From the Editor s Desk

8 July 2015 Vol. 6, 25. From the Editor s Desk Dear FDI supporters, Welcome to this week s edition of the Strategic Weekly Analysis. In the weeks ahead, FDI looks forward to publishing a paper analysing some of the key opportunities and weaknesses confronting Pakistan, including governance, the civil-military balance, energy, food and water security, the demographic youth bulge and the economy. Also coming up is an analysis by FDI Senior Visiting Fellow Auriol Weigold of the approach that is likely to be taken by Indonesia when it moves into the role of IORA Chair later this year. We begin the coverage of this week s SWA with an examination of Indian Prime Minister Narendra Modi s tour of Central Asia. While the reason for the tour was said to be economic cooperation, it is very likely that he will be looking to secure uranium and gas to fuel India s economic growth. Remaining in India, we assess the possible implications of India becoming a full member of the Shanghai Co-operation Organisation. We find that, while there are many benefits that New Delhi may accrue from SCO membership, including possible access to energy supplies, it will need to be very careful in balancing its growing relationship with the United States and any possible demands placed upon it by Beijing and Moscow. Moving to Indonesia, we analyse the growing religious intolerance there and assess whether proposed legislation, if passed, could lessen the incidents of violence caused by doctrinal differences. We conclude our coverage with a review of the economy of the Seychelles, which was recently promoted by the World Bank to the status of High Income Country, a rare event in sub-saharan Africa. We note that, while its two main industries, tourism and fisheries, remain at risk from downturns in the world economy, its fundamentals are strong. I trust that you will enjoy this edition of the Strategic Weekly Analysis. Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International *****

Modi Tours Central Asia While economic co-operation was announced as the focus of the tour, it is likely that securing India s energy market and security co-operation to tackle the rising threat of extremism in Central Asia will be high on the agenda. Background Indian Prime Minister Narendra Modi is currently undertaking a tour of the Central Asian region. His eight-day trip began in Uzbekistan and Kazakhstan on 6-7 July. Modi is now attending the seventh BRICS and SCO Summit in Ufa, Russia, from 8-10 July. After the twoday summit, he will return to Central Asia, visiting Turkmenistan, Tajikistan and Kyrgyzstan before returning to India on 13 July. In announcing the tour, Modi focussed on the need to enhance economic relations with the Central Asian region, but it is likely that energy and terrorism will be high on his agenda. Comment India has recently sought to diversify its energy market away from oil imports from the Middle East. Consequently, Modi has pushed for an ambitious nuclear energy programme that should see India generate 14,600 MWe from its nuclear power plants by 2020 and 25 per cent of its electricity from nuclear power by 2050. To support its energy programme, Kazakhstan has supplied India with 1,812.5 metric tons of uranium over the last four years under a contract which expired in December 2014. It is likely, therefore, that Modi will look to renew this contract. Some sources estimate a deal of 5,000 metric tons is likely. Modi is also set to confirm a recent contract with Uzbekistan. Signed in August 2014, the deal will see Uzbekistan s NMMC mining company supply India with 2,000 metric tons of uranium until 2018. An on-going proposal that, if completed, will bring some much needed relief to India s energy supplies is the Turkmenistan Afghanistan Pakistan India (TAPI) pipeline. Since India has lacked the infrastructure to import piped natural gas, importing liquefied natural gas (LNG) has been the alternative solution. This, however, is not a sustainable long-term solution. The existing design capacity of India s pipeline network is equivalent to around 85 to 90 million metric tons per annum (MMTPA) while the country s regasification capacity is only 15 to 16 MMTPA. While pursuing its ambitions nuclear energy programme, India has to either drastically increase its LNG regasification capacity or quickly develop one of the proposed pipelines to meet increasing energy demands. It is likely, therefore, that Modi will discuss the proposed TAPI pipeline with Turkmenistan. Turkmen President Gurbanguly Berdimuhamedov also recently discussed the project with Pakistani Prime Minister Nawaz Sharif, on 20 May. Modi has also focussed on furthering security co-operation in the Central Asian region through counter-terrorism. In his address to students at Nazarbayev University in Kazakhstan, Modi highlighted the threat which terrorism poses for Central Asia which is situated at the frontier of instability adding that India and Central Asia would combat terrorism through the strength of our values and our commitment to humanism. A major Page 2 of 9

