Young Diplomats

Nigeria is now the largest economy in Africa, and global multinationals are queuing up to tap into its potential. Yet there are still major hurdles for the country to overcome before it can properly silence its critics.

NIGERIA FACTS

The Federal Republic of Nigeria, located in Western Africa on the Gulf of Guinea, is the most populous country in Africa with a rich cultural heritage and diverse ethnic background. Half of its 170 million population is Muslim, while Christianity is practiced by 48%. A former British colony, Nigeria gained independence in 1960. After years of civil war and military rule, it has been on the path to democratization since 1999, with Goodluck Jonathan elected President in 2011. This year Nigeria overtook South Africa as the largest economy in Africa. While oil reserves still play a major role, Nigeria’s financial and telecommunications sectors are growing fast and it has a promising pipeline of infrastructure projects.

INVESTMENT FLOWS IN

At the epicentre of this 21st-century story of extremes of hope and doubt is teeming Lagos, a magnet for the optimistic poor. Every year about 600,000 locals join the city’s informal economy. The UN estimates that within a few years Lagos could edge out Karachi to become the world’s third-largest city, after Tokyo and Mumbai. It is for this reason that Nigeria’s economic future looks increasingly urban.

If Lagos became independent tomorrow, its GDP would be similar in size to Angola. But such breakneck pace also brings with it a propensity for whiplash. The city is also one of the most congested urban sprawls on the planet, with a rudimentary mass transit system and chronic infrastructure problems.

Indeed, the city’s Governor, Babatunde Fashola, recently put the estimated amount required for infrastructure development in Lagos in the next 10 years at $50 billion. No wonder Lagos state has used a Public- Private Partnership (PPP) strategy to solve its vast infrastructure deficit. At the beginning of 2014, the Lagos State Government revealed that 83 roads had been completed in 2013 – as had Nigeria’s first cable-stayed bridge, the Lekki-Ikoyi Link Bridge (although this was publicly, not PPP, funded). The State Government also recently revealed how N160 billion ($981 million) it borrowed from the World Bank has been used to fund its Light Rail project.

Nigeria has also privatized the infrastructure and assets of Parastatal Power Holding Company of Nigeria, splitting the company up in regional distribution and placing the national power grid on a management contract. This is crucial to solve Nigeria’s notoriously erratic power supply. Although it will likely take years for the power supply to improve, it is hoped that private investors are placed to access the funding and technical expertise required to make it happen.

Oliver Facey, Vice President of Operations at DHL Express Sub–Saharan Africa, sees this infrastructure scale-up and improved regional trade, from both an SME and multinational perspective, as intertwined. “As multinationals turn to Africa, and as smaller African enterprises look to trade cross-border, regions like West Africa need increased capacity to cope with the rising demand for transportation of goods,” he says.

This demand for goods from a growing middle class is a turnaround because, to date, Nigeria’s economic growth has been a narrative shaped by oil and gas. Although energy resources only account for 14% of its GDP, they are still responsible for 75% of Nigeria’s federal revenue and 90% of exports. But the recent rewriting of Nigeria’s GDP took into account thirteen previously uncounted industries which included telecommunications, online sales, film production, and music, each offering promising signs for the future. In short, it’s increasingly all about “human energy”.

And international companies want to tap into that energy. General Electric recently became one of the global manufacturers to take advantage of this new narrative, with a $1 billion investment over five years in a service and manufacturing facility in Calabar, Cross River State. On a bigger scale, the $9 billion investment of Dangote Group in petroleum refining and petrochemical and fertilizer plant in the Olokola Free Trade Zone is set to transform the area. Nigeria is also making the great leap towards its own car industry. In the last few months Nissan began manufacturing family saloons and SUVs at an old Lagos Volkswagen assembly – foreign cars with a “Made in Nigeria” stamp.

Certainly, foreign investment is increasing. According to a June 2014 report from the United Nations Conference on Trade and Development (UNCTAD), Nigeria’s foreign direct investment (FDI) inflow stood at $5.6 billion in 2013. Yet a May 2014 report from Ernst and Young forecasts that FDI inflows to Nigeria will average about $23 billion annually over the next five years and create around 95,000 jobs.

PEOPLE POWER

The bottom line, digging beneath the statistics, is that there is a positive story here and all to play for. To be a dominant world economy, like China or America, two fundamental things are required: a large population and strong productivity. Nigeria is making bullish inroads into both. Simple demography is probably the most fundamental factor. At 180 million, the current population is the world’s seventh-highest. By 2050, this is projected to be 400 million, setting Nigeria on course to replace the United States as the world’s third most populous country.

This population windfall is part of a broader developing world trend whereby 1.2 billion mostly emerging-economy youth are forecast to move out of subsistence poverty by 2020. For this new generation of local consumers in Nigeria, household discretionary spending will exceed $5,000 for the first time. What this means in the present is Nigeria, as a burgeoning consumer market, is simply too large to ignore.

 The next phase of Myanmar’s political transition has been settled. China is monitoring closely the elections. The results of the country’s Nov. 8 elections have confirmed that the opposition National League for Democracy now holds a healthy majority in parliament and can form a new government without the help of the formerly ruling Union Solidarity and Development Party. For the first time since Myanmar’s 1962 coup, a fully civilian party will lead the government, although it will still have to vie for power with the country’s military elite.

Meanwhile, China has been watching Myanmar’s political transition with growing concern. Myanmar, which shares a 2,192-kilometer (1,362-mile) border with China that cuts across rugged highlands, represents access to trade routes in the Indian Ocean Basin and to overland commerce with the Association of Southeast Asian Nations (ASEAN), now China’s largest trading partner. However, the relationship between the National League for Democracy and Chinese leaders has been cool; Beijing conspicuously avoided congratulating party chief Aung San Suu Kyi on her victory. This track record would seem to suggest that she will lead her party — and her country — toward the West, in both diplomatic and economic terms. But Suu Kyi’s actions and tactics will still be informed by Myanmar’s geopolitical position, and regardless of the party in power in Naypyidaw, China will continue to play a massive role in the Myanmar capital.

