may contribute to further uncertainty regarding established business relationships in the country as Tokayev’s supporters continue to consolidate their grip over the economy.
The election will increase threat of domestic unrest, though strong security presence will mitigate the threat of mass instability
Ensuring domestic stability and security during the election will remain at the top of the Tokayev presidency’s agenda, particularly given the severity of domestic unrest witnessed in January 2022. Enduring corruption, global supply chain instability and price increases have exacerbated the cost-of-living crisis across the country and subsequently fueled socio-economic discontent, which was a significant factor in triggering the domestic unrest of January this year. However, simmering resentments from January retain the potential to trigger renewed anti-government unrest, particularly in the run-up to the election. On 7 September, 20 people were detained in the nation’s capital following a protest rally demanding justice for individuals either killed or arrested in the anti-government unrest of January 2022.
As a result, the government has taken various steps in recent weeks to mitigate the risk of domestic unrest around this election. For example, on 27 October parliament approved a mass amnesty for individuals who participated in the January protests. This did, however, exclude those found guilty of terror-related offences. Since January, Tokayev and the security services have overall managed to ease anti-government sentiment, with no major protests since January’s mass domestic unrest. Tokayev’s predominantly populist policies and earlier promises of wealth redistribution will aim to quell unrest and maintain security, though there are indications that enduring anti-government unrest could still trigger protests during and immediate after this week’s election.
On 17 November, Kazakh authorities claimed to have prevented a coup allegedly orchestrated by allies of the exiled opposition figure Mukhtar Ablyazov ahead of the election. Authorities arrested seven individuals they accuse of planning ‘mass riots’, attacking administrative buildings, and proclaiming a provisional government. While it remains unclear the extent to which Ablyazov was involved, he has repeatedly encouraged anti-government protests in Kazakhstan from exile, and his opposition Democratic Choice of Kazakhstan remains banned. These latest arrests underline enduring anti-government sentiment and latent organisation that could trigger protests in major cities, though extremely heavy security and other pre-election raids will likely mitigate the risk of widespread unrest like in January.
We ultimately assess that large-scale domestic unrest on the scale of January 2022 remains unlikely. However, if major protests do materialise, they are likely to impact the hydrocarbon industry in particular. Poor industrial relations and worker anger in the oil-rich and industrial western region of Mangystau ultimately triggered January’s unrest, and previous precedents in recent years indicate that this area remains the most vulnerable to sustained and deadly unrest – including the cities of Aktau, Zhanaozen and Atyrau. Any instability in this area could disrupt Caspian Pipeline Consortium’s (CPC) export routes across Russia and into the Black Sea. Ultimately, if security forces are able to contain any nascent unrest in major cities – including in Astana and Almaty, the country’s weak post-covid recovery, growing inflation and job insecurity could yet trigger unrest over the winter, particularly if temperatures plummet and energy prices rise dramatically.
Astana can no longer rely upon external Russian security assistance, as Russia’s capability to support Central Asian autocracies wanes/ The war in Ukraine has placed significant strain on Kazakhstan’s traditionally strongest ally and security partner, Russia. Bilateral relations between Russia and Kazakhstan are likely to remain strained in the medium term regardless of the electoral outcome. Amid the violent protests of January 2022, the Kazakh government requested support from the Russia-led Collective Security Treaty Organisation (CSTO) in an attempt to restore public order (see Sibylline Situation Update Brief – 6 January). Around 2500 primarily Russian peacekeeping troops were deployed to Kazakhstan on 5 January, with all troops leaving the country by 19 January following a stabilisation of the situation.
The war in Ukraine is increasingly undermining Moscow’s status and capability to uphold its position as the security guarantor for autocratic regimes in Eurasia. Given Russia’s military embroilment in Ukraine, it therefore remains highly unlikely that the CSTO would have the capacity to intervene in a similar manner should violent unrest seriously challenge the stability of the Kazakh regime again. However, growing tensions between Russia and Kazakhstan amid the war, exemplified by Astana’s decision to offer refuge to those fleeing Russia’s partial military mobilisation in September, has furthermore complicated the CSTO’s role and Russia’s willingness to intervene in support of the Tokayev regime. As such, Astana can no longer rely upon external Russian security assistance if any future unrest was to break out, but equally it would likely not seek that support given Tokayev’s clear attempt to distance Astana from Moscow and reaffirm an independent Kazakh foreign policy. (Source: Sibylline)
18 Nov 22. North Korea: Latest ICBM launch seeks to ramp up intimidation amid international summits. At 1015 (local time), on 18 November, North Korea launched a suspected intercontinental ballistic missile (ICBM) in its latest military provocation. The projectile landed in Japan’s exclusive economic zone (EEZ), some 130 miles (210km) west of its northern island of Hokkaido after reaching an altitude of 6,100km. The missile, Pyongyang’s eighth ICBM launch this year, had sufficient range to reach the US mainland according to Japanese Defence Minister Yasukazu Hamada. The launch, which comes a day after the North Korean foreign minister warned of ‘fiercer military responses’ to the US and its allies’ increasing military presence, is likely aimed at high-profile diplomatic summits – G20 and APEC – taking place in the region, at which North Korea has been a prominent topic among the leaders’ discussions. The launch follows a series of Pyongyang’s provocations, sustaining heightened regional tensions while presenting an underlying threat to commercial shipping and aviation (see Sibylline Situation Update Brief – 9 November 2022). (Source: Sibylline)
18 Nov 22. Thailand: Anti-government protests and unrest during APEC forum will cause localised disruption. On 18 November, approximately 300 protestors gathered at the Democracy Monument in downtown Bangkok to protest against the Thai military-backed government’s hosting of the Asia-Pacific Economic Cooperation (APEC) forum and the ‘Bangkok Goals on Bio-Circular-Green (BCG) economy’ which are to be endorsed by the APEC members. The BCG policy is designed to support sustainable economic growth; however, critics claim it will grant more powers to the government and only benefit large corporations. The protests were met with a heavy-handed response from security forces, which used rubber bullets and tear gas to disperse the demonstrators. The risk of further protests until the forum concludes on 19 November will remain high, extending the threat to bystanders from possible clashes with security forces. Transport disruption in central Bangkok is also likely as the heightened security posture results in road closures and traffic diversions. (Source: Sibylline)