concern among Central Asian states is the growing number of youths who are being attracted to the Islamic State (IS) group. According to a report published in January by the International Crisis Group, 2,000 to 4,000 people from the Central Asian region have travelled to the Middle East to support IS. Should a significant portion of this group return, they would pose a major challenge to Central Asia s security and stability. This problem needs to be addressed and the current approach of using laws to curb religious growth and the police to conduct crackdowns may only escalate the problem. It remains unclear, however, how security co-operation between India and the Central Asian states will tackle this problem and what form it could possibly take. Significant developments in bilateral relations are unlikely to result from Modi s tour. Securing uranium deals and exploring the possibilities of a TAPI pipeline to secure India s energy future appear to be his primary concerns. The tour, however, could possibly be seen as an attempt to increase India s future relationship with Central Asia as part of its overall strategy to raise its profile and project its influence as befits a rising major power. Jarryd de Haan Research Analyst Indian Ocean Research Programme ***** India Prepares for Membership in SCO But Is It Prepared To Confront Multi-Alignment Reality? As India prepares to become a full member of the Shanghai Co-operation Organisation it must recognise that the Modi mantra of multi-alignment may cause it to walk a diplomatic tightrope. Background India and Pakistan have initiated the process to become full members of the Shanghai Co-operation Organisation (SCO). If they are given full membership, SCO would have four nuclear powers among its members, making it more of an equal to NATO. While there are many advantages to be accrued from membership in the organisation, India will recognise that membership in SCO could place it at distinct odds with its current trajectory vis-à-vis its growing relationship with the US. Comment Indian Prime Minister Narendra Modi is currently on a tour of Central Asia where, it is expected, he will focus to a large extent upon securing energy products to sustain India s growing economy. He will, no doubt, wish to renew a contract with Kazakhstan for the supply of uranium and strike a similar deal with Uzbekistan. His entire focus will not, however, be on uranium supplies alone. Modi will probably wish to push forward Page 3 of 9

negotiations with Turkmenistan and, especially, Pakistan on the proposed Turkmenistan- Afghanistan-Pakistan-India (TAPI) gas pipeline. In order to securitise its energy supplies, India must create an energy mix of different types of energy supplies, natural gas being a major component of that mix. It currently obtains a good deal of that product from Iran but, given the current situation there, may be forced by sanctions imposed upon Tehran by the West to seek other sources. Turkmenistan is a good alternative but there is a major catch: any pipeline from Turkmenistan to India must pass through Pakistan, something New Delhi has previously been reluctant to contemplate, given the nature of its relationship with Islamabad. Now, however, since both countries are to become members of SCO, New Delhi could possibly feel slightly more comfortable with the idea. Interestingly, Pakistan has sought full membership within SCO for a number of years now but Beijing has blocked its access until India could become a full member, too. While there may be little that actually changes on the ground, New Delhi will have an immediate and closer-knit forum, and one more likely to act on any complaint, than, say, the UN in which to air any grievances pertaining to the Pakistani section of the pipeline. If this project proves successful, New Delhi could well create a second pipeline to move gas supplies from Iran through Pakistan. Pakistan, for its part, would earn royalties and commissions on the volume of gas that passes through its territory. It would be to Islamabad s advantage, therefore, to ensure the safe transit of the gas. China, for its part, will wish to see more amicable ties between the two South Asian neighbours on the one hand as that will enable it to focus on its own Silk route projects. While it may temporarily lose the Pakistani proxy it currently uses to keep India in check, that effect may be readily resuscitated if and when required on the other. India will, no doubt, be cognisant of this fact and will factor it into their calculations. More importantly, however, India will need to determine the approach it will have to take in balancing its membership in an organisation that comprises two of the US s most pronounced rivals Russia and China. New Delhi s strategic relations with the US have been growing since the late 1990s and it cannot afford to cast those aside. On the other hand, India is an active party in, for instance, the naval exercises co-ordinated between the US, Japan and, recently, Australia. It could easily find itself having to defend its participation in those exercises, which China sees as part of a conspiracy to contain it, to Beijing and Moscow. Essentially then, India could find itself at odds with the US on the one side and with Beijing and Moscow on the other. Essentially then, India will be forced to walk a diplomatic tightrope while it is a SCO member and will need to call upon all of its negotiation abilities if it is to make full use of that membership and not lose the strategic advantages it has gained from its enhanced relationship with the West. Lindsay Hughes Research Analyst Indian Ocean Research Programme Page 4 of 9

