Illegal migration and the EU’s mis-targeted response

In 2015, according to Frontex, the EU Agency for protection of EU borders, a record of 1,820,000 illegal immigrants entered the EU (these were the ones officially detected and recorded, at least another 400,000 are thought to have escaped detection). Of these illegal migrants, most of the flow from Africa is focussed on using Libya as a launching pad into Europe. Italy and to a lesser extent Malta, are the reluctant hosts. In Malta where I live, we see a lot more Eritreans, Somalis and to a lesser extent Nigerians and Ghanaians on the streets. On a little island of white Christians, the increasing number of black Muslims has created something of a schism. Middle-class liberals, talk about human rights and asylum from persecution. The majority of the population, including most politicians irrespective of their credo, talk about mass deportations. Once in a while, we wake up to bloated bodies on the beaches when a smuggling boat has given to Davy Jones Locker. This and the previous year, have seen a severe backlash in the EU against illegal migration. The agony of Syrian refugees has been blunted by a huge number of economic migrants, from Pakistan, Afghanistan and The Sahel who have jumped on the Syrian bandwagon.

However, Europe’s refugee crisis is not only an urgent humanitarian disaster but has also spawned an incredibly lucrative industry. Refugees and migrants are spending immense sums of money in attempts to reach Europe, syphoning more than billion dollars a year into an underground economy of traffickers. Between 2000 and June 2015, migrants and refugees have paid traffickers over 16 billion euros to reach Europe, according to The Migrants’ Files, a data journalism organization that has analysed thousands of payments to smugglers to estimate the size of the trafficking market. The EU has reacted by throwing money at the problem in its usual unfocused way. EU and African leaders, meeting at Valletta in November 2015, highlighted the need to take action regarding conflicts, human rights violations and abuses. This included conflict prevention, support for state building and the rule of law, and reinforcing state capacity to ensure security and fight terrorism.

They also came up with the idea of launching an audio and video programme advising against travelling without legal visas or as the Valletta press release put it “EU and African leaders agreed to improve access to information on the dangers of irregular migration and provide a realistic view of living conditions in European countries. “ For most economic migrants, the video was like an invitation to travel. The best economic conditions in the countries from where the majority were escaping, were worse than the worst scenarios shown in the European countries. On 16th December 2016, The EU Emergency Trust Fund for Africa adopted a €37 million package to increase protection of migrants and to strengthen effective migration management in North Africa. Almost all the money is allocated to Libya, Morocco and Tunisia, for among other things (I kid you not) “a  €5.5 million programme to support the prevention of racism and xenophobia against migrants”. As someone who has spent more than two decades working in Sub-Saharan Africa, I am flabbergasted at this total waste of money, not only in the irrational programmes that are supported but the complete mistargeting of the countries that are beneficiaries of the EU largesse.

The point that the EU needs to focus on is Northern Niger, from where 90% of the illegal caravans of misery originate. The main northern city of Agadez, is a major transit zone for thousands of West Africans trying to reach Algeria and Libya en route to Europe. Agadez, which I once visited ten years ago, on my way into the desert trying to prospect for Gold, was then a fly-blown shit hole, with even drinking water at a premium. The only hotel in town was so dire that I spent three nights sleeping in my Land Cruiser. However, since the 15th century, Agadez has been one of the continent’s most important trading hubs, the gateway between West and North Africa. Now, it is a city run by human smugglers. Weapons, drugs, laundered money, hapless migrants, indentured prostitutes they all pass through Agadez. An excellent article in the Huffington Post gives an on the ground view of events in Agadez.