18 Nov 22. Pakistan: Intelligence reveals new attack threats to Khan, further elevating political tensions. During a hearing in the Islamabad High Court today (18 November), Chief Justice Aamer Farooq revealed that as per intelligence reports submitted by the police, there could be another attack on Imran Khan, leader of the main opposition party, the PTI. A gunman shot and injured Khan on 3 November resulting in him supporting the protest rally, dubbed the long march, virtually. However, he plans on joining the march once it reaches Rawalpindi (the PTI will announce the date tomorrow). However, the Punjab government has issued orders to strengthen security protection for the long march in Rawalpindi, including the deployment of over 10,000 police officers. The protest march will likely enter Rawalpindi by the end of next week. The latest intelligence could further inflame domestic political tensions as well as trigger clashes and unrest once PTI supporters move from Rawalpindi to Islamabad. (Source: Sibylline)
17 Nov 22. Colombia: Government reportedly ready to initiate peace talks with ELN guerrilla. The Colombian government and the ELN guerrilla are expected to restart demobilisation talks in Caracas, Venezuela, on 21 November. The date and location were disclosed by leaked reports on 16 November. The government has not officially given a time frame for the restart of the peace talks, but officials previously indicated that negotiations would begin around November. The government negotiation team is expected to consist of several Pacto Historico ruling party supporters as well as a former M-19 guerrilla member. It is unclear if the ELN negotiating party commands control of the majority of ELN fronts. This includes the Venezuelan-based Eastern War Front, which has previously opposed demobilisation talks and continued attacks on security forces during peace talks. There is an elevated risk of shootings, kidnappings and IED attacks targeting security forces or government personnel on the central and southern Colombian-Venezuelan border. (Source: Sibylline)
17 Nov 22. Iran: Terrorist Attacks.
On 16 November, at least seven people were killed and ten others wounded after multiple assailants opened fire in a crowded market in Izeh, a city located in Iran’s southwestern Khuzestan province. According to the director-general of the Justice Administration Department of Khuzestan, Ali Dehqani, three individuals have been arrested in connection with the incident, and further arrests are likely in the coming hours and days.
- In the immediate aftermath of the attack, state-backed Iranian news outlets released a statement indicating that Islamic State (IS) had claimed responsibility for the attack. The claim, however, is unverified and has subsequently been removed from local networks. At the time of writing, the identity of the perpetrators is therefore unconfirmed, though social media users and outlets have speculated a possible involvement of Islamist extremist Sunni groups such as Jaish al-Adl, who remain operational in south-eastern Iran.
- The incident represents the second claimed terrorist attack in Iran since the end of October, when at least 20 people were killed and ten others wounded after an armed man opened fire on worshippers at the Shah Cheragh Shrine, a Shia Muslim pilgrimage site located in the southern Fars province. on 26 October.
- The uptick in terrorist attacks highlights Iran’s increasingly volatile security environment, particularly in southern areas where residents in cities such as Ahvaz, Izeh, Baghmalek and Susangerd regularly demonstrate against government inaction on key issues such as price hikes and water shortages.
- Government anxieties over Arab separatist movements and rising public dissent expose southern provinces to increased violence and insecurity. State responses to protest activity in this area are often heavy-handed and disruptive, including the deployment of violent riot tactics and the use of road blockades, tear gas and rubber bullets. This regularly poses operational risks in and around affected areas, considering likely disruptions to the transportation of overland goods and elevated physical threats for personnel.
In the immediate term, the Iranian government will likely intensify security measures in major cities in the Khuzestan province. As with the previous attack, there is a high likelihood that the government will attribute the recent terrorist attack to foreign Sunni extremists or foreign enemies such as Israel. The increased security measures will likely be framed as counter-terrorism measures, but will also likely be used as a pretext by the security forces to disperse any potential protest movements.
Security measures are likely to be especially tightened around religious sites and public areas, to mitigate any threat of social mobilisation or the expansion of terrorist networks. Such security measures are likely to include stationing armed guards and roadblocks near hotspots, as well as stop-and-search procedures. Enhanced state surveillance is highly likely as the Iranian government seeks to implement further internet blackouts and network disruptions to prevent the circulation of anti-government information or the online mobilisation of terrorist networks.
Despite a heightened security posture, further anti-government demonstrations related to socio-economic and political grievances in southwestern Khuzestan and across Iran will continue in the coming days and weeks. Local news outlets are reporting on a possible new phase of domestic unrest leading to widespread internal armed confrontations between security forces and activists, further deepening Iran’s domestic insecurity. Moreover, further terrorist incidents, either vis-à-vis emboldened sole-perpetrators or calculated attacks, are a realistic probability, posing heightened physical security and bystander risks for personnel and businesses operating in the country. (Source: Sibylline)
17 Nov 22. Malaysia: Instabiity.
- Malaysia will go to the polls on 19 November following the early dissolution of the Dewan Rakyat (the lower house of parliament) by the Barisan Nasional (BN)-led government. This comes despite concerns about monsoon-related flooding disrupting the electoral process.
- Fellow Malay nationalist coalition Perikatan Nasional (PN) and the main opposition bloc Pakatan Harapan (PH) will compete with BN at the elections. There is currently no clear frontrunner, meaning alliances will likely need to be forged before a government is formed; the instability which has plagued Malaysian politics since 2020 is therefore unlikely to be resolved.
- Malaysia’s general openness to foreign investment and international trade is unlikely to shift, regardless of which coalitions form a government. However, if no stable government is formed, the economic reforms needed to strengthen Malaysia’s fiscal position and improve its competitiveness are unlikely to be forthcoming.