***** Religious Intolerance Remains High in Indonesia Recent reports suggest that Indonesia still has a long way to go in improving levels of religious tolerance. Draft legislation, if passed and enforced, might provide an opportunity for such an improvement. Background The latest quarterly report by the Indonesian Komisi Nasional Hak Asasi Manusia (National Commission on Human Rights, or Komnas HAM) indicates that religious intolerance remains a major issue within the country. Between April and June 2015, the Commission identified 14 cases of religious intolerance and injustice. Religious intolerance manifests itself in the vandalisation of religious property and the desecration of religious texts as well as more serious acts of religiously motivated violent assault that can lead to injuries and deaths. Comment Officials from Komnas HAM have suggested that their latest report underestimates the true level of religious intolerance in Indonesia. There was a decline in religious violence in 2014, although this is generally attributed to the national election rather than any social shift. The Setara Institute for Democracy and Peace, an Indonesian research institute, claims to have recorded roughly 200 events that relate to violations of religious freedom each year. In 2007, the institute claims, there were only 91 such events. If true, these claims suggest that religious intolerance is growing in Indonesia. In a February 2015 report, the Pew Research Centre identified Indonesia as one of the world s most restrictive countries in terms of religious freedom. The same report also ranks it highly for social hostilities involving religion. If policies to address this problem are not adopted soon, Indonesia could find its reputation as a tolerant and pluralistic society increasingly questioned. Religion in Indonesia has long been a complicated issue. When the country became independent in 1945 President Sukarno implemented a state philosophy known as Pancasila to unify the country s disparate citizenry. While it is officially a secular country, with no official state religion, Pancasila maintains that citizens must hold a belief in the one and only God. This was the result of a compromise between religious hardliners and non-muslim citizens. The compromise allows for a range of religious beliefs and has been widely interpreted as a guarantee of the freedom to choose and practice one s religion. Currently, the state recognises six religions - Islam, Protestantism, Catholicism, Hinduism, Buddhism and Confucianism; no other doctrine is recognised. During the New Order regime of former President Suharto, religious fundamentalism and intolerance were curtailed. During the democratic era, which began in 1998 with the ousting Page 5 of 9

of Suharto, a number of intolerant groups, such as Front Pembela Islam (Islamic Defenders Front or FPI) and the Forum Ummah Islam (Islamic People s Forum or FUI), have emerged. Membership of such groups remains low, however, and they are not representative of mainstream Muslim sentiment. In recent years, Christians, Ahmadis and Shias have been the targets of growing religious intolerance fostered by groups such as FPI and FUI. The Ahmadiyah sect is viewed as deviant by Sunni and Shia Muslims alike, to the point that they are seen as un-islamic heretics. Their mosques have been attacked and in some instances so too have their homes. In the last ten years, nearly 1,000 Christian churches have also been forced to close after various Islamic pressure groups claimed they did not have the correct permits to remain open. Many still remain closed even though the Supreme Court has ruled that they are allowed to operate. According to some reports, the police are hesitant to counter Islamic hardliners. Senior Commander John Hendri of the National Police s legal division suggests that police officers are reluctant to file reports against those who spread intolerance because the fear of reprisal is too great and the reward too low. The government began preparing a draft bill on the protection of religious communities in October 2014. The bill has yet to come before parliament and it could be years before it does so. If it is eventually passed, it is expected to provide guarantees for members of all religious communities, not just those officially sanctioned by the state. Of course, such a law will only be able to promote religious tolerance if it is properly enforced. The unwillingness of law enforcers to counter extremist groups suggests that this is probably the larger barrier that will need to be overcome. Mervyn Piesse Research Analyst Indian Ocean Research Programme ***** Seychelles Graduates to High Income Country Status Reforms enacted following an economic crisis in 2008 are paying off and should guarantee the re-election of President James Michel at the next elections, due to be held in 2016. Background The World Bank has promoted the Seychelles to the status of High Income Country, confirming the successful economic policies pursued by the government of President Michel. In becoming an African success story, the Seychelles has embraced sound macroeconomic policies since facing a financial crisis in 2008. While still at risk of downturns in tourism and fisheries, its main industries, the economy is predicted to keep growing, incomes have risen, unemployment has fallen and inflation is stable. Page 6 of 9

