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U.S. policy towards South Asia has changed considerably over the last seven decades. The nature of U.S. engagement with different countries in the region has varied over time, as has the level of U.S. interest. While India and Pakistan have received the most attention from Washington, the United States has also been engaging with Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka, albeit to different degrees. 

On May 19, The India Project at Brookings hosted a panel discussion exploring the past and present U.S approaches towards South Asia, based on Senior Fellow Stephen Cohen’s new book, “The South Asia Papers: A Critical Anthology of Writings” (Brookings Institution Press, 2016). Panelists also assessed the Obama administration’s policies toward the region, and the challenges and opportunities that lie ahead for the next U.S. administration. Fellow Tanvi Madan, director of The India Project, moderated the discussion.

After the discussion, the panelists took questions.

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• U.S. policy toward South Asia: Past, present, and future

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• U.S. policy toward South Asia: Past, present, and future

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20160519_south_asia_transcript

      

In a long-awaited ruling prepared under the United Nations Convention on the Law of the Sea (UNCLOS), an arbitration panel has handed an unequivocal victory to the Philippines in its case against China, which it first filed in early 2013. The arbitration panel deemed invalid virtually all of Beijing’s asserted claims to various islands, rocks, reefs, and shoals in the South China Sea, determining that Chinese claims directly violated the provisions of UNCLOS, which China signed in 1982.

From the outset of Manila’s initiation of the arbitration process, Beijing has refused to participate. However, it did issue a position statement of its own in late 2014, claiming that the arbitration panel violated various UNCLOS provisions and additional agreements signed by the two governments. As the arbitration neared its conclusion, China released a steady stream of editorials and commentaries, claiming that the ruling sought “to deny China’s territorial sovereignty and maritime rights and interests in the South China Sea.” 

Beijing has repeatedly stated that “it does not accept any means of third party dispute settlement or any solution imposed on China.” At the same time, UNCLOS has no enforcement mechanism for carrying out the panel’s judgments. But Beijing’s repeated efforts at shaming and stonewalling have imposed an undoubted cost on its political standing in the region. Moreover, China’s signing of UNCLOS obligated Beijing to compulsory third party determination, though it is not the only power contesting this commitment. 

Beijing’s repeated efforts at shaming and stonewalling have imposed an undoubted cost on its political standing in the region.

The fundamental weakness of China’s policy defense was its reliance on various “historic claims” to most of the maritime expanses of the South China Sea, including areas that directly encroached on the sovereign territory of various neighboring states. Its claims have frequently been encapsulated in the nine-dash line, an ill-defined geographic demarcation initially appearing in a map prepared by cartographers in the Republic of China in 1947 (i.e., prior to the victory of the Chinese Communist Party in 1949). But China’s sweeping claims to “unequivocal sovereignty” failed to address the multiple layers of ambiguity and conflicting judgments found in various policy documents released by Beijing.

Moreover, the arbitration panel emphasized from the outset that its authority did not extend to determinations over sovereignty. Rather, its mandate (distilled from a list of 15 claims in Manila’s original brief) focused on Chinese claims to the continental shelf and to exclusive economic zones extending from land features, reefs, and rocks over which China claimed indisputable sovereignty. The Philippines also contested Chinese activities that infringed on the rights of Filipino fishermen, Beijing’s construction of artificial islands, and the operation of Chinese law enforcement vessels in various shoals. 

Even if Beijing persists in its angry defiance of the arbitration panel’s findings and continues to contest their legitimacy, the sweeping character of the rulings (in a document exceeding 500 pages in length) is impossible to deny. UNCLOS specifically states that land features not deemed an island are entitled only to a 12-mile territorial sea, not to an exclusive economic zone or to a continental shelf. In an especially controversial finding, the panel concluded that Itu Aba (known in Chinese as Taiping Island and the largest land feature in the Spratly Island group and controlled by Taiwan) was not an island; this has been strongly contested by Taipei as well as by Beijing.

The biggest looming issues will focus on how China opts to respond.

The biggest looming issues will focus on how China opts to respond in words and deeds. The arbitration proceeding has triggered strongly nationalistic responses from leaders and experts in China, with many alleging a hidden U.S. hand in the arbitration. American political and military support for the Philippines and other claimants and heightened U.S. air and maritime activities in the South China Sea—all justified as ensuring freedom of navigation in the vital waterways of the region—engenders additional angry responses from the Chinese leadership. 

Beijing continues to insist that it is prepared to enter into bilateral negotiations with Manila over various disputed claims. But with China claiming indisputable sovereignty over various contested features and possessing maritime capabilities that vastly exceed those of any other claimants, will it be prepared to demonstrate flexibility, restrain its responses, and give any credence to the diligent labors of the arbitration panel? Can Beijing envision quiet diplomacy, either with the United States or with regional claimants, as opposed to seeing itself as the endlessly aggrieved party? If Beijing doesn’t exercise restraint and instead takes steps that heighten the risks, these could readily pose new threats to the regional maritime order that cannot possibly be in anyone’s interest. 