- The prevalence of corruption within Malaysia is unlikely to improve significantly if BN remains in power; BN will likely push for the former prime minister Najib Razak (who is currently in prison for his role in the 1MDB corruption scandal) to be pardoned.
All 222 parliamentary seats will be contested during the elections on 19 November. Malaysia’s 14th parliament was due to expire in July 2023. However, incumbent Prime Minister Ismail Sabri Yaakob came under pressure from Ahmad Zahid, the president of the United Malays National Organisation (UMNO) party, to hold early elections due to perceptions that the opposition is in a weak position. There are also concerns that more politicians from UMNO and its ruling BN coalition may soon face corruption charges. BN is confident that it has the momentum it needs due to commanding victories in recent state elections earlier this year. This has galvanised its belief that it can achieve a more secure position in government.
UMNO, the founding and primary member of the BN coalition, has been the dominant political party in Malaysia since the country’s independence. It has only failed to govern once, following the 2018 general elections. However, the first non-UMNO government collapsed just two years later due to splits within the ruling Pakatan Harapan (PH) coalition. This allowed UMNO to return to government after some political manoeuvring. Nevertheless, since the collapse of the PH government, uneasy coalitions, regular defections and marginal majorities have driven significant politicking, undermining the possibility of government stability.
Government stability risks are likely to persist following the elections
Although BN pushed for early elections due to a belief that it possessed the necessary political momentum to secure a comfortable mandate, this momentum has partly shifted since the dissolution of parliament. The decision to carry out elections amid the imminent north-west monsoon was roundly criticised by the opposition. Indeed, floods in the past week have disrupted campaigning in several areas, leading to speculation that the Election Commission will possibly suspend the polls (see Daily Analytical Update – 10 November 2022). In addition, significant infighting within BN has also undermined its chances. (Source: Sibylline)
17 Nov 22. DRC: Threat of Attacks.
In the past 48 hours, France and the UK updated existing travel advisories over ongoing clashes between Rwanda-backed M23 rebels and the security forces in North Kivu province. The UK has advised against all travel to Goma (North Kivu), while France has urged its nationals currently in Goma to stay at home. In addition, the US issued a separate alert, in which it stated that NGOs have instructed their staff either to leave Goma or shelter in place.
- The advisories follow an escalation in activity by the M23 rebel group in North Kivu since 11 November, when violent confrontations broke out in the north-eastern villages of Rugari and Tongo, located around 44 miles (72km) from Goma. Subsequent clashes took place between the armed forces (FARDC) and rebels overnight on 13-14 November in Kibumba and Mwaro, located around 14 miles (23km) to the north of Goma. There were also unconfirmed sightings of M23 fighters near Kibati, located around five miles (8km) north of Goma.
- The latest escalation comes after the UN’s peacekeeping mission (MONUSCO) withdrew troops on 2 November from Rumangabo military camp, located around 28 miles (45km) north of Goma (see Sibylline Daily Analytical Update – 2 November). This followed a FARDC withdrawal from Rumangabo on 29 October. The loss of Rumangabo likely enabled rebels to dominate areas surrounding the camp, allowing them to continue disrupting access to the N2 road near Kibumba.
- On 5 November, the foreign ministers of the DRC and Rwanda agreed to maintain diplomatic channels and accelerate commitments made in July to end hostilities and remove M23 fighters from the DRC. However, Rwanda has delayed the next round of talks initially scheduled for 16 November until the end of the month. These delays suggest Rwanda is continuing to support the rebels. Sustained international pressure, including from the US, calling for Rwanda to end this support is likely.
The updated travel advisories underline the elevated short-term conflict risks in and around Goma, as well as concerns about the possibility of disruption to its egress routes. This includes via Goma International Airport (GOM). The emphasis on the elevated risks to foreign nationals is likely to raise duty of care concerns and elevating costs for businesses and NGOs, further increasing the likelihood of operational disruption.
If M23 rebels enter Goma, any resultant clashes with the armed forces will almost certainly increase the security risks to staff and assets, while further impeding business operations. Recent attacks in the vicinity of Kibumba underline the M23 rebels’ ambitions to disrupt the N2 road. Rendering the road unusable will effectively isolate Goma from northern parts of North Kivu, further elevating the likelihood of supply chain disruption. The rebels’ offensive likely represents an effort to control major transit arteries utilising the Bunagana border crossing with Uganda, from which the group seeks to obtain revenue.
However, following the Kenyan parliament’s approval of the deployment of around 900 troops as part of the East African Community (EAC) regional force, the second contingent of Kenyan troops arrived in Goma on 16 November. The deployment of these troops will likely mitigate the threat of an imminent attack against Goma. The presence of troops from other EAC members is also likely to mitigate the risk of a longer term conflict, despite Rwanda’s ongoing support for the M23 rebels.
Elsewhere, the M23 rebel offensive is likely to drive protests in the capital Kinshasa in the coming weeks. Protests are likely to take place near the Palais du Peuple and Boulevard Triomphal. Demonstrators have previously burned tyres and erected roadblocks, causing travel disruption in the city and elevating risks to business assets. The security forces will possibly use excessive force to disperse protesters, heightening risks to bystanders. (Source: Sibylline)
17 Nov 22. Official Says U.S. Committed to Taiwan’s Defense. The 2022 National Defense Strategy identifies China as the Defense Department’s pacing challenge, said the assistant secretary of defense for Indo-Pacific security affairs.
Speaking yesterday at the Politico Defense Summit, Ely Ratner said that as a direct result of this strategy, the Indo-Pacific is the priority theater with a focus on integrated deterrence, along with a working with allies and partners in a whole-of-government approach.
Regarding Taiwan, Ratner said the goal of integrated deterrence is to dissuade Chinese President Xi Jinping from thinking there’s a rapid, low-cost way in which they can execute an invasion.
The U.S. is committed to the defense of Taiwan, he said, and that’s spelled out in the Taiwan Relations Act.
The act includes the requirement to provide Taiwan with the arms it needs to defend itself, he said. Also, there’s a considerable focus on the non-materiel side, which includes training, civil-military integration and society wide efforts.