Comment Along with Equatorial Guinea, the Seychelles is one of only two sub-saharan African countries to make it into the World Bank s list of high income countries. Unlike the infamous Central African kleptocracy, however, the Seychelles has been rather more successful at achieving a higher living standard for its entire population, a more even distribution of wealth, higher standards of education and health care, not to mention personal and media freedom. Under the Atlas method, the World Bank calculates gross national income (GNI) per capita as the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income from abroad. 1 That figure is then divided by the midyear population and converted to US dollars. Countries with a per capita GNI of US$12,736.00 or more are classed as high income. Even despite its place at the lower end of a very wide spectrum, breaking into the ranks of higher-income countries nonetheless confirms the success of the macroeconomic settings and policies taken by James Michel, president since April 2004. The graduation onto the rich list represents a remarkable turnaround from 2008, when the country defaulted on an interest payment and had to seek a bailout from the International Monetary Fund. Structural reforms were implemented, including public sector redundancies, the floating of the national currency the rupee and the opening of the economy. According to the World Bank, the Seychelles now has a GNI of US$13,990.00 and the unemployment rate stands at two per cent. The Seychelles has, in fact, surpassed near neighbour and fellow successful small island state, Mauritius, which, even with an average national income well above the sub-saharan African standard at US$9710.00, remains in the upper middle income category. The literacy rate in the Seychelles is 91.8 per cent, a figure that compares well with that of Mauritius (90.6%), is not all that far behind developed countries and well above the sub- Saharan African average of 60 per cent. At 74 years, the average life expectancy enjoyed by the 92,000 citizens of the Seychelles is comparable to the developed world average. On the economic front, the Seychellois Government now runs a budget surplus, inflation has dropped to 1.4% after peaking at over seven per cent in 2012, and economic growth of 3.7% is predicted for 2016 and 2017. The World Bank notes, however, that downsides exist in the potential for uncertainty in Western European and Russian tourism markets, the most important sources of inbound tourists to the Seychelles, and the vulnerability of the country s tuna fisheries industry to external demand and the vagaries of global commodity prices. Tourism and fisheries continue to be the two main industries. Some risk to political stability also remains. The two main opposition parties boycotted the last general election in 2011 in protest at the Michel Government s unwillingness to discuss 1 World Bank, GNI per capita, Atlas Method (Current US$). <http://data.worldbank.org/indicator/ny.gnp.pcap.cd/countries/xr?display=graph>. Page 7 of 9

electoral reform and, as a result, the ruling People s Party holds all but one seat in the current parliament. With the government s focus being very much on economic issues, rather than unresolved electoral matters, the scene would appear to be set for renewed disagreement ahead of the next presidential and parliamentary elections that are due to be held in 2016. All that aside, Michel enjoys a high level of public support, achieving 55.4% support in the 2011 presidential vote and outpolling his nearest rival by 14 per cent. As he approaches the end of his second term, there is, at this point at least, no reason to suppose that he will not stand for the presidency for a third and (constitutionally-mandated) final time. If the numbers keep falling in his favour, Michel s probable victory would seem to be equally assured. Leighton G. Luke Research Manager Indian Ocean Research Programme ***** What s Next? Russia will host the seventh BRICS (Brazil, Russia, India, China and South Africa) summit and the Shanghai Co-operation Organisation (SCO) summit on 8-10 July. Indian Prime Minister Narendra Modi and Pakistani Prime Minister Nawaz Sharif will both be in attendance. Commander of United States Pacific Command, Admiral Harry B. Harris, is visiting New Zealand until 8 July. During his time in Wellington, Admiral Harris is holding talks with Prime Minister John Key, Defence Minister Gerry Brownlee, and Foreign Affairs Minister Murray McCully. French Foreign Minister Laurent Fabius will be hosting an iftar dinner for ambassadors from the members of the Organisation of Islamic Co-operation in Paris on 9 July. Nominations for candidates for the Sri Lankan general election on 17 August will close on 15 July. The US-Australian biennial joint military exercise, Talisman Sabre, which began on 5 July, continues until 21 July. Forty personnel from the Japan Self-Defence Forces and 500 personnel from the New Zealand Defence Force are joining the exercise for the first time. Page 8 of 9

Any opinions or views expressed in this paper are those of the individual authors, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au Page 9 of 9