       

The much-awaited rulings of the Permanent Court of Arbitration in The Hague—in response to the Philippines’ 2013 submission over the maritime entitlements and status of features encompassed in China’s expansive South China Sea claims—were released this morning. Taken together, the rulings were clear, crisp, comprehensive, and nothing short of a categorical rejection of Chinese claims.

Among other things, the court ruled China’s nine-dash line claim to the South China Sea invalid because of Beijing’s earlier ratification of the United Nations Convention on the Law of the Sea (UNCLOS). In a move that surprised many observers, the court also ventured a ruling on the status of every feature in the Spratly Islands, clarifying that none of them were islands and hence do not generate an exclusive economic zone (EEZ). Significantly, it ruled that Mischief Reef, which China has occupied since 1995, and Second Thomas Shoal, where China has blockaded Philippine marines garrisoned on an old vessel that was deliberately run aground there, to be within the EEZ of the Philippines.

In the neighborhood

Now that the rulings have been made, what are the implications and way forward for concerned states?

For the Philippines, the legal victory presents a paradoxical challenge for the new government. Prior to the ruling, newly-elected President Rodrigo Duterte indicated on several occasions that he was prepared to depart from his predecessor’s more hardline position on the South China Sea to engage Beijing in dialogue and possibly even joint development. He even hinted that he would tone down Manila’s claim in exchange for infrastructure investment. Given that the ruling decisively turns things in Manila’s favor, it remains to be seen whether the populist Duterte administration would be able to sell the idea of joint development of what are effectively Philippine resources without risking a popular backlash. This will be difficult but not necessarily impossible, given that the Philippines would likely still require logistical and infrastructural support of some form or other for such development projects. 

Since the submission of the Philippine case in 2013, China has taken the position of “no recognition, no participation, no acceptance, and no execution,” as described by Chinese professor Shen Dingli. Beijing continues to adhere to this position, and is likely to dig in its heels given the comprehensive nature of the court’s rejection of China’s claims. This, in turn, will feed the conspiracy theories swirling around Beijing that the court is nothing but a conspiracy against China. 

[T]he rulings are likely to occasion intense internal discussions and debates within the Chinese leadership as to how best to proceed.

Not surprisingly, in defiance of the ruling, China continues to insist on straight baselines and EEZs in the Spratlys. Away from the glare of the media however, the rulings are likely to occasion intense internal discussions and debates within the Chinese leadership as to how best to proceed. Many analysts have the not-unfounded concern that hawkish perspectives will prevail in this debate, at least in the short term—fed by the deep sensibilities to issues of security and sovereignty, and a (misplaced) sense of injustice. This would doubtless put regional stability at risk. Instead, China should do its part to bring the Code of Conduct it has been discussing with ASEAN to a conclusion as a demonstration of its commitment to regional order and stability, and the peaceful settlement of disputes. Beijing should also continue to engage concerned states in dialogue, but these dialogues cannot be conducted on the premise of Chinese “unalienable ownership” of and “legitimate entitlements” in the South China Sea. 

ASEAN will be hosting several ministerial meetings later this month, and the ruling will doubtless be raised in some form or other, certainly in closed-door discussions. For ASEAN, the key question is whether the organization can and will cobble together a coherent, consensus position in response to the ruling, and how substantive the response will be (they should at least make mention of the importance of international law to which all ASEAN states subscribe). For now though, it is too early to tell. 

U.S. policy

As an Asia-Pacific country, the United States has set great stock in the principle of freedom of navigation, and has articulated this as a national interest with regards to the South China Sea. There are however, three challenges for the United States as it proceeds to refine its policy in the region:

1. First, going by the attention it has commanded in Washington, it appears that the South China Sea issue has already become the definitive point of reference of America’s Southeast Asia policy. Southeast Asian states, on the other hand, have expressed their desire precisely that the South China Sea issue should not overshadow or dominate the regional agenda. Hence, even as the United States continues to be present and engaged on South China Sea issues in the region, equal attention, if not more, should be afforded to broaden the scope of their engagement. 
2. Second, in pushing back Chinese assertiveness in the South China Sea, the United States must be careful not to inadvertently contribute to the militarization of the region. There is talk about the deployment of a second carrier group to the region, and the U.S.S. John C. Stennis and U.S.S. Ronald Reagan are already patrolling the Philippine Sea. On the one hand, this is presumed to enhance the deterrent effect of the American presence in the region. Yet on the other hand, Washington should be mindful of the fact that China’s South China Sea claim is also informed by a deep sense of vulnerability, especially to the military activities that the United States conducts in its vicinity. 
3. Finally, in its desire to reassure the region, the United States has sought to strengthen its relations with regional partners and allies. This is necessary, and it is welcomed. At the same time however, Washington should also ensure that this strengthening and deepening of relations is undergirded by an alignment of interests and shared outlooks. This cannot, and should not, be assumed. 