The Republic of Niger, whose President Alhaji Mahamadou Issoufou, whom I have known for more than fifteen years, has struggled to control the situation. Alhaji Issoufou, a committed socialist came to power and faced the ire of France for cancelling the Uranium mining permits of Areva, which for almost forty years paid a pittance for mining a fortune worth of Uranium. However, with the rise of Al Qaeda in the Maghreb, and collapse of Uranium prices, Niger has not been able to control the flow of illegal migrants. President Mahamadou Issoufou’s government passed a tough anti-migrant smuggling law in May 2015 that establishes prison terms of up to 30 years for people smugglers, in what it said was a bid to protect vulnerable young Africans. Officials in Niger, ranked as the poorest country on earth by the United Nations, know that implementing the new law means cracking down on endemic graft in a country where a young policeman earns less than $190 a month. The fact that Agadez thrives is proof of the fact that the law doesn’t work. A confidential national police report, which I have seen, concluded that Agadez, which acts as a gateway to the north, was an ‘El Dorado’ for security forces. It found there were more than 70 smugglers ‘ghettos’ active in the town, each one protected by a paid police agent.

A separate report by the HALCIA anti-corruption agency the same year said that payments to security forces and local authorities totalled $450 per vehicle and $30 per foreign migrant on the route between Agadez and the Libyan border. The HALCIA mission found that bribes paid by migrants were essential to keep the security forces functioning as money earmarked in the military budget to buy diesel for vehicles, spare parts and food simply disappeared in Niamey. Instead of spending money in Morocco on “programmes to support prevention of racism and xenophobia against migrants”, the EU should be funding institutional capacity building in Niger and Chad. Additionally, Frontex should train and fund the salaries of Nigerienne military and border control forces. President Issoufou has already invited EU to station troops or Frontex forces within Niger to break up the routes of people smugglers. I agree that these are stop gap measures, but the logistics and the routes for smuggling are not built overnight, and a policy of consistent harassment and interception of smugglers will see an immediate drop in illegal migrants washing up on Europe’s shores.

In the final analysis, there is no alternative to a policy of Fortress Europe. Illiteracy, overpopulation, civil wars and corruption in Sub-Saharan Africa cannot be eliminated, reduced maybe, but not eliminated. Therefore there will be a continuous flow of people who have nothing to lose and who are willing to do what it takes, towards the bright lights of Europe. The only way to reduce the flow is to sanction the governments that allow their countries to be used as staging points and, to bring stability to Libya, which during the Gaddafi times acted as Europe’s guardian of the Mediterranean shores.


China’s Belt and Road initiative in a post-Covid world

The Headlines

In the 17th Feb. issue of Time magazine, in a lead article headlined “The Coronavirus Outbreak Could Derail Xi Jinping’s Dreams of a Chinese Century” their political columnist wrote “the crisis has already demonstrated that the centralization of political power under Xi has made Chinese society brittle. The question now is what it will endure before it begins to crack.”

The South China Morning Post in an article around the same time predicted “Closure of overseas markets to hit exports, while psychological scars, bankruptcy and job losses will hit domestic demand”. Quite a few other western economic and political pundits have predicted everything from resurgent quasi-independent Hong Kong to a collapse of the One belt one road initiative with billions in losses to the Chinese government.

Asia expert Parag Khanna compared the effects of COVID 19 on the OBOR initiative to that of the plague in the middle ages that effectively shut down the Silk Road, the main trade artery between the Orient and the West. According to Khanna, author of The Future Is Asian, mistrust of China and its Belt and Road infrastructure initiative was already growing. The current global pandemic will only add to that. The crisis will force China to accelerate its efforts to bring other nations to the table to co-fund and co-manage its Belt and Road projects.

In an interview with CBC he said “ I did not call my book The Future is Chinese, I called the book the Future is Asian for a good reason because China has never been number one in the world and it’s never been number one in all of Asia, because Asia, inherently, is so diverse. You have the Indian civilization, Japanese civilization, Russia is actually an Asian power, Persia, I mean Iran, Korea, Australia. India, the United States is still a major military presence, there are many balancing powers to contain China’s rise, so the notion that has taken hold over the last 20 years, that China is inevitably destined to be number one, and the prominent global power on the planet Earth was always a complete myth, it was always wrong.”

Based on my quarter of a Century in working with Chinese SOEs and with the Chinese as a people “I have to paraphrase Mark Twain’s often quoted quip “The rumours of the demise of the Chinese economy are vastly exaggerated”. It is true that that the Chinese economy has taken a major hit.