Defense in depth is part of the strategy of denial, Ratner said, noting that the island is mountainous, as well as urban, and Beijing currently doesn’t have the capabilities to launch a successful invasion.
Also, Beijing has been watching what’s been happening in Ukraine and is most likely taking lessons from that to include seeing the economic costs on Moscow and Russia’s dismal performance on the battlefield, he said.
When the fiscal year 2023 defense budget comes out, it will be apparent that there’s a careful alignment between strategy and the spending priorities involved in integrated deterrence, he said.
That said, U.S. and DOD leadership are committed to dialog and diplomacy to ensure competition between the U.S. and China doesn’t veer into conflict, Ratner said. (Source: US DoD)
17 Nov 22. North Korea fires missile, vows ‘fiercer’ response to U.S., allies. North Korea fired a ballistic missile on Thursday as it warned of “fiercer military responses” to U.S. efforts to boost its security presence in the region with its allies, saying Washington is taking a “gamble it will regret”.
North Korea has conducted a record number of such tests this year, and also fired hundreds of artillery shells into the sea more recently as South Korea and the United States staged exercises, some of which involved Japan.
South Korea’s military said the ballistic missile was launched from the North’s east coast city of Wonsan at 10:48 a.m. (0248 GMT), flying 240 km (150 miles) to an altitude of 47 km at the speed of Mach 4.
The latest launch came less than two hours after North Korea’s foreign minister, Choe Son Hui, slammed a Sunday trilateral summit of the United States, South Korea and Japan, during which the leaders criticised Pyongyang’s weapons tests and pledged greater security cooperation.
At the talks, U.S. President Joe Biden reaffirmed a commitment to reinforce extended deterrence and defend the two Asian allies with a “full range of capabilities”, including nuclear weapons.
Choe said the three countries’ “war drills for aggression” failed to rein in the North but would rather bring a “more serious, realistic and inevitable threat” upon themselves.
“The keener the U.S. is on the ‘bolstered offer of extended deterrence’ to its allies and the more they intensify provocative and bluffing military activities … the fiercer the DPRK’s military counteraction will be,” Choe said in a statement carried by the official KCNA news agency.
She referred to her country by the initials of its official name, the Democratic People’s Republic of Korea.
“The U.S. will be well aware that it is gambling, for which it will certainly regret,” Choe added.
The South Korean and U.S. militaries carried out missile defence drills after the North’s latest launch, Seoul’s Joint Chiefs of Staff said, strongly condemning it.
“We urge an immediate halt of North Korea’s series of ballistic missile launches, which is a grave provocation damaging peace and stability,” the joint chiefs said in a statement.
The United States has said since May that North Korea is preparing to conduct its first nuclear test since 2017, but its timing remains unclear.
Washington, Seoul and Tokyo said in a joint statement after the summit that Pyongyang’s nuclear testing would incur a “strong and resolute response.”
Choe said the North’s military activities are “legitimate and just counteractions” to the U.S.-led drills.
South Korea’s Unification Minister Kwon Young-se, who handles intra-Korea affairs, said the North might postpone its nuclear test for some time, citing China’s domestic political schedule.
“North Korea has also achieved some political effects by codifying its nuclear law in August, so it might not have immediate needs for a nuclear test,” Kwon said in an interview with Yonhap news agency released on Thursday. (Source: Reuters)
16 Nov 22. South Korea launches ‘Offset Promising List.’ South Korea’s Defense Acquisition Program Administration (DAPA) has introduced lists of products and services that it wants to prioritise through the country’s defence offset policy. DAPA said on 15 November that its newly published ‘Offset Promising List’ is aimed at supporting enhanced local involvement in foreign contractors’ offset projects.
According to DAPA, the new list identifies “preferred offset partners and items for foreign contractors to consider during their offset negotiations”. The list is accessible through DAPA’s online defence exhibition portal, https://defense-korea.com.
Aligned with South Korea’s defence offset guidelines, which are administered by DAPA, the Offset Promising List covers two sets of potential activities – technology co-operation and component manufacturing.
Technology co-operation is geared towards facilitating foreign contractor transfers of defence technology and knowledge to the South Korean industry. (Source: Janes)
16 Nov 22. Oman: Maritime Attacks.
Late on 15 November, a suspected drone reportedly struck an oil tanker located approximately 150 miles (241 km) off the eastern coast of Oman. The Liberian-flagged vessel, Pacific Zircon, is operated by Singapore-based Eastern Pacific Shipping, owned by Israeli businessman Idan Ofer. Reports indicate limited damage to the vessel and no injuries among crew members, while no group has claimed responsibility for the attack.
- In its statement on 16 November, Eastern Pacific Shipping, which operates the vessel, reported that the ‘projectile’ had caused only minor damage to the hull, with no injuries to the crew and no spillage to the gas oil cargo. Preliminary media reports indicated that the projectile in question was a drone carrying explosives, though this has not been independently or officially confirmed.
- The incident comes amid elevated regional tensions with Iran. It is therefore a realistic possibility that the incident marks a further retaliation by Tehran against the perceived involvement of foreign actors in its domestic affairs (see Sibylline Alert – 8 November 2022). This also aligns with increased activity levels of Iranian proxy groups in Iraq and Yemen observed over recent weeks, including attacks by the Houthis on maritime critical infrastructure and assets in Yemen (see Sibylline Daily Analytical Update – 10 November 2022). Similarly, the incident follows an airstrike on an Iranian-linked truck convoy carrying fuel in Syria, close to the Iraqi border, with perceived Israeli involvement (see Sibylline Daily Analytical Update – 9 November 2022).
- Furthermore, the incident closely follows the US Navy’s seizure of a vessel travelling from Iran ‘along a route’ in the Gulf of Oman ‘historically used to traffic weapons to the Houthis in Yemen’ on 8 November. According to a statement from the US Central Command on 15 November, the stateless fishing boat was carrying more than 100 tonnes of urea fertiliser and over 70 tonnes of ammonium perchlorate, which can be used to make explosives and missile fuel.