       

The International Tribunal on the Law of the Sea has ruled on the case that the Philippines brought in 2013, challenging China's claims and behavior in the South China Sea. International lawyers and the policy commentariat has judged the ruling as a sweeping victory for the Philippines and a significant loss for China, which refused to acknowledge the tribunal's jurisdiction or to take part in the proceedings.

The question going forward is how China will respond. Will it double down on the aggressive and coercive activities of the past six years, behavior that has put most of its East Asian neighbors on guard? Will it continue to interpret the Law of the Sea in self-serving ways that very few countries accept? Or, might China recognize that its South China Sea strategy has been an utter failure and that its best response is to take a more restrained and neighborly approach? 

What got us here?

Critical as the next weeks and months will be, it is also useful to take a look back and examine recent events in the broad context of Chinese foreign and security policy over the last four decades. The premise of that reform policy, initiated in the late 1970s and early 1980s, was that a weak China could best ensure its security by engaging and accommodating the international community, in order to gradually build up all aspects of its national power. The most clear-cut feature of this strategy was to join the global economy: China accepted the leadership of the IMF and World Bank; opened the Chinese economy to international trade and investment; carved out critical roles in global supply chains; accepted the liberalization disciplines of the World Trade Organization; and, more recently, began to provide public goods to other developing economies. Not everyone has benefitted from China's economic engagement, but on balance it has been a signal success.

China's reformist leaders also recognized the value of taking an accommodating stance toward its East Asian neighborhood, of which the United States is a part. One side of accommodation was to execute a skillful diplomacy designed to reduce tensions and avoid conflict unless Beijing's fundamental interests were under threat. Accommodation's other side was to delay the modernization of the Chinese military and exercise restraint in the use of those capabilities that it did create. This made sense because China both lacked the power to challenge the United States and Japan militarily and needed the help of those and other countries to grow economically. 

That approach changed in the early 2000s, when Beijing judged that it would only be secure if it expanded its eastern and southern strategic perimeters into the East and South China Seas. That judgment had its own logic, which maritime territorial disputes and reports of maritime energy and mineral resources only intensified. Thus began a program to build the capabilities to project power into the maritime domain and then use them to press its claims. That campaign created frictions with its neighbors. An increasingly overbearing diplomacy didn't help China's reputation either. 

It’s your move, China

Another part of China's grand strategy has been to integrate itself in the system of international institutions, law, norms, and regimes—both global and regional. This step did not signify a fundamental acceptance of the international order that had emerged and evolved after World War II. Rather, it reflected a belief that China could and should use institutions, law, norms, and regimes to protect China's interests against hegemonic behavior by others, particularly the United States. (Conversely, the "West" believed that binding Beijing to "its" order would restrain Chinese bad behavior.)

The tribunal’s decision on the Philippines case was a clear blow to China's long-standing strategy to use international law to advance or protect its interests, prompting feelings of buyer's remorse. The hardy perennial that China has been the victim of humiliation at the hands of Western countries will only add to the resentful reaction. Of course, China rejects the widely-held view that it is bound by the ruling even though it did not participate in the case. Also, this is a court with no enforcement powers, so Beijing could simply ignore the ruling and use its military and law enforcement assets to continue its past pattern of aggressive and coercive actions—essentially increasing the salience of its military power. That course of action would only further push the test of wills between it and Washington, even though neither benefits from a downward spiral of increased competition and conflict.

Beijing could simply ignore the ruling...That course of action would only further push the test of wills between it and Washington, even though neither benefits from a downward spiral of increased competition and conflict.

China could go even further than simply doubling down. Contrary to the tribunal's ruling, it could treat the Spratly Islands as islands under international law; define them as a single unit for purposes of defining maritime boundaries; accordingly draw straight baselines around them; then declare for itself an exclusive economic zone that covered most of the waters of the South China Sea; and finally, over time, challenge the rights of other countries to freedom of navigation and the exploitation of natural resources. For the lay-reader, what is important here is that none of these actions would accord with the widely accepted principles of the Law of the Sea. (Ultimately, China might someday insist to the countries of East Asia that it will no longer tolerate their relying on China for economic prosperity and depending on the United States for security.)

On the other hand, China could conduct a serious assessment of how it has exercised its diplomatic, coercive, and legal power over the last half-decade. Is China really more secure after alienating its East Asian neighbors through heavy-handed diplomacy, stimulating a very public coercive counter-response from the United States (too public in my view), and suffered a significant defeat in