The Road Away From China

Myanmar’s latest round of elections was the culmination of 12 years of planning by the country’s political elite, who laid out a roadmap in 2003 for Myanmar’s transition to quasi-civilian rule. The gradual, strategic loosening of the military’s grip is a reaction to the failed attempt to open up Myanmar’s economy in the early 1990s, which left the country wholly dependent on economic and political support from China. This position was geopolitically untenable for Myanmar, which desperately needed to integrate into the international community.

Since 1962, Myanmar had systematically cut itself off, both economically and politically, from the fraught Cold War environment in Southeast Asia. The country also faced ethnic and communist insurgencies, some of which received direct support from Beijing.

Once the Cold War was over, Myanmar tried to turn outward once again, in spite of its need to maintain tight control at home amid the ongoing unrest. But when the military government nullified the country’s elections in 1990, the West imposed economic sanctions, forcing it to turn to China for survival. Between 1988 and 2013, 42 percent of Myanmar’s total foreign investment (some $33.67 billion) and 60 percent of its arms imports came from China. By the early 2000s, some of Myanmar’s leaders began to worry that they had become too reliant on China and began searching for a solution. They eventually settled on a roadmap to democracy that would gradually open Myanmar’s political system to opposition parties — primarily the National League for Democracy — to please the West and give Naypyidaw the opportunity to seek partners other than China.

A Government Divided

The National League for Democracy’s Nov. 8 victory was the logical conclusion of this process and one for which Myanmar’s military elite have long been planning. They erected a constitutional hedge around the military’s position and assets, securing 25 percent of the seats in parliament, consolidating control of several key ministries and economic enterprises, and ensuring that retired soldiers will be incorporated into the bureaucracy. Consequently, the new government will need to strike an accord with the military if it hopes to transition into power smoothly.

Beijing has also been planning for the transition. In June, China invited Suu Kyi to meet with Prime Minister Li Keqiang and President Xi Jinping in Beijing. It also made a point to reach out to other parties, meeting with the Union Solidarity and Development Party in April and, in an unprecedented move, the powerful ethnic minority Arakan National Party in July.

After the vote, China’s Ministry of Foreign Affairs was quick to issue its congratulations for the orderly conduct of elections and to express hope for long-term stability and growth. However, it omitted any reference to the National League for Democracy, in part because the elections’ outcome has complicated the power structure in Naypyidaw. Now the National League for Democracy will control the parliament while the military controls the state’s more permanent structures, including the key ministries, economic assets and, of course, hard power. At the same time, ethnic parties that won at the state level but not in the national elections may cause trouble as they jockey for position.China will now have to deal with the multiple power brokers contributing to Myanmar’s policy decisions.

Choosing how to deal with ethnic minority insurgents will be a key point of contention in Myanmar moving forward. For over half a century, the military has fought to regain territory from and weaken these groups. Now the insurgents are demanding political concessions in exchange for peace. Beijing, which has long supported the groups on its border (especially the United Wa State Army and the Kachin Independence Army), has leveraged its influence over them in the past to check Myanmar’s attempts to move away from China. Indeed, the groups’ decision not to sign an Oct. 15 cease-fire deal with Naypyidaw was allegedly made at Beijing’s request. As China continues to bolster Myanmar’s insurgencies, the National League for Democracy will try to make political compromises with Beijing, but it will have to contend with a military that wants to continue eroding the ethnic groups’ position.

Finding New Trade Partners

Much has been made of Myanmar’s supposed pivot away from China, and the country has certainly managed to diversify its sources of foreign investment since its 2010 transition. But Myanmar’s geography limits how far it can stray from China. China’s Yunnan province, though poor by Chinese standards, is quite dynamic compared with the four remote Indian states to Myanmar’s west or Bangladesh to the southwest. In a bid to develop its interior, China wants to build outlets for the landlocked Yunnan — outlets that would run through Laos, Vietnam and Myanmar. As a result, though Myanmar will seek to balance its neighbor to the east, China will continue to be an essential trading partner.

Much has also been made of the decline of the Chinese economy since 2010, but China still plays the most important role in Myanmar’s economy and will continue to do so for the foreseeable future. It is simply too big and too near to expect otherwise. In 2014, China accounted for 42.7 percent of Myanmar’s imports by value and 65.2 percent of its exports. Myanmar’s next-largest partner, Thailand, is dwarfed by comparison, accounting for 19.3 percent of Myanmar’s imports by value and 16.4 percent of its exports. And the official statistics do not account for the massive outflow of narcotics, black market timber, and minerals or gems that also bring Chinese money into Myanmar. In the face of this reality, the West could only play the role of a spoiler at best, possibly cutting trade deals and providing diplomatic and technical assistance to Myanmar in the hope of strengthening ties. But even that will have its limits; the United States is much more concerned with the balance of power in the South China Sea than it is with a newly open Myanmar.

But what is different this year is that Myanmar has broadened its sources of economic support. The Asia Highway connecting Thailand and India via Myanmar was completed in 2015. This will tie Myanmar to the more dynamic Thai economy. Myanmar and Thailand also laid the policy groundwork for a special economic zone between the Thai border town of Mae Sot and Myanmar’s Myawaddy, which have had limited formal border connectivity in the past. This huge step will be further enhanced by connections to a planned deep sea port in Dawei, Myanmar. As Thailand tries to move up the economic value chain, it will shed some production that will fall to Myanmar, in turn moving Myanmar’s economy away from primary resource extraction.

Meanwhile, the West’s much-touted entrance into Myanmar has remained comparatively limited. Trade with the United States and Europe is still anemic: Exports to the United States accounted for only 0.4 percent of Myanmar’s trade, and imports did not fare much better. Europe has fully repealed its sanctions against the government. The United States lifted its investment ban in July 2012, but it still has targeted sanctions in place on key industries and business leaders. Suu Kyi, as part of an attempt to forge ties with Myanmar’s military-backed elite, may try to use her Nobel laureate status to push for an end to these sanctions and possibly for favorable trade deals. For now, though, sanctions have a huge impact on trade; for example, a sanctions issue squeezed U.S.-Myanmar shipments from $50 million in June to $5.5 million in September. The only sector that has benefited from greater Western involvement is energy. In March, Chevron’s Unocal Myanmar Offshore Co. signed a $277 million contract for one block and BG Group and partner Woodside Petroleum together signed a $1 billion deal to explore four offshore blocks. These deals will provide much-needed cash for the Myanmar government, which suffers from limited tax income because of its weak institutions.

For the most part, China boasts more options in Myanmar — and Southeast Asia as a whole — than it had in 2010. Beijing has managed to complete a pipeline connection running through Myanmar to the Bay of Bengal, a project that is one small component of China’s broader strategy to diversify its energy inputs and pump directly to its poorly developed interior. However, the accompanying highway project has yet to materialize, and a major hydropower project, the Myitsone Dam, is on hiatus through the end of the year. Still, China has plans to send connections into Thailand through Laos and Vietnam. Myanmar is one option for China’s energy schemes, but it is not the only one.

Beijing can afford to play the long game in Myanmar. It can even afford to lose out entirely on any future business so long as it can retain its current projects. Whatever potential reorientation Myanmar’s new government may bring, China will leverage its significant influence in the country to seek an advantage over the West, while the West will use Myanmar in a limited way to balance against China in the Asia-Pacific.

Commercial Drones, the next step toward evolution? Moving goods from one place to another isn’t always as simple as it sounds. Intricate supply chains are often needed to coordinate transit across different countries, incorporating various modes of transportation. Every so often, new technologies come along that revolutionize how we send goods to other places. In the 20th century, it was the advent of container shipping; in the 21st century, it was the rise of a global marketplace made possible by the Internet, which changed shopping behaviors in the developed world and increased the demand for rapid delivery.

Now, as existing infrastructure struggles to keep up with the rising congestion that comes with growing demand, new technological developments are on the horizon that could help relieve some of that burden and improve the efficiency of global supply chains. Within the next five years, drones could become widely used to help transport goods. But rapid advancement and keen industry interest aside, the realities of regulation and technological constraints will limit the role of drones in delivering goods to customers in the United States, at least in the short term.

Overcoming Regulatory Hurdles

In 2012 the U.S. Congress instructed the Secretary of Transportation to “establish requirements for the safe operation of [unmanned] aircraft systems in the national airspace system.” Three years later, the Federal Aviation Administration responded by releasing its proposed rules of operation. The 195-page document, published in February, contained both laudable and questionable stipulations, but one overarching concern received the most attention: safety.

For any new airspace regulation, the FAA is required to consider three criteria: the safety of the aircraft, the efficient use of airspace and the protection of people and property on the ground. Based on the proposed regulations, FAA officials are going to great lengths to ensure drones can operate safely around other aircraft and people, even when pilots are far away. The new rules, if passed, would require operators to keep drones within their line of sight throughout the entire flight. (The regulations likely will not be finalized until late 2016 or early 2017 because of a lengthy commenting and revisions process.)

Both the U.S. airspace system and the Federal Aviation Administration that oversees it were built on the assumption that pilots control aircraft from onboard. The line-of-sight requirement reflects the FAA’s long-standing rules on determining right-of-way in the air, which mandate that operators stay vigilant “so as to see and avoid other aircraft.” In modern manned aircraft, cockpit and control tower technologies have advanced enough to enable planes to stay separated and avoid hazards without needing the pilot to maintain visual continuity. The development of technologies that provide an equal level of safety assurance, be they autonomous piloting, networked control or other advances, will be critical to making drone flight feasible in congested urban areas.

A Gradual Development Process

Since its February announcement, the FAA has been working with industry partners to test technologies that could satisfactorily overcome the discrepancies between current regulations and drones’ potential uses. To this end, six test sites have been set up across the United States, where certain companies can look for ways to address safety concerns under three specific use scenarios in a controlled environment. Those scenarios are maintaining line of sight in urban areas where bystanders are present; operating in rural areas where observers extend the operator’s “sight”; and operating in isolated areas beyond the operator’s line of sight. In May, the tests led to the first FAA-approved drone delivery when a medical clinic in rural Virginia received much-needed supplies from an unmanned aircraft. And just this week, companies conducted the first approved long-distance drone flight in the United States and began testing a new avoidance system technology that will help operators “see and avoid” obstacles even when the aircraft are far out of their visual range.

Alongside these trials are, of course, the widely publicized tests that private sector behemoths such as Amazon, Wal-Mart and Google are performing. Amazon is primarily focusing on developing technology to guarantee safe and quick home deliveries as well as the battery capacity to make such devices feasible. Wal-Mart is also hoping to someday use drones to make home deliveries, but for now the retail giant is trying to figure out how to use unmanned technology to manage inventory at distribution centers and deliver goods from warehouses to stores. Google, meanwhile, has been working with NASA engineers to create an autonomous air traffic control system for drones while tackling — no surprise — the problem of unmanned home deliveries. All three of these companies have the ambitious timeline of bringing their drones into commercial operations by 2017.

The outcome of the various tests will determine how and where the first generation of commercial drones is used in the United States. So far, it appears very likely that drones will improve efficiency in warehouse operations in the near future. Deliveries in rural areas, especially to set locations such as warehouses, stores or lockers, also seem to be a real possibility. While these uses would not increase speed or efficiency in the final stages of delivery — bringing goods directly to people’s front doors — they would improve other phases of the supply chain. In addition, they would give companies a controlled environment in which they could test even more advanced delivery systems.

Still, none of the trials have managed to simultaneously address the problems of bystander safety and maintaining line of sight — both of which are concerns in urban environments. Therefore, it is unlikely that urban deliveries will be among the first tasks of commercial drones. Instead, companies will first use drones to make warehouse and stockyard operations run more smoothly and then turn their attention toward rural deliveries. Urban operations will probably have to wait until the second or third phase of development.

Even when drones begin operating regularly in urban environments, a number of problems will confront the U.S. unmanned aerial vehicle network. The United States has the busiest and most complex airspace in the world, meaning congestion will still be a problem. The introduction of thousands of new airborne vehicles will put further stress on an air traffic control network that is already spread too thin and a national airspace system that is already at or over capacity in many places. Transportation and supply chain technologies allow countries to overcome their geographic constraints; in this, drones are no exception. But like their predecessors, unmanned aerial vehicles will not come without their own limitations, nor will the transition be seamless.

Was Kirchnerism really defeated?

In the past decade we have seen how a wave of leftist populism has shaken up Latin America.  Argentina, Birthplace of Ernesto “Che” Guevara, was of course hit by it.

First Nestor, then his wife Cristina, on an attempt to emulate the Peronist anti-imperialist dream, adopted failed economic policies like currency control and limitation of import and export of goods.

On October 25, millions celebrated what they believed was the defeat of Kirchnerism with general elections that  placed Mauricio Macri, a liberal businessman on the presidential chair, beating the Kirchnerist candidate Daniel Scioli, former vice president under the mandate of Nestor Kirchner.

But, was it really a defeat?

Populist policies and leaderships have become part of a very enrooted preference in Latinamerican cultures. A sense of entitlement to everything just by having been born in a place rich of natural resources combined with a long history of populist regimes have enforced this mentality.

Trascending historically and most importantly, ideologically, has been the dream of many leaders. Cases of personality cults giving birth to political movements in the presence of factors like Populism, Institutionalization, Continuation of the regime, culturalization, mystification, Fatherhood, revolution and mourning have ended up in phenomenons like Maoism, Chavismo, Castrism, and of course Peronism.

A common saying in Argentina says that “even those who aren’t Peronistas are Peronistas”. Peronism became part of the culture, a collective identity. They have even made Peronism cool and transcendental through cultural means. The movie Evita, starring Madonna, for example, became an award winning movie. Going to Argentina and not visiting the mausoleum of Eva Peron is almost like never having gone there.

A little in-depth of Peronism can be taken from James Lewis’ “Roots of Charisma”: Even today, more than a decade after his death, a powerful political party backed by the Trade Union movement bears his name. His speeches and writings are still quoted as gospel by many thousands of argentines, who nevertheless cannot agree on whether he was a revolutionary of the left, a champion of the patriotic right, or a pragmatic reformer who ruined the country’s economy, wasted its resources and stirred up class hatred. 

His foreign position was against the U.S. He named his principles of his purported new Tricontinental political vision:

“Mao is at the head of Asia, Nasser of Africa, De Gaulle of the old Europe and Castro of Latin America”. Perón (1968)

Kirchnerism has as well become an ideology that goes beyond who sits in La Casa Rosada (Argentina’s Government House), and that is because history has a tendency to repeat itself. The Kirchners tried to emulate many Peronistic characteristics; and they even had a curiously coincidential way to mimic their ways of accessing power (A leader’s death that led to the rise to power of the wife).

The Kirchners, like the Perons, also dreamed with transcending and took the ‘similarity’ highway to do it. So there it is, Kischnerism as an ideology is now an actual thing.

Kirchnerism, while not in the presidency, will still be in the congress and enrooted in people’s ideologies, and it will be very difficult for Macri to rule and make immediate drastic changes with that. Kischnerism will still be making laws and having mediatic space to keep popularity amongst the people.

Russia Tries to Sow a Trans-Atlantic Divide    

Russia’s standoff with the United States will grow more complicated this quarter as Moscow tries to soften the Europeans on sanctions over Ukraine even as it escalates its military involvement in Syria. Moscow’s maneuvers are designed in part to draw the United States into a Strategic Dialogue ultimately yielding a bargain with Washington to pull back on sanctions and set limits on U.S. involvement in the Russian periphery. But the United States will only tacitly engage with Russia. Washington will be more compelled to sustain economic pressure against Russia while trying to reinforce U.S. security guarantees to allies in Russia’s near abroad.

Russia will be using the fourth quarter to create enough divisions withing the European camp to give Moscow a chance of preventing a unanimous European vote to extend sanctions in January. Russia will only need to sway a handful of European countries to allow the sanctions to expire early next year; it will lobby Germany, France and Italy particularly strongly. The closer the Europeans draw to Moscow, the more Russia will be able to drive a wedge between the United States and its European allies as gaps widen between those willing to bargain with Moscow and those trying to maintain a hardline stance, such as Poland and the Baltic states.

The rift between Russia and Ankara is growing after Turkey shot down a Russian fighter jet that allegedly violated its airspace. On Nov. 24, Russian President Vladimir Putin said the attack would have “serious consequences for Russian-Turkish relations.” There has been a flurry of diplomatic activity in the short time since the incident, and the countries have severed military contacts.

But this may not be enough to appease Putin’s constituents. Calls are mounting among Russian government officials, politicians and businesses for the Kremlin to restrict trade with Turkey. And Russia has options to do just that, especially in the energy realm, where it is still Turkey’s largest natural gas supplier. However, Putin will have to decide whether the benefits of punishing Turkey now by cutting off its natural gas supplies outweigh the risk of pushing Ankara to search for alternative sources of energy down the road.

Analysis

Trade between Russia and Turkey is heavily concentrated in a handful of sectors, the most important of which are energy, metals and agriculture. Altogether, Russian exports make up about 10 percent of Turkey’s imports, while Turkey accounts for only 4 percent of Russia’s exports.

The energy sector is by far the most important when it comes to Russia-Turkey trade. Russia is Turkey’s biggest foreign source of natural gas, supplying 55 percent (about 27 billion cubic meters) of Turkish natural gas consumption needs in 2014. By comparison, only 13 percent of Russian natural gas exports go to the Turkish market. Russia sends its natural gas to Turkey through two pipelines, each with a capacity of 16 billion cubic meters. The first, Blue Stream, is a direct route that runs across the Black Sea, while the second, the Gas-West pipeline, transits Ukraine, Romania and Bulgaria first. Turkey receives the rest of its natural gas imports from Azerbaijan through the South Caucasus Pipeline, from Iran through the Tabriz-Dogubayazit pipeline, and from Algeria and others through its own liquefied natural gas terminals at Marmara Ereglisi and Aliaga.

The biggest problem for Turkey is that if Russia chooses to cut off its natural gas supplies, it would have little room to ramp up its imports from other providers. All of Turkey’s non-Russian import routes and facilities are operating near capacity; it has less than 7 billion cubic meters of extra capacity left in its LNG terminals, and possibly another 4 billion cubic meters of storage space, although it is unclear exactly how much of its storage is currently filled. Should Russia halt flows through both of its pipelines and deprive Turkey of 27 billion cubic meters of natural gas, Ankara would be unable to make up for even half the missing supplies.

The Russian Energy Ministry has already promised to honor its contracts with Turkey, and the Kremlin has its own reasons to avoid tampering with energy exports. Cutting all natural gas supplies to Turkey would mean halting the flows to Ukraine, Romania and Bulgaria as well. Russia has been wary of using this option in recent years as it has tried to preserve its energy foothold in the West amid EU regulatory measures that have weakened the Kremlin’s ability to politicize its energy contracts. Consequently, if Russia decides to restrict its energy trade with Turkey, it may still be willing to shut off only its direct exports to Turkey through Blue Stream.

Putin will have to weigh any punitive action via energy exports against his long-term interest in gaining Turkey’s cooperation on future projects, especially TurkStream. The controversial pipeline is intended to bypass Europe, linking directly to Turkey through another Black Sea connection of between 30 billion cubic meters and 63 billion cubic meters. In recent weeks, the Kremlin indicated that Russia and Turkey would try to make progress on an agreement about the proposed pipeline during Turkish President Recep Tayyip Erdogan’s December visit to Russia — a visit that now may not happen. If Russia restricts its natural gas exports to Turkey for political purposes, Ankara will likely hesitate to move forward with any energy project that would increase its direct reliance on Russian supplies.

Moscow Has Other Options

Energy is where trade restrictions would hit Turkey the hardest, but given the blowback such tactics could have on Russia’s long-term interests, Moscow may look to make its point elsewhere. Russia supplies a hefty portion of Turkey’s metals: Russian iron and steel make up 15 percent of Turkey’s imports, while Russian aluminum makes up 31 percent. However, the global markets for these goods are saturated, and Turkey would be able to easily compensate for any lost supplies with imports from elsewhere. Therefore, targeting the metals trade would burden Turkey only temporarily, and the United States and Europe would likely facilitate or support transportation to fill any longer-term gaps.

Alternatively, Russia could restrict its exports of cereals to Turkey, especially wheat. In 2014, Russia provided roughly 70 percent of Turkey’s total wheat imports, meeting nearly one-third of the country’s consumption needs. But Turkey has seen a strong domestic wheat harvest this year, and low global prices would minimize the financial impact of Turkey having to find a replacement for Russian wheat. In 2010, Ankara showed its ability to withstand Russian grain export bans, with inflation being the only major ramification.

Rather than cutting its exports, Russia could look to ban imports of Turkish food, along the lines of its current ban against EU and U.S. imports that it enacted as part of counter-sanctions. The Russian market consumes nearly 40 percent of Turkish fruits and vegetables exports, an amount that has risen slightly since Moscow implemented counter-sanctions. Russian food watchdog Rosselkhoznadzor announced Nov. 25 that it was banning poultry imports from subsidiaries of Turkish firm CP Standart Gida Sanayi Ve Ticaret Anonim Sirketi because of listeria concerns. However, there are still 10 other Turkish companies that have licenses to export poultry to Russia, meaning the case probably was not politically motivated.

Moscow could also enact some restrictions that are primarily intended to make a statement rather than a major economic impact. Russia’s Federal Tourism Agency has already asked Russian tourist operators to suspend trips by Russians to Turkey, and the Russian Foreign Ministry has recommended that Russians avoid traveling to the country. Since tourism makes up 12 percent of Turkey’s gross domestic product, it is one of the more visible targets Moscow has at its disposal. Russian media have been quick to show video footage of Russians returning their tickets to Turkey. Still, Russian tourists account for only 14 percent of Turkey’s total tourism, and their trips are usually concentrated in the summer months, with the exception of a slight uptick during winter holidays.

Russia’s final option would be to hinder Turkey’s trade with other former Soviet states. Moscow pursued a similar strategy in early October, when Russian customs officials halted the issuance of transit documents for Turkish trucks. Approximately 8,000 Turkish trucks cross Russia on their way to Central and East Asia each year, mostly transporting chemical or electronic products valued at about $1.7 billion. The Kremlin has used similar customs restrictions on other countries in the past, and Turkey could be next.

Russia has a wide range of trade-related choices when it comes to retaliating against Turkey’s military actions. However, the only sector that trade restrictions could truly deal a blow to is energy. Russia has wielded this tool many times before, in many different crises. But the Kremlin is aware that while it may make a clear political statement in the short term, it would also accelerate Turkey’s drive to diversify its energy sources in the hope of depriving Moscow of its leverage in the long run.

Forecast

• Mexican organized crime groups will continue to exploit Mexico’s energy industries despite recent government efforts to stop the theft.
• Among Mexico’s various crime groups, organizations in the Tierra Caliente region will increasingly be the primary perpetrators of fuel theft.
• The expansion of Tierra Caliente-based organized crime into territory historically controlled by Tamaulipas-based groups will introduce more security threats to Mexico’s energy sector.

Analysis

Mexico’s energy reforms are opening up its oil and gasoline markets to foreign firms. But any companies entering the country will have to deal with the growing risk of fuel theft, as a mounting number of criminal organizations illegally tap pipelines or intercept trucks carrying finished gasoline. Fuel theft has long existed in Mexico, but whereas it was once a crime committed largely by individuals and small, localized groups, over the past decade it has transformed into a hugely profitable business for drug cartels looking for new sources of income.

With the expansion of organized crime into the business, fuel theft has ballooned. Every year since 2007, more illegal taps siphon hydrocarbon products, primarily diesel and gasoline, from the pipeline network of state-owned Petroleos Mexicanos (Pemex). There were an estimated 3,500 illegal taps on Pemex pipelines between January and August 2015, compared with about 2,300 during the same time period last year and with 1,700 in 2013.

This rise is in part attributable to decentralization in the Mexican drug trade. Whereas the illicit narcotics industry was once dominated by a few immense cartels that controlled numerous franchises throughout the country, now a growing number of smaller, independent groups have arisen, each laying claim to a more limited share of the market. This has not only led to fierce and sometimes violent competition for territory but has also pushed crime groups to diversify their sources of revenue. Along with human trafficking, kidnapping and extortion, fuel theft is another source of income for groups operating in a highly competitive environment. It is also highly profitable: According to the Mexican Association of Gas Station Owners, stolen fuel makes up 30 percent of the 200 million liters of gasoline sold each day in Mexico. And at roughly 6 pesos per stolen liter, organized crime grosses 360 million pesos ($21.7 million) daily in stolen fuel.

The High Cost of Fuel Theft

Illegal tapping of pipelines certainly cuts into corporate profits. In 2014 alone, illegal tapping cost Pemex about $1.16 billion, and that year Pemex announced that it would invest $228 million into improving its ability to detect illegal taps throughout its pipeline system. To deter theft and the purchase of stolen fuel, the company began to implement new measures in February 2015, including phasing out the transportation of finished gasoline through its pipelines. Using unfinished gasoline in vehicles can seriously damage engines. By transporting unmixed gasoline to distribution centers and adding the final additives at the end of the process, Pemex hoped to deter thieves. However, that fuel theft has only increased this year suggests organized crime groups are still finding ways to steal finished fuel.

The entrance of foreign energy firms into Mexico’s energy market will introduce a new variable. The same cartels that currently exploit Pemex infrastructure will likely go after foreign companies as well. The threat will be particularly pronounced for firms that invest in the energy retail market — which Mexico plans to liberalize in 2017 — because organized crime has a substantial stake in the supply of stolen fuel in those markets.

Beyond its economic cost, fuel theft also presents Mexico with a host of security concerns. Theft often leads to corrupt officials, pipeline explosions and leaks and, most significantly, violent conflict over territory. Seeing the potential for huge profits from access to the pipelines, criminal groups frequently clash for control of those areas.

Indeed, the expansion of organized crime into this particular brand of criminal activity is already breeding conflict in the southern states of Veracruz and Tabasco. There, Los Zetas operations became the target of frequent attacks in 2014, likely by a substantial internal rivalry or by a competing major crime group such as Cartel de Jalisco Nueva Generacion or the Velazquez network. Puebla and Gunajuato states have also experienced turf wars. On Aug. 5, the bodies of two men with gunshot wounds were discovered on a ranch near Salamanca, Guanajuato state; authorities believe the killings were linked to fuel theft. Then on Sept. 28, a group of gunmen dressed in military attire killed a fuel thief in Tepeaca, Puebla state, by setting fire to the truck carrying the victim and two others, who survived.

Combating Organized Crime

In 2014, Mexico City stepped up its efforts to fight organized crime, in part to combat security threats to oil and gasoline. Much of Pemex’ infrastructure is located in areas where Tamaulipas-based groups control most of the organized crime. Therefore, groups such as Los Zetas, the Velazquez network, and various Gulf cartel gangs have been responsible for most of the country’s fuel theft in recent years. In May 2014, the military deployed troops to Tamaulipas in response to rising violence in the south of the state and has since had some success capturing or killing crime bosses. In March 2015, troops captured the top leader of Los Zetas, Omar “Z-42” Trevino Morales and several of his colleagues.

But control of the fuel tapping industry may be shifting away from Tamaulipas-based groups, which are suffering from persistent internal rivalries and have lost some territory to groups affiliated with Tierra Caliente-based crime, one of the other major players in Mexico’s illicit drug trafficking industry. If Tierra Caliente-based crime expands its reach, particularly in Veracruz and Tabasco, it will likely take over the fuel theft activities once conducted by Tamaulipas organized crime.

In fact, states seeing the greatest upticks in discovery of illegal taps during 2015 have, with the exception of Tamaulipas state, been those largely dominated by Tierra Caliente crime groups. Guanajuato state, for instance, discovered 555 illegal taps between January and August compared with just 240 during the same period in 2014. In Puebla state, illegal taps more than doubled during the same period. The increase was more moderate, but still striking, in Jalisco state, where the number of recorded illegal taps rose to 362 in 2015 from closer to 200 the previous year. These are all areas dominated by Tierra Caliente-based criminal organizations such as Cartel de Jalisco Nueva Generacion.

A Multi-Faceted Problem

Despite the government’s efforts to quell the practice, fuel theft in Mexico will likely become even more common over the next year. Rivalries between crime groups will continue. And while escalating conflicts between competing cartels are partially a function of decentralization and of fiercer competition generally between independent groups, the primary driver of conflict is the expansion of the Tierra Caliente-based franchise. Wherever Tierra Caliente-based crime expands, fuel theft will likely also increase.

Regardless of which cartel predominates, illegal gasoline siphoning poses a serious challenge to Mexico’s government. Reforms to the energy sector compel Mexico City to protect its infrastructure and to create a safe environment for foreign firms. Military operations alone, while effective, will not be sufficient: The government also needs to root out corruption among employees and state officials working in the energy sector. But a lack of resources will hinder Mexico’s ability to effectively secure its pipelines. With weak public security institutions and a limited number of federal troops, the country will have as much trouble curbing fuel theft as it does alleviating drug trafficking.

Nigeria has been getting a lot of bad press lately, owing largely to the militant Islamist group Boko Haram’s abduction of more than 200 schoolgirls in April, part of a brutal campaign of kidnappings, bombings, and murder. But while these developments certainly merit international concern, they should not be allowed to obscure Nigeria’s recent achievements – or spur the outside world to turn its back on the country.

What is lost in most discussions about Nigeria today is the strong economic record that it has established over the last decade. In fact, a recent year-long study of the country by the McKinsey Global Institute (MGI) showed that, over the next 15 years, Nigeria has the potential to become a major global economy.

With roughly 170 million inhabitants, Nigeria has Africa’s largest population. But it has only recently been acknowledged as having the continent’s largest economy – 26th in the world – following the release of “rebased” data putting GDP at $510 billion last year.

MGI estimates that, in 2013-2030, Nigeria could expand its economy by more than 6% annually, with its GDP exceeding $1.6 trillion – moving it into the global top 20. Moreover, if Nigeria’s leaders work to ensure that growth is inclusive, an estimated 30 million people could escape poverty.

The problem is that Nigeria remains subject to outdated assumptions, which are limiting its prospects, especially among foreign companies and investors. For example, many believe that Nigeria is a petro-economy, wholly at the mercy of the world oil market. But the resources sector accounts for only 14% of GDP – meaning that, while oil production remains a critical source of revenue and exports, the Nigerian economy is far more diverse than many assume.

A related myth is that Nigeria’s economic growth is unstable, with large and unpredictable shifts in performance from year to year. In fact, as Nigeria has diversified its economy and detached public-spending plans from current oil prices (part of a 2004 budget reform), it has become increasingly stable, both economically and fiscally. Indeed, in recent years (2010-13, in “re-based” terms), GDP has grown by a steady 6-7%, owing more to rising productivity than to favourable demographics.

Finally, there is a general misunderstanding about the Nigerian economy’s evolution. Despite widespread poverty and low (though improving) productivity in almost all industries outside of the resources sector, Nigeria has a rapidly growing consumer class that will play an increasingly important role in driving growth.

By 2030, more than 34 million households, with about 160 million people, are likely to be earning more than $7,500 annually, making them aspiring consumers. This implies a potential rise in consumption from $388 billion annually to $1.4 trillion – a prospect that is already attracting investments by multinational consumer-goods producers and retailers.

Nigeria’s prospects are enhanced further by its strategic location, which will enable it to take advantage of booming demand across Africa and other parts of the developing world. Add to that a large and growing population and an entrepreneurial spirit, and the future looks bright.

In order to unleash this potential and ensure that the next decade of growth brings sharp reductions in poverty, Nigeria’s leaders must pursue reforms aimed at increasing productivity, raising incomes, and delivering essential services like health care and education more efficiently.

For example, to increase productivity and incomes in the agricultural sector, the government could pursue land title reform aimed at opening more farmland without deforestation; expand the use of fertilizer and mechanized equipment; and support a shift to more profitable crops. Moreover, improvements in distribution and marketing would allow farmers to keep more of the proceeds from the sale of their crops.

In urban areas, productivity suffers from a high degree of informal employment, sometimes even by major corporations. This keeps too many Nigerians in low-skill, low-paying jobs and deprives the economy of the dynamism that competitive small and medium-size enterprises create. The spate of internet startups that have emerged in Nigeria demonstrates that the skills are there, and tapping Nigeria’s diaspora can augment that talent pool.

To make it easier to do business in Nigeria, the government also will need to streamline processes for registering and running a legal business and, together with aid agencies and the private sector, increase investment in infrastructure. It will also need to intensify its fight against endemic corruption, which represents a tax on all businesses.

Finally, to promote inclusive growth – essential to relieving human suffering and mitigating social and political tensions – Nigeria must improve public service delivery dramatically. The fact that Nigeria lags behind countries that spend comparable amounts on public services proves that it has scope to improve. All that is needed to ensure that assistance – from seed subsidies to immunization – reaches those who need it most, regardless of where they live in the country, is a strong commitment from Nigeria’s leaders to build more effective and transparent government agencies.

Nigerians do not need sympathy or even outrage from the global community. What they need is support and encouragement. Only with stable and inclusive growth can Nigeria escape the clutches of brutal forces like Boko Haram and give its citizens the security and prosperity that they deserve.

Algeria belongs to the locals. Arriving in Algiers’ Houari Boumediene International Airport, it’s readily apparent that the facility wasn’t designed with tourists in mind. Distractions found in other regional airports, such as high-end shopping, restaurants and souvenir kiosks are absent. Loitering isn’t permitted, let alone encouraged.

And security, not traveller comfort, is the primary concern — echoing both Algeria’s decadeslong mistrust of outside interference in domestic affairs as well as the legacy of the 1991-2002 civil war and subsequent jihadist insurgency. Named after the chairman of the Revolutionary Council and the republic’s second president, the airport serves as a clean and utilitarian transit point, facilitating travel to and within Algeria.

Editor’s Note: This feature was written by a Stratfor analyst on assignment in the Middle East and North Africa

Moving through customs, I found I was the only traveler entering without an Algerian passport and on leaving the airport, I was immediately marked as an outsider by one of the several black market moneychangers that lurk around the exits. (Having arrived on an evening flight from Europe, the official exchange office was closed.) In one of the few conversations in English I had in the country, I was offered dinars, arrangements for a taxi, chauffeur service or hotel. He asked if I had arrived on business, and when I responded in French, the man balked a bit. Our interaction ended with the arrival of a policeman who dismissed the moneychanger with a tilt of the head. Though the practice is technically illegal, the officer then called over a different moneychanger and told me he offered better rates. He then told me to only exchange enough for the taxi ride to my destination in the city. Making the transaction in dollars, not euros, triggered looks of surprise between the moneychanger and the officer. Tourists are rare and Americans, rarer.

The Beating Heart of Algeria

Even seen through the windows of a taxi careening through Algiers’ infamous traffic, the city’s beauty was unmistakable. The route to my apartment avoided the main coastal highway, alternating instead between the Rue Hassiba Ben Bouali (named after a teenage martyr of the revolutionary struggle against the French) and Rue Belouizdad (the former address of author Albert Camus). The core of Algiers, home to about 3.5 million of Algeria’s approximately 40 million people, sprawls across several hills overlooking the eponymous bay. My driver zipped in and out of a dizzying web of streets, pointing out places associated with the French occupation, the revolutionary struggle or a favorite cafe. Making a sudden left, he turned off the boulevard and we reached Alger Centre, at the base of the Escaliers Khemisti near where I would be staying. Whitewashed French-era buildings intermingled with the government offices that dominate this section of the city, where buildings compete for views of the sea.

Driving in at night, most shops were closed, but the city was alive. Cooler temperatures make for pleasant evenings, complimented by Algiers’ steady ocean breezes. Tea vendors and others catered to the throngs of young men standing around, or walking along the many gardens and promenades of the city center. As I would learn in the coming weeks, they were invariably engaged in intense conversations about soccer, preparations for the upcoming Eid al-Adha holiday as well as occasionally about Algeria’s political situation.

One of the many public gardens in central Algiers. (Stratfor)

Walking up the stairs to my apartment, the city’s topography further revealed itself, especially when it came to the more desirable neighborhoods. Everything is up or down hill. The Ottoman, French and post-revolutionary elite scramble for the best vantage points from which to experience the city’s ocean breezes and views of the Mediterranean Sea.

The Double-Edged Sword of Geography

Algeria lies in the heart of North Africa, sharing land borders with the Maghreb states, Libya and much of the Sahel. It is the largest Arab state, followed by Saudi Arabia. The country’s centrality and relative stability present many opportunities for it to serve as a gateway for the international community into North Africa. With abundant natural resources, a strong Francophone tradition, and a large labor force coupled with low wages, Algeria should be a magnet for foreign investors. Despite healthy international interest, the government hesitates to allow too much foreign participation in domestic economic affairs — the question of security remains paramount, especially given the country’s long borders and expansive territory. The apex of the Algerian leadership — a mix of revolutionary-era politicians, military commanders and increasingly a private business class — is often referred to as “le pouvoir,” itself a nod to the country’s long and difficult occupation under French rule. Outsiders often refer to a shadowy and secretive cabal of aging leaders as the concentration of power within the country, but this denies the vibrancy of the Algerian street and the power of the Algerian public.

That perspective is informed by the few anecdotes on Algeria readily available to the Western hemisphere and much of the world. Algeria traditionally has been, and remains, a relatively unknown country flanked by exotic travel destinations. North Africa rocketed to global headlines in the chaotic unrest of 2011’s so-called Arab Spring. Unlike Egypt and Libya, Algeria’s government and long-time president, Abdel Aziz Bouteflika, remained in place, though the impacts of the region’s widespread unrest can still be felt today.

Europe’s  perspective on Algeria  is different. Proximity to North Africa, as well as a long history of back-and-forth conquest, colonialism and human migration has led to an awareness — though not always an understanding — of their southern neighbors. Balanced Western narratives on Algeria are rare; they frequently focus on security or stability issues. Less frequently, one hears discussions of the Arab Spring and its influence on the country, or a convoluted and corrupt democratic system.

Algeria views are one-dimensional, and Algerians engage in political discussions that are surprisingly frank and open. The presence of the security services can be felt everywhere, but there is a conscious and visible attempt by the government to channel public sentiment into allegiance to the state or party structures, not individual leaders. Despite foreign criticisms of President Bouteflika’s continuing tenure, there are few photographs or posters with his photo outside government buildings. The same cannot be said for much of the surrounding region. His image is not omnipresent; his eyes are not pasted across walls to watch over the city. And yet, among many segments of the population he is popular. Even the youth I spoke to — disgruntled as they were over the lack of job opportunities, or critical over the slow pace of reforms — would often ask through a haze of cigarette smoke “do you know anyone else who could do better?”

Having the Strength to Endure

Algeria are comfortable in pointing out the challenges facing the republic today: High unemployment, especially among the youth, and the lack of affordable housing are the most common refrains. (A common claim is that Algiers has the most expensive real estate in North Africa.) Several layers of bureaucracy make even simple decisions difficult or time consuming, with bribes needed to facilitate everything from issuing permits to high-level international energy deals. But rarely, if ever, did I hear complaints over the ever-present police and security forces, instead time and again people would say, “Algiers is safe.”

The Algerian government has made significant strides in securing key urban population centers and its borders, especially since the 2013 Ain Amenas attacks. It is easy to forget that the country is still fighting a jihadist insurgency and shares long borders with Tunisia’s unstable western region and Libya. Incongruously, this is a point of pride for many Algerians. National identity is predicated on a few key pillars, the two most salient being the Algerian defeat of the French occupation, and the government’s victory against the jihadists after the civil war. In the six decades since the revolutionary war began, Algeria has experienced several challenges, but has been able to confront them and succeed without outside aid, as Algerians are quick to tell you.

Algeria boasts a long Mediterranean coastline. Architecture, culture, art and cuisine offer much to would-be tourists. For an economy with nearly 40 percent youth unemployment, a weakening currency, and a desire to diversify away from hydrocarbon revenues, a serious push to bring in tourists would seem obvious. But most hotels are expensive and offer poor amenities, and the cash-based economy has poor connectivity to international payment and credit card systems. And as I discovered, dollars are hard to exchange and sometimes refused, so the lesson is to bring euros.

Many Algerians deflect the question of why more foreigners don’t visit Algeria with a litany of different statements — “Morocco and Egypt play up the security situation in Algeria to benefit their own tourist industries,” or “Why would anyone want to come here?” or even “We do have tourists — what are you?”

Algeria has thus far resisted becoming too dependent on foreign visitors, and is unwilling to loosen robust controls along the borders to facilitate movements of travelers that could easily obfuscate the movement of terrorists. Tunisia’s security problems and Morocco’s inability to lead the region (from an Algerian perspective) are attributed up to overdependence on Western tourism, or to an inability to rely on themselves or their own resources. But when pressed further, both citizens and government officials will eventually come to a similar conclusion, that in the Algerian mindset, relying on tourism makes you weak. The lessons of Algeria’s past are that the country’s current challenges will only be solved through Algerian strength.