The Facts

Lets look at the human cost first; On the 3rd of April, according to Official Chinese MOH sources. Coronavirus Cases in total, were 81,620, of these Deaths totalled 3,322 and Recoveries were 76,571; active cases were 1,727. In terms of economic costs, the impact on the Chinese economy has been catastrophic. As COVID-19 spreads from China to over 90 countries across the world, the country’s economic growth could hit its lowest point since 1990. According to the worst-case scenario projected by over 40 economists, China’s GDP growth could fall as low as to 2.4 percent in the first quarter of 2020, and five percent for the whole year.

The two graphs from the BBC allow us to visualise the massive drop in industrial production.

According to the Chinese National Bureau of Statistics, in the first quarter of 2020, Exports dropped 16 percent, retail sales 20.5 percent, fixed asset investment 24.5 percent. And surprisingly, the NBS admitted that one measure of unemployment topped six percent. To avoid an economic meltdown, the Chinese government has adopted a package of policies to support the resumption of work and production, including fiscal, monetary, financial and trade policies. To maintain market liquidity and meet the needs for working capital and other financing, the People’s Bank of China (PBC) eased the credit market through conventional policy instruments, including open market operations, the reserve requirement ratio, loan facilities, refinancing, and rediscount policies.

Chinese financial institutions also implemented a series of financial support measures, especially for small and medium-sized enterprises (SMEs), including reducing interest rates, increasing debt rollovers and renewal loans, and providing specific credit lines for the resumption of production. The central bank encouraged online financial companies such as Ant Financial to ease financing for small and micro businesses. 

The central government also launched a package of policies to stabilise international trade and foreign investment and continues to open the market. By 4 March, the Ministry of Finance arranged a total of 110.48 billion yuan of special funds for epidemic prevention and control, 71.43 billion yuan of which has been used. The fiscal authority also increases the 1.85 trillion yuan of the quota of newly issued local government bonds to mitigate the adverse impact of the epidemic. From January to February, nearly 70% of the quota (approximately 1.2 trillion yuan) of local government bonds had been issued. On 13 March, in response to the global financial panic, the central bank cut the targeted reserve requirement ratio by 0.5 to 1 percentage points, which released 550 billion yuan of long-term funds. 

The Pushback

Since the middle of March, when China announced that the situation in the country had stabilised, China’s mighty manufacturing machine — which accounts for a quarter of the world’s manufacturing output — showed glimmers of revving up again. According to The New York Times “Airbus, the European aircraft maker, said that it began to reopen its narrow-body jet assembly operations last week in Tianjin but that it would only “gradually increase production, whilst implementing all required health and safety measures.” Airbus needs the production: It acknowledged that it could not meet global demand for narrow-body jets, which airlines are clamouring for after the grounding of Boeing’s 737 Max jet. The Tianjin plant has a targeted production rate of six jets per month.

Volkswagen has partially restarted one of its 15 assembly plants in China. General Motors has begun a gradual process to reopen its more than a dozen assembly plants, and Hyundai had restarted most of its Chinese production by last week. Caterpillar, the heavy equipment company, has said it that it has reopened most plants in China and Honda restarted production in the middle of march. China’s consumer electronics components factories have slowly reopened and by the last week of march practically all had reopened except those in Wuhan. However, with the exception of factories producing medical protective equipment, which the Chinese government has asked to run around the clock, few businesses seem to be returning yet to their previous pace.

However, there are structural impediments to demand in China that will at least for this summer restrict consumer spending and impact on manufacturing. Many leading economists feel that China is set for a “W-shaped” pattern of economic activity. In such a pattern, the economy nose-dives when most businesses close during lockdowns and then seems to recover when factories and stores reopen. But with many consumers still scared of infection and leery of spending money, the economy then dips a second time before embarking on a more sustainable recovery.

Tens of millions of migrant workers are unemployed. Estimates of overall unemployment run as high as 20 percent. Many white-collar workers have suffered pay cuts. In such as scenario Government fiscal introduction is the key to riding out the second half of the W. Interestingly enough at the National Peoples’ Congress that started today in Beijing, President Xi Jin Pei announced a raft of fiscal policies to kick start the economy and stimulate consumer demand.