- The recent incident bears similarity to incidents in recent years, most notably the suspected drone attack on the MT Mercer Street oil tanker, located off the coast of Oman, on 29 July 2021 (see Sibylline Situation Update Brief – 4 August 2021). The vessel was managed by the Israeli-owned ship management company Zodiac Maritime. Israeli businessman Eyal Ofer, brother of Idan Ofer, is chairman of the Zodiac Group. Several governments, including the US, attributed the incident to Iran, though Tehran formally denied any involvement.
Eastern Pacific Shipping will continue to investigate the incident in the coming days and weeks. The United Kingdom Maritime Trade Operations organisation, as well as US naval authorities, are likely to provide support for the probe. This is likely to include an investigation of any debris or explosive material found in the vicinity of the Pacific Zircon tanker. There is a realistic possibility of authorities identifying the material as of Iranian origin, with Israeli sources claiming that the suspected attack was carried out using the Iranian-produced Shahed-136 drone. Nevertheless, the Iranian government is almost certain to deny any allegations of its involvement in the suspected attack.Further Iran-linked attacks on particularly Western- and Israeli-owned tankers and shipping lanes are likely in the coming weeks, including via proxy groups such as the Yemen-based Houthis. These are most likely to come in response to incidents of perceived foreign intervention in Iran’s sphere of influence, which includes Iraq, Lebanon, Syria and Yemen. This will sustain incidental and collateral damage risks to personnel and assets and increase the risk of maritime supply chain disruptions, including in the Gulf of Oman and Strait of Hormuz.
Overall, the developments are likely to heighten regional tensions, increasing the risk of tit-for-tat maritime hostilities in key shipping lines in the coming weeks, likely to drive a deterioration in the security environment in Gulf waters. The sustained volatility of shipping lanes in the Gulf of Oman, as well as along Red Sea routes, is likely to have negative effects on insurance costs and company access to suitable coverage for logistic firms. This will be compounded by staff security concerns, particularly for “Western-flagged” vessels, and ones affiliated or linked to the US or Israel. (Source: Sibylline)
16 Nov 22. Jamaica: State Of Emergency.
Prime Minister Andrew Holness approved a ‘state of emergency’ (SoE) declaration on 15 November for parts of the capital Kingston and several central and western parishes due to a surge in gang violence. Between January and November, the police recorded 1,360 murders, a 6.8 percent increase compared with the same period in 2021. The police estimate that around 70 percent of all murders are associated with gang violence. Jamaica’s current homicide rate hovers at around 49 murders per 100,000 residents, the highest in the region.
- In Kingston, the order pertains to the densely populated parishes of Clarendon and St Catherine, as well as parts of St Andrew. Outside Kingston, the order covers Hanover, St James and Westmoreland parishes. The affected areas include several high-profile tourist destinations, including the resort town of Montego Bay. The order will affect around 1.4m people.
- The order grants increased powers to the security forces, including the ability to search residences or detain suspects without judicial warrants. Detainees can also be held without charge for up to seven days. Similarly, the authorities are able to impose curfews and curtail operating hours for businesses in affected areas.
- The SoE declaration comes amid a government push to crack down on criminal groups in the country. This includes amendments to anti-gang legislation as well as preparations for the launch of a new anti-gang joint task force. The UN has similarly spearheaded a USD 70 m programme to suppress weapons smuggling.
- A previous SoE order in Jamaica in 2021 led to a spike in allegations of the police abusing their powers. In the same year, a US State Department human rights report documented several instances of arbitrary arrests, torture and juveniles having access to their families restricted.
The risk to personnel in tourist sites (such as hotel resorts) remains moderate, given that access to these areas is controlled by on-site security teams and state security forces. The police are also unlikely to carry out major operations near tourist areas, given the government’s reliance on tourism income. According to 2019 estimates, tourism accounts for around 22 percent of GDP.
Personnel located outside tourist sites are likely to be more vulnerable to risks associated with organised crime and police abuse in the coming weeks. The country normally experiences a rise in violent crime and theft during the winter holiday period due to an increase in the number of tourists. Business operations outside tourist sites will also likely be affected by any curfews imposed by the authorities. (Source: Sibylline)
15 Nov 22. MENA Region: Resolutions.
- From 1-2 November, the 31st Ordinary Session of the Council of the League of Arab States (or 2022 Arab League Summit) was held in Algiers (Algeria) under the banner of ‘Arab reunification’. Despite this banner, member states failed to agree on key conflict resolutions in Libya and Yemen, while the absence of several representatives underscored ongoing geopolitical tensions.
- Members stressed the importance of liberalising domestic markets and economic integration to attract foreign investment, increase intra-regional trade and boost regional diversification efforts. However, although member states are also keen to co-operate in atomic and nuclear energy to diversify away from hydrocarbons, enduring key security concerns pose regulatory risks for foreign investors.
- In addition, while approved resolutions to address food security and agricultural development will improve long-term regional self-sufficiency, they fail to address imminent concerns over basic commodity prices.
- Deeper relations between Arab League members and China and Russia risk polarising strategic ties with Western partners, increasing the potential exposure of member states to direct and secondary sanctions. Elsewhere, while disagreements over Palestinian rights persist, they are unlikely to deter members from consolidating economic and diplomatic ties with Israel in the coming months.
The 2022 Arab League Summit marked the first congregation of member states since the Covid-19 pandemic. Leaders reportedly discussed mechanisms to improve fiscal recovery, agricultural self-sufficiency and the region’s role in easing global energy security concerns. However, several leaders did not attend the meeting, including Crown Prince Mohammed bin Salman of Saudi Arabia and Lebanon’s president, Michel Aoun, among others. These absences underscore highly divisive regional issues, such as attitudes toward Israel and conflict resolution in Libya, Syria and Yemen.
