Australia and the New Great Game in East Africa

3 March 2011 Australia and the New Great Game in East Africa Sergei DeSilva-Ranasinghe FDI Senior Analyst Summary Over the last decade the declining influence of the West in East Africa has seen the balance of power increasingly move in favour of the emerging powerhouses of China and India. The two rising powers are actively vying for political and economic influence and access to the region s coveted mineral deposits and energy reserves. In East Africa, the growing multipolarity in global politics has led to the emergence of a new great game, which has markedly complicated the region s geopolitics and made it increasingly challenging for Western resources companies to secure mining rights. As a result, developing countries which were previously dependent on Western aid and its accompanying conditions, have often actively sought to counterbalance Western influence by courting China and India. Situation in East Africa Analysis The East African region comprises 13 independent countries: Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan, Tanzania, the landlocked states of Burundi, Rwanda and Uganda, and the island nations of Madagascar, Comoros and Seychelles. Tragically, the situation in many of these countries has frequently been characterised by bloody inter- and intra-state conflicts, border disputes, secessionism, insurgency and terrorism, drought and famine, pandemics, massive internal displacements and cross-border movements of refugees, fractious tribal- and clan-based politics and weak or failed states, making it one of the poorest and most unstable regions in the world. Throughout the Horn of Africa sub-region, which comprises the states of Djibouti, Eritrea, Ethiopia and Somalia, a precarious situation has continued since the implosion of the Somali state in 1991 and its subsequent disintegration with two breakaway self-styled regions of Puntland and Somaliland. As a result, in recent times the seas off Somalia have become the epicentre of global piracy and reportedly a fertile recruitment ground for radical groups. Efforts to combat both piracy and terrorism in the region have seen the creation of the United States-led Combined Task Force 150, a multinational naval force patrolling the East

African coastline, and the Djibouti-based Combined Joint Task Force-Horn of Africa, a US-led expeditionary force consisting of 1,500 troops on standby to engage in regional counterterrorism operations. In view of this, it is hardly surprising that the US military sanctioned Africa Command (USAFRICOM) in 2008 as a result of the growing strategic importance of Africa to US interests. The volatility in the Horn of Africa is illustrative of the strained relations between countries which characterises the region. The region has seen a number of conflicts exemplified by the war between Ethiopia and Eritrea from 1998-2000, which followed a bitter 30 year long war for Eritrean independence from Ethiopia that ended in 1991, and the border war between Djibouti and Eritrea in 2008. In Sudan, which is geographically located on the boundary of eastern and central Africa, the situation between the pro-islamic government in Khartoum and the secessionist regions in the country s south, including Darfur, remains precarious. It has reportedly led to the exodus of over half a million refugees from Sudan to neighbouring Ethiopia, Uganda and Kenya. Similarly, impoverished Uganda has been struggling to deal with large numbers of refugees and deadly insurgent groups such as the Lord's Resistance Army, which have also wreaked havoc inside Kenya. Meanwhile, Tanzania is also trying to manage serious problems that have accompanied a half-million strong influx of refugees from Burundi and the Democratic Republic of the Congo. Although the East African Indian Ocean island-nations have been spared from civil war and large-scale refugee crises, they are nonetheless imperilled by political instability, corruption and secessionism, which have threatened to unravel both Madagascar and the Comoros. In March 2009 Madagascan President Andry Rajoelina, with the support of elements of the military ousted his predecessor, Marc Ravalomanana, pushing the country to the brink of civil war. Aptly nicknamed the coup-coup islands, the Comoros has endured more than 20 attempted coups since attaining independence from France in 1975. More recently, in 1997 and again in 2007, the governing authority of the island of Anjouan unilaterally seceded from the Comoros. The 2007 attempt required the intervention of African Union forces to re-establish Comorian government authority. Great Power Rivalry The emergence of a geopolitical great game in East Africa has made it an arena of escalating competition and intrigue. East Africa is one of the most strategically important regions on the African continent, mostly due to the Horn of Africa and its proximity to the world s major sea lanes which pass through the Suez Canal, Red Sea and the Gulf of Aden, and astride the East African coastline, intersecting with the Arabian Sea. In addition, East Africa is also known to have large untapped mineral deposits and energy reserves, which continues to attract prospective mining and exploration companies from around the world. As such, throughout East Africa, both China and, to a lesser extent, India have been actively engaged in aggressive soft power diplomacy, which has emphasised the provision of soft loans at concessional rates, generous aid packages, debt relief, infrastructure development and technical assistance to secure influence and co-operation in political, economic and security spheres. Page 2 of 5