The abdication of US Global Leadership

After World War II, America leveraged its newfound superpower status to build an international order of rules and institutions which, while not perfect, have brought us the most peaceful and prosperous 70 years of human history. Concurrently, even during the more than four-decade-long Cold War, the U.S. managed to exercise leadership with its prime adversary, the Soviet Union. They worked together where national interests overlapped such as on non-proliferation and arms control to help minimize Mutually Assured Destruction which could have ended life as we know it, and the eradication of the age-old scourge of smallpox, in cooperation with the World Health Organization (WHO), that annually had killed millions.                                                     

Since President Donald Trump took office, in sharp contrast to its previous often constructive leadership, the U.S. is not merely missing in action internationally, it’s generally characterized by dysfunction, divisiveness and disaster. Nothing illustrates this more starkly than the COVID-19 pandemic. President Trump’s America-first policies, contempt for multilateral organizations and testy relationships with other world leaders are contributing to what many see as a surprising lack of global unity and coordination in combating the COVID-19 pandemic.

It is usually the U.S. president who would lead such an effort in times of global emergency. With Mr. Trump’s unembellished nationalism and his efforts to blame first China and then WHO for the coronavirus, and his various misstatements of fact, America no longer serves the planet. As the U.S. has receded from global leadership, China has filled the vacuum in numerous multinational organizations in both human resources and funding.

Having stemmed the initial outbreak on its own soil, the regime of Xi Jinping sent aid, including desperately needed medical masks and ventilators, to hard-hit Italy and Serbia as well as the European Union more generally. The head of one of China’s biggest companies, Jack Ma of Alibaba, offered test kits and masks to the United States — along with 54 countries in Africa.

China’s post-Covid foreign policy and the redesigned BRI.

With the global economy gasping for breath in the wake of the COVID-19 pandemic, talks of a reconstruction plan to resuscitate flailing economies are beginning to surface, a conversation around the Marshall Plan being invoked in many quarters. How will a 2020 Marshall-esque Plan pan out? Who will fund and lead the reconstruction this time around, in a debt-laden world with governments struggling to keep economies from failing?

In today’s context, as the question of who is in a position to lead a post COVID-19 reconstruction is asked, the answer that follows is almost a reflexive one: China. The Marshall Plan however was defined as “a program designed to rehabilitate the economies of 17 western and southern European countries in order to create stable conditions in which democratic institutions could survive.” Even the most ardent fans of China will admit that Chinese foreign policy is not aimed at creating stable conditions in which democratic institutions thrive.

Belt and Road Initiative (BRI) is Xi Jinping’s signature foreign policy agenda to build traditional and digital infrastructure around the world. China has constructed its loosely governed, $1 trillion infrastructure initiative to ensure that Beijing reaps many of the benefits, but this structure of governance has also created significant foreign dependencies upon China. Most BRI infrastructure contracts are given to Chinese companies, most projects rely overwhelmingly on Chinese labour and supplies, and BRI depends on the availability of massive amounts of cheap credit from Chinese banks. In becoming the epicentre of a global public health crisis with far-reaching economic consequences, China has also revealed the inherent vulnerabilities of an international initiative that is governed through its reliance on Beijing.

Its my opinion that post Covid the outlook is far from bleak. As China seeks to share its valuable experience of battling COVID-19 with other BRI countries, one key area of potential will be in projects focused on strengthening the health systems of low-income countries, even if focused on soft processes rather than hard infrastructure.This would be a potential area where China is likely to publicize its efforts as being a part of the BRI. Beyond the short-term, changes to global supply chains will bring new opportunities for diversification through joint activity with others in both North and Southeast Asia. There is also potential for accelerated digital BRI activity in relation to Chinese tech companies especially given the new digital RMB that was recently unveiled

In my interaction with senior Chinese colleagues both in Government and in the State-owned Enterprises that have traditionally been the beneficiaries of OBOR, it is clear that a new radically redesigned BRI will be unveiled at the National Peoples Congress.Gone are the days of massive loans to build infrastructure using Chinese labour. What is now envisaged is a new “Peoples Partnership”, where Chinese SOEs will invest in concessions world-wide, to build infrastructure that is critical both for the host country as well as for Chinese commercial and political interest. Partnerships with western operators and where possible outright acquisition of western companies with experience of operating concessions will ensure commercial paybacks of investments.