Market liberalisation and the vision of digital economies
The economic fallout associated with the Covid-19 pandemic and the war in Ukraine have exacerbated financial disparities among Arab League states, prompting discussions surrounding market liberalisation and a review of the Greater Arab Free Trade Area (GAFTA). Draft resolutions emphasised the benefits of liberalising trade among Arab countries and modernising the Arab Customs Union.
In recent years, affluent Gulf states have implemented economic liberalisation programmes to diversify revenue streams, as well as to boost foreign and intra-regional investment opportunities. States such as Algeria and Libya have increasingly recognised the fiscal benefits of easing protectionist policies. The UAE has placed itself at the forefront of efforts to modernise the region economically, outlining an ‘Arab vision’ for digital economies that will facilitate business operations. Equally, Saudi Arabia has urged its regional neighbours to activate a customs co-operation agreement first outlined in July 2022 which facilitates data sharing. The synchronisation of regional co-operation on taxation will reduce business friction and streamline tariffs and tax collection processes.
The liberalisation of markets, economic integration and the standardisation of customs laws will enhance the region’s macro-economic outlook. However, weak infrastructure, corruption and poor governance will undermine efforts to streamline economies, while public opposition towards structural reforms will likely delay fiscal recovery. As a result, low-income countries will likely struggle to implement the Arab League’s initiatives, reducing their informal economies in the short term and sustaining inflationary pressures. Affluent oil-exporting states will likely survive the brunt of the global economic decline, further widening disparities in the region.
Enhanced co-operation in agri-tech and energy sectors will improve long-term food insecurity, though short-term concerns will persist
Arab League members emphasised the importance of investing in agricultural technology (agri-tech) to improve local wheat production levels. They consequently outlined a framework to improve regional agricultural output. In addition, Jordan will host the Arab Agricultural Forum from 4-6 December under the theme Arab Food Security in the Face of Challenges, emphasising the need to invest in ‘smart agriculture’. The forum is an extension of a strategy underscoring efforts to increase the production of basic commodities by at least 30 percent in ten years.
Additionally, leaders discussed the Arab Strategy for the Global Use of Atomic Energy, a ten-year initiative underlining the benefits of investing in atomic and nuclear energy. This follows the Arab Conference on the Peaceful Uses of Atomic Energy held in December 2021 in Egypt, where members agreed that regional development in nuclear energy requires strict non-proliferation mechanisms. While members agreed to ratify a regional Treaty on the Non-Proliferation of Nuclear Weapons at the 2022 Arab League Summit, concerns remain over the security implications. The Russia-Ukraine war has reawakened global fears about the offensive use of nuclear technology. Nevertheless, Arab League members emphasised the commercial and technological opportunities associated with atomic and nuclear developments if stringent resolutions are enforced.
While the Arab League resolutions targeting agricultural output and regional energy security promise to deliver significant long-term impacts, they fail to address the potential for social unrest stemming from imminent commodity shortages and blackouts. Businesses will therefore continue to face associated operational costs (including heightened physical security threats to personnel) due to protest activity and reduced overall purchasing power.
The Palestinian question remains a divisive issue, though it will not prevent normalisation with Israel
The recent summit was the first meeting among Arab League members since Bahrain, Morocco, Sudan and the UAE normalised ties with Israel in 2020. The deepening of economic and diplomatic ties with Israel remains a polarising issue among member states, though it is unlikely to deter other key players from following suit in the coming months. Significant political gains by far-right parties in the recent Israeli elections will also unlikely impact intra-regional trade opportunities.
However, the Palestinian question has historically represented a point of political contention among Arab League members, with the normalisation of ties with Israel causing further friction. Algerian President Abdelmadjid Tebboune stressed that the Palestinian question is the ‘mother of all causes’, reiterating support for the Arab Peace initiative. Therefore, the region is becoming increasingly polarised around anti- and pro-Israel stances, pushing countries like Algeria closer to Iran.
The summit outlined key economic developments promising regional integration and continued market liberalisation. Transitions towards digital economies will facilitate the modernisation of regional financial systems, laying a foundation suitable for foreign investment opportunities and stimulating fiscal growth. Moreover, affluent Gulf states will seize opportunities to consolidate their regional positions as leading powers.
Divisions over the Arab League’s stance towards Palestinian rights will persist, though they are unlikely to deter members from securing economic and diplomatic ties with Israel in the coming months. Elsewhere, while the approval of resolutions relating to technological advancements in energy and food security will enhance regional co-operation and self-sufficiency in the long term, they will fail to address short-term food insecurity concerns. Failure to implement resolutions which address imminent socio-economic crises will jeopardise the ability of member states to implement ambitious longer-term initiatives, especially as low-income countries remain unable to stimulate their economies.
Member states will likely continue to consolidate ties with foreign states to bolster economic partnerships. Indeed, Russia has expressed a desire to strengthen ties with all members of the Arab League. Moreover, the Arab League members’ deepening ties with China risk polarising long-term economic and diplomatic relations with Western governments, increasing the likelihood of direct or secondary sanctions. (Source: Sibylline)
15 Nov 22. Canada: Researcher charged with spying for China amid increased regional tensions. An employee researching battery technology at utility firm, Hydro-Quebec, was charged with espionage for obtaining trade secrets for China according to the RCMP on 14 November. The Quebec native, Yuesheng Wang, was reportedly working in a unit dedicated to developing battery materials, including collaboration with the US Army Research Laboratory. The arrest comes as the Canadian government places increased emphasis on the national security implications of industrial technology and trade relations. Ottawa recently directed several Chinese firms to divest from Canadian mining companies (see Daily Analytical Update – 3 November 2022). The incident further signals rising regional tensions between Canada and China, with potential trade impacts for the technology, manufacturing and mining sectors in particular. (Source: Sibylline)
14 Nov 22. First Kenyan troops deployed to DRC. Kenya is the latest addition to troop contributing countries aiming to end hostilities in the Democratic Republic of Congo (DRC). At the weekend, President William Ruto’s country became the first East African Community (EAC) bloc member to deploy in the DRC. The deployment will, according to a Kenya Defence Forces (KDF) statement, be known as KENCON (Kenya Contingent) and is part of the EAC Regional Force (EACRF).