The scale of China s rise to prominence in Africa can be seen in recent figures which indicate that by 2005 there were over 800 Chinese firms operating on the continent. In fact, in the same year, Sino-African trade exceeded US$32 billion ($31.5 billion). As early as the year 2000, China engaged with Africa through a regular summit, the Forum of China-Africa Co-operation (FOCAC), which was attended by the heads of 50 African countries. The most recent examples of China s investments in East Africa include: US$20 billion ($19.7 billion) in Sudan s oil industry which has seen it absorb over 50 per cent of all oil exported from Sudan (as reported in Forbes by journalist Khadija Sharife); the provision of a soft loan worth US$700 million ($689.4 million) to the Ethiopian government to build an 80 kilometre six-lane highway; and a US$1.5 billion ($1.47 billion) loan from China s ZTE Corporation to modernise infrastructure for the Ethiopian Telecommunication Corporation. Despite the substantial figures involved with these outstanding examples, these projects represent a fraction of China s total investment in the region. India has also been very active in East Africa, vying for influence and seeking new markets and access to mineral deposits and energy reserves. Not to be left behind, India held its own, though smaller version of China s FOCAC, called the India-Africa Forum. The India-Africa Forum held its first summit in New Delhi in April 2008 which saw the heads of 14 African countries attend. Similarly, India launched the Indian Ocean Naval Symposium in 2008, which acts as a key regional forum for maritime co-operation involving 26 Chiefs-of-Navy from littoral states in the Indian Ocean region. Such initiatives have steadily enhanced India s influence and prestige throughout the East African littoral and, indeed, the wider Indian Ocean region. Key examples of Indian investment in East Africa include: India s bilateral trade with Kenya rising to over US$1.5 billion ($1.47 billion) in 2009-10, making India Kenya s sixth-largest trading partner; the approval of an Exim Bank of India credit facility worth US$640 million ($630.3 million) for the development of Ethiopia s sugar cane/bio-fuel industry. Similarly, according to the Indian High Commission in Ethiopia, in 2008-09 some 379 Indian companies were engaged in 414 projects of various sizes investing US$4.15 billion ($4.09 billion). The 2007 acquisition by Indian company Reliance Industries of a majority stake in major oil company Gulf Africa Petroleum Corporation in Tanzania. Furthermore, estimates indicate that, between 1990-2006, 118 Indian companies invested a total of US$825 million ($812.5 million) in Tanzania. In addition, the Pan-African e-network project, involving 47 African countries and subsidised to the tune of US$117 million ($115.2 million) by the Indian Government to enable 10,000 African students to access Indian educational institutions. Examples such as those above illustrate that as the growing competition between China and India, which view each other as major strategic rivals, continues to escalate, the risks of a military confrontation or incident will also increase. A case in point was an alleged incident reported in the South China Morning Post, which claimed that, in January 2009, two Chinese warships on an anti-piracy patrol were trailed by an Indian submarine and came close to a confrontation in the Bab al-mandeb Strait between Yemen and Djibouti in the Gulf of Aden. This would demonstrate that, in time, great power rivalry between China, India and the West has the potential to rapidly move from the economic realm to the military arena with potentially serious consequences. Page 3 of 5