The target countries are Eastern and Central Europe, Latin America and the Pacific islands. Recent Chinese investments in Latin America were a test bed for the new policy. Prime amongst them is the contract to build and operate the Bogota metro (China harbour) and the Third Bridge over the Panama Canal. Chinese companies are in negotiations to acquire concessions over at least two major ports in Brazil and to build and operate a deep-water port in Surinam. Negotiations are also ongoing to build and operate oil storage facilities along the African coast and to build and operate a 1600km railway line to bring bauxite from the mine to the port in Guinea. In the Philippines Chinese contractors are discussing building a network of toll bridges to connect the Visayas islands. All these multi-million-dollar projects create jobs in the recipient countries, bind them closer to a more benevolent China that is seen to be willing to invest when no one else dared, and more importantly open markets for Chinese companies. Best of all unlike loan projects, there is no stigma and the Chinese make a handsome return on their capital.




China’s One Belt One Road, threat or a major opportunity?

Earlier this year, the first train rumbled down the tracks of a $3.4 billion electric railway connecting landlocked Ethiopia with Djibouti and its access to the Red Sea. The 750-kilometer (466 miles) line, expected to carry up to five million tons of goods per year. Around the same time on a different continent,after 18 days and 28,000 kilometers, the first-ever direct China-to-Britain freight train pulled into London. It passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel. Inside the 68 containers were household items, clothes, fabrics, bags and suitcases.

Two different continents, two unconnected events you might think….well no, both the trains are the result of a little known Chinese initiative called “One Belt, One Road. The 3.4 billion USD rail road connecting Djibouti to landlocked Ethiopia, was built with Chinese credit, by engineers from China Rail, and use locomotives built by CSR Zhuzhou. The Chinese locomotive that pulled into London was the latest milestone in China’s ambitions to redevelop the old “Silk Road” trade routes from Asia to Europe and a direct result of the One Belt One Road Programme. (OBOR)

When completed, the OBOR will include 60 countries, with two-thirds of the world’s population, 55% of the global GDP and 75% of global energy reserves. It will consist of 900 infrastructure projects, valued at about $1.3 trillion. So, what is this One Belt One Road, that a lot of startled western and some Indian politicians are waking up to? I believe what we may currently be witnessing is a carving out by China of a continental-maritime geo-strategic realm constituted by ‘One Belt and One Road’ initiative.

OBOR manifests the continental dimension of this geo-strategic realm. It consists of a network of rail routes, overland highways, oil and gas pipelines and other infrastructural projects, stretching from Xian in Central China, through Central Asia and Russia, with one artery crossing Kazakhstan and the other through Mongolia but both linking up with the trans-Siberian railway and going on to Moscow, Rotterdam and Venice.

The sea route, known as the “Maritime Silk Road” or simply the “Road,” is made up of ports and coastal development, and begins from China’s eastern ports and goes on to Southeast Asia, South Asia, East Africa and then on to West Asia and the Mediterranean. It embraces Greece and Venice and ends at Rotterdam. Both routes, again recalling the old Silk Road, have a series of loops and branches, with the two main routes also meeting at important junctions, such as Gwadar, Istanbul, Rotterdam and Hamburg.

What drives this massive Chinese investment programme?                    

“The Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road” (the “Vision and Actions”) issued by the National Development and Reform Commission of The Peoples Republic of China (to give it its full name), on the 28 of March 2015 outlines the initiative’s framework, co-operation priorities and co-operation mechanisms. A typically verbose document, it outlines the benefits that the countries who lie along the OBOR routes will receive from increased connectivity, free trade, new investment, and Chinese technology.