Speaking at what was termed “a flagging off event” by the KDF, ahead of the weekend departure of KENCON, KDF Chief General Robert Kibochi said the requisite pre-mission training would ensure Kenyan troops were ready to execute tasks as mandated. The statement does not give any detail of what the Kenyan deployment will do or where it will be based in the DRC.
“You are the arrowheads you are making history being the first team going on a peacekeeping mission under the EAC, therefore write a good one. Kenya has good peacekeeping record and I hope you maintain the same. Politically and diplomatically you are there for disarmament, demobilisation and reintegration,” the statement has Kibochi saying in an indication of possible taskings facing KENCON. The statement does not indicate personnel numbers, musterings or what equipment will accompany or be forwarded to the Kenyan soldiers and states ambiguously the deployment “will be in solution amid heightened conflict in the area”.
The Kenyan National Assembly approved the deployment last Wednesday (9 November), according to the statement.
The EAC deployment is the second by an African regional bloc in DRC joining the Southern African Development Community (SADC) which, in addition to other taskings, comprises MONUSCO’s Force Intervention Brigade (FIB). Malawi, South Africa and Tanzania are troop contributing countries to the FIB, the only United Nations (UN) peacekeeping mission presently granted an offensive mandate in the execution of its Congolese population protection tasking.
In another EAC/DRC development, the regional bloc “re-energised” its inter-Congolese dialogue under the EAC-led peace process. An EAC statement has it the dialogue will “incorporate local DRC community leaders and stakeholders to bring a comprehensive solution to the protracted security situation”. (Source: https://www.defenceweb.co.za/)
14 Nov 22. Minister for the Armed Forces statement on the UN Peacekeeping Mission in Mali. Minister for the Armed Forces statement in the House of Commons on the UN Peacekeeping Mission in Mali.
West Africa is an important region for the United Kingdom and our allies across Europe. And the UK is strongly committed to supporting the UN to deliver its peacekeeping commitments around the world. That is why since 2018 we had been supporting the French-led counter-terrorism mission in Mali with CH-47 Chinook helicopters under Operation BARKHANE and more recently, since 2020, through the deployment of a Long Range Reconnaissance Group as part of the UN’s MINUSMA peacekeeping mission.
The House will be aware, however, that in February, President Macron announced the drawdown of French troops in Mali and was joined in that announcement by all other European nations, as well as Canada, that were contributing to the French-led Operations BARKHANE and TAKUBA. In March, Sweden announced that it would be leaving the UN’s MINUSMA mission.
Today, Mr Speaker, I can announce that the UK contingent will also now be leaving the MINUSMA mission earlier than planned.
Mr Speaker, we should be clear that responsibility for all of this sits in Bamako. Two coups in three years have undermined international efforts to advance peace. On my most recent visit last November, I met with the Malian Defence Minister and implored him to see the huge value of the French-led international effort in his country.
However, soon afterwards, the Malian Government began working with the Russian mercenary group Wagner and actively sought to interfere with the work of both the French-led and UN missions. The Wagner group is linked to mass human rights abuses. The Malian government’s partnership with Wagner group is counterproductive to lasting stability and security in their region.
Mr Speaker, this Government cannot deploy our nation’s military to provide security when the host country’s Government is not willing to work with us to deliver lasting stability and security.
However, our commitment to West Africa and the important work of the UN is undiminished. We’ve been working closely with our allies to consider options for rebalancing our deployment alongside France, the EU and other like-minded allies. On Monday and Tuesday next week, Mr Speaker, I will join colleagues from across Europe and West Africa in Accra to co-ordinate our renewed response to instability in the Sahel.
This will be the first major gathering in support of the Accra Initiative – a West African-led solution focussed initially on preventing further contagion of the insurgency into Cote d’Ivoire, Ghana, Togo, Benin and Niger and tackling the growing levels of violence in Burkina Faso as well as Mali – making this a very timely conference indeed.
And of course, Mr Speaker, it is not just the UK military that will remain committed in West Africa – the UK will continue its commitment to Mali and the Sahel through our humanitarian, stabilisation and development assistance, working in close coordination with partners.
Nor, Mr Speaker, is this a reduction in our commitment to the United Nations. The UK remains an important contributor of troops through Operation TOSCA in Cyprus, and staff officers across several missions, and provide training to around 10,000 military, police and civilian peacekeepers from a range of countries annually. We remain the fifth largest financial contributor and will continue to drive reform in New York. Indeed we are working with New York on developing a pilot – to be delivered through the British Peace Support Team based in Nairobi – to develop the capacity of UN troop contributing nations across Africa.
Mr Speaker, we will of course co-ordinate with allies as we drawdown from Gao and have been sharing our plans with them over recent months. The Army will be issuing orders imminently to reconfigure the next deployment to drawdown our presence. We are leaving the MINUSMA mission earlier than planned and are, of course, saddened by the way the Government in Bamako has made it so difficult for well-meaning nations to remain there.
The work of our troops has been outstanding, and they should be proud of what they’ve achieved there. But through the Chilcott Report and our wider experience in Iraq and Afghanistan, we – like so many allies – are clear that the military instrument should not be deployed on counterinsurgency or countering violent extremism missions unless there is a clear and compelling commitment towards political progress.
We will work quickly with allies in the region and across Europe to support the Accra Initiative to deliver security, stability and prosperity in West Africa. Our commitment to that region is undiminished.
Published 14 November 2022. (Source: https://www.gov.uk/)
14 Nov 22. Ethiopia: Breakdown of ceasefire still possible despite peace deal roadmap. On 12 November, representatives of the Ethiopian government and the Tigray People’s Liberation Front (TPLF) signed an agreement establishing a roadmap for the implementation of a peace deal. The roadmap will facilitate humanitarian access to Tigray, with agencies preparing to send aid to Alamata in the coming days. In addition, a joint committee will oversee the implementation of the deal, with the disarmament process beginning on 15 November. However, the agreement does not make any provisions for the role of Eritrea, a key military contributor to the federal government’s offensive. Territorial claims, particularly those of Eritrea and Amhara region, will act as key flashpoints for unrest. Furthermore, the TPLF will almost certainly demand the return of all occupied territory to the people of Tigray; the rejection of this demand will likely undermine the disarmament process and increase the likelihood of the ceasefire breaking down.
10 Nov 22. El Salvador: Chinese Debt Deal.
- El Salvador’s vice president revealed on 7 November that China has offered to help refinance the country’s foreign debt; related negotiations are possibly ongoing.
- Fitch Ratings currently places El Salvador’s Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘CC’ – eight notches below investment grade – and has implied that a sovereign default is likely by January 2023.
- In the past, China has offered various Latin American countries debt and trade deals in exchange for favourable market access. These deals have served to dislodge domestic and Western firms from their present market positions. They have also expanded trade deficits, creating supply chain vulnerabilities and ESG risks for firms.
El Salvador’s economy experienced a sharp rebound in 2021 following the Covid-19 pandemic. However, growth later decelerated due to concerns over a persistent budget deficit and continued expansionary fiscal policies advanced by President Nayib Bukele. The IMF began to negotiate a potential USD1bn bailout package with El Salvador in mid-2021, though talks later stalled over the scale of austerity measures and the government’s adoption of Bitcoin as legal tender. The government approved its high-profile Bitcoin Law in September 2021 before then going on a cryptocurrency buying spree. It also stated that it would not require further IMF assistance, citing the possibility of issuing debt in cryptocurrency. The IMF warned of financial stability and consumer protection risks, as well as associated fiscal contingent liabilities.
Plans to issue a Bitcoin bond were scrapped in mid-2022 due to the price of the cryptocurrency losing around a quarter of its value; it fell to its lowest level since July 2021. The government later announced a bond buyback, stressing that it had sufficient funds to manage its debt through 2022 and 2023. Nevertheless, in a note on 15 September, Fitch Ratings said that the size and scope of the transactions did not materially alter the probability of a sovereign default.
El Salvador has a USD 667 m Eurobond payment due on January 2023, which may precipitate a default. Fitch estimated financing needs of USD 3.7bn from September 2022 through January 2023, including an unidentified gap of nearly USD 900 m. The payment due in January is currently trading at around 90 cents on the dollar. On average, the extra yield investors are demanding to hold El Salvador’s debt over US Treasuries is hovering at 18.77 percentage points – well above the 10-percentage point threshold for distressed debt.
Chinese Debt Deal
Vice President Felix Ulloa stated on 7 November that the government had received an offer from China to buy large amounts of distressed foreign debt. Ulloa added that the administration would ‘tread carefully’ and that they ‘were not going to sell to the first bidder’. President Bukele later confirmed on 9 November that both countries had begun discussing the terms of a free trade agreement. He added that China had recently donated around 1,400 tonnes of fertilizer and more than 900 tonnes of wheat flour to mitigate the country’s economic downturn.
China’s foreign ministry has not confirmed whether a full buyout of El Salvador’s distressed debt will be carried out. However, Beijing has offered similar deals to other Latin American countries; it currently enjoys an oil-for-loan arrangement with Venezuela, valued at around USD19 bn, which ties up around a quarter of the country’s crude exports. Similarly, Ecuador recently restructured about USD 1.4bn in debt owed to Chinese banks by assuring favourable treatment to Chinese oil buyers.
Debt Relief-for-Market Access
China is currently involved in at least four high-profile construction projects in El Salvador: a water-purifying plant in Ilopango (San Salvador department), a port in La Libertad department, the National Library in the capital San Salvador and a new national stadium (which is being donated by the Chinese government). All of the projects are being developed by Chinese firms which are importing construction personnel, raw materials and machinery into El Salvador.
It is highly likely that Chinese firms already present in El Salvador will seek to expand their market presence. They will possibly also negotiate preferential treatment in the form of tax incentives and/or legal monopolies. This practice has been carried out in other developing nations in Africa and the Asia-Pacific region. Arrangements of this kind are relatively cheap for governments dealing with China; they possibly also lead to the side-lining of domestic and/or Western firms currently present in these countries. A free trade agreement which boosts Chinese imports into El Salvador will likely exacerbate this trend.
While the terms of a possible trade deal have not been made known, the sectors most likely to be affected are construction materials and engineering. Other sectors, such as manufacturing and telecommunications, are also likely to be heavily exposed in the near future, especially in light of China’s emphasis on Fourth Industrial Revolution (4IR) technologies such as 5G and artificial intelligence (AI).
Regional Trends and Expanding Trade Deficits
Between 2000 and 2020, China-Latin America and the Caribbean (LAC) trade grew 26-fold from USD 12bn to USD 315bn. If the current trajectory persists, China-LAC trade is likely to hover at around USD 700bn by 2035, meaning Beijing will either equal or surpass the US as LAC’s top trading partner. Nevertheless, aggregate numbers conceal some discrepancies within the region. Large energy and mining exporters in the southern cone (e.g. Chile and Peru) will likely continue to export more than they import from China. However, other countries’ Chinese imports will likely far surpass their exports.
According to estimates by the Atlantic Council, the following countries will incur a negative trade balance with China as a percentage of GDP by 2035: Argentina (-1.4 percent), Bolivia (-2.6 percent), Colombia (-2.5 percent), Ecuador (-3.1 percent), Mexico (-8.3 percent), Nicaragua (-13.2 percent) and Paraguay (-13 percent).
These large trade disparities create weak points for supply chains in the region. Countries which allow Chinese exports to displace production by domestic firms will give rise to networks of demand that are highly dependent on one source of origin. This will create vulnerabilities to shocks inside the Chinese market, including extreme weather events and/or health-related social restrictions.
Separately, Chinese production networks are designed for efficiency, cost-effectiveness and proximity to markets, but not necessarily for transparency. By causing local firms to lose market access, reputational and ESG risks will likely increase in the long term. (Source: Sibylline)
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