Implications for Australia As great power rivalry in East Africa is forecast to intensify, the implications for Australia would suggest that its East African foreign policy will need to be more incentive-based. It would appear that the Australian Government has realised this and has recently aimed to bolster its Africa policy with a view to enhancing influence and expanding relations. For example, according to the Department of Foreign Affairs and Trade, Australia s development assistance to Africa in 2009 increased by 40 per cent to over $160 million. Similarly, in September 2009 the former Minister for Foreign Affairs and Trade, Stephen Smith, told the Africa Down Under Conference in Perth: There are now over 300 Australian companies active across Africa. Australia s total merchandise trade with the countries of Africa in 2008 exceeded $6 billion, with Australia s merchandise exports to the continent accounting for $4 billion. Australia now has diplomatic ties with 48 of the 53 countries of Africa. The message was reinforced at the Mining Indaba Conference in February 2010 in South Africa, when Trade Minister Simon Crean affirmed that: Australia s trade with Africa has grown steadily over the last decade, at an annual average of over nine per cent. Actual and prospective investment by Australian resource companies in Africa has been estimated at around US$20 billion, spread across 38 African countries. In fact, around 40 per cent of Australian mining companies overseas projects are in Africa. According to several public domain sources there are indications that around 40 Australian resources companies are presently operating in East Africa. Notable examples include Range Resources (conducting oil and gas exploration in the breakaway Somali region of Puntland), South Boulder Mines (potash in Eritrea), Nubian Resources (copper and gold in Eritrea), Resolute Mining (gold in Tanzania), Chalice Gold Mines (gold in Eritrea), Aviva Corp (copper and zinc in Kenya), Base Resources (titanium in Kenya), QIT Madagascar Minerals (ilmenite and zircon in Madagascar), Atomic Resources (coal in Tanzania), Base Resources (mineral sands in Kenya), Uranex (uranium in Tanzania), Gulf Resources (vermiculite in Uganda) and Riversdale Mining (coal mining in Mozambique and currently the subject of a takeover bid from Rio Tinto), are just some of dozens of Australian companies worth citing. Regardless of Australia s current presence in East Africa, the escalating competition for access to mineral deposits and energy reserves will have implications for future Australian aspirations in the region. This was amply demonstrated by a leaked US diplomatic cable dated February 2010 and published recently by Wikileaks, which illustrated the concerns of US Ambassador to Kenya, Michael Ranneberger, who noted: We expect China s engagement in Kenya to continue growing given Kenya s strategic location. If oil or gas is found in Kenya, this engagement will likely grow even faster. Kenya s leadership may be tempted to move closer to China in an effort to shield itself from Western, and principally US, pressure to reform. Page 4 of 5

Similarly, another cable dated December 2009 also released by Wikileaks cited US Ambassador to Uganda, Jerry Lanier, who claimed that he was allegedly told by a senior executive from Anglo-Irish Tullow, that Italian oil company ENI had bribed Ugandan officials to block Tullow s bid to secure the tenements to exploit untapped crude oil deposits in Uganda s Lake Albert Basin. Such is the nature of the competition and lengths to which some bidders are willing to go in order to attain their goals. Again, in October 2006, two major European oil exploration companies, Compañía Española de Petróleos (Cepsa) of Spain and Sweden s Lundin International, made formal protests when they were unable to access the exploration market in Kenya due to the rejection of their bids in favour of China National Offshore Oil Company (CNOOC) which received exclusive rights to six out of 11 available blocks. The East African, a noted regional publication, commented on the deal, stating: So dominant has China become in the oil exploration scene in Kenya that CNOOC alone now controls 28 per cent of the total exploration acreage in Kenya. Such examples clearly indicate that although China is a relatively new player in Africa, it has achieved phenomenal growth in the space of over a decade. Moreover, China has increased its share of the total amount of African oil exported from initially negligible levels to an estimated nine per cent of total output. This suggests that as China and India both gain greater political, economic and military power, it is more than likely that Western influence, including Australia s mining aspirations in East Africa, will be seriously challenged in what is a shrinking and increasingly competitive operating environment. ***** This article is an expanded version of an original which was published in Resource Stocks magazine, January-February 2011. ***** Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. Desborough House, Suite 2, 1161 Hay Street, West Perth WA 6005 Australia. Tel: +61 8 9486 1046 Fax: +61 8 9486 4000 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au Page 5 of 5