The truth however is that China needs OBOR more than the countries along the OBOR route. In promoting the OBOR, China is being driven by domestic and foreign considerations. Primarily, the urge to achieve development in all of China’s 31 provinces is a major factor, more so, to accelerate the development of the country’s relatively poorer western and southern provinces. It has been reported that a sum of $20 billion is available for infrastructure and cross-border projects in the provinces which will be linked to the ‘Belt’ component of the initiative, in particular Sichuan, Gansu and Qinghai on China’s western flank and Yunnan on the southern flank.

OBOR-related projects will also provide an outlet for China to use its overcapacity in steel, cement and construction materials, as also its surplus financial reserves. On a political and strategic level, especially in an Europe beset with Economic malaise, Chinese money has been quietly buying friends and influencing people. In Malta, the Chinese committed almost 300 million euros to buy 30% of the bankrupt state power utility, while in Greece they snapped up 40% of the strategic port of Piraeus. Hungary, the bad boy of the EU, has been chosen as a key logistics hub on the trans-Siberian link. It will serve as a distribution point for Chinese exports to Europe and an aggregating point for imports from Europe. China Railway International Corporation Ltd on the 23rd of May 2016 announced a USD2 billion project to build a Belgrade Budapest Rail corridor, which would speed up the movement of cargo along the Balkans to a Central European hub.

OBOR and the increase in China’s financial clout

The new financial institutions linked to the OBOR strategy – the US $100 billion Asian Infrastructure Investment Bank (AIIB) and the US $40 billion New Silk Road Fund (NSRF) have been set up. These together with the US $50 billion New Development Bank (NDB) and the US $100 billion Contingent Reserve Arrangement (CRA) represent Chinese backed new financial institutions that are not part of the existing Western dominated financial architecture. They will adhere to the Paris declaration but will not abide by the conditionality driven DAC framework. They are designed to help address issues of infrastructure underfunding, to create new pathways to sustainable development, south-south cooperation and mutually compatible solutions to development problems. The Yuan’s sudden devaluation, coming on top of a sharp correction in China’s stock markets and a slowing economy are an indication that the old model of Chinese growth has reached its peak. China has to restructure its economy from an investment led model to a consumption led model. This is the path that Japan and South Korea followed earlier. But with large State Enterprises and rising debt this is not an easy option. China’s OBOR strategy represents an option to investing abroad and utilising some of this excess capacity.

On the other hand, the financial element of OBOR also allows China to increase its financial clout at the expense of the US dollar, and US dominated financial systems. The US has boycotted all the new Chinese Development Banks, but western allies, notably the UK, have more than made up for it with their unbounded enthusiasm to sign up to OBOR. In return, the UK has become a key platform for the internationalisation of the renminbi, the creation of an off-shore yuan bond market and the spread of Chinese banking in Europe. London has become China’s preferred centre for the launch of yuan-denominated bonds. China has invested in the redevelopment of real estate in the British capital and will guarantee $3 billion for the proposed nuclear power station in Hinckley. Several British banks have been favoured with licenses to operate in China. The British head start is leading to competitive courting by other European financial centres such as Frankfurt and Paris. Thus China sees Europe as helping it to put in place a sophisticated financial network which could underpin the ambitious physical networks that will bind Eurasia.

OBOR and what it means to the man on the Clapham omnibus

Amongst all this strategic manoeuvering, for influence, markets and political control, what does OBOR mean to a simple individual or a company. One of my Group companies, Suez Ports is a beneficiary of OBOR, as we have a concession from the Govt. of Oman to finance, design build and operate, what we hope, will become the largest trans-shipment port in the Middle East. Luckily, we are smack bang on the Persian Gulf part of OBOR, and China Harbour, the world’s biggest Port construction company has agreed to come in and partner with us to build the US1.9billion port. In the same way, I believe that there are huge opportunities for contractors and developers to use the funding initiatives under OBOR to partner with Chinese companies in Europe and Central Asia. For cash strapped European banks, there are opportunities in working with Chinese institutions in advising on Project Financing and Cross border M&A, as well as hedging their currency portfolios with Renminbi . For European consumers, severely shortened shipping routes will mean even cheaper products, though European manufacturers will suffer. Ultimately, we must heed the ancient Chinese proverb, ‘He who sleeps with the tiger must keep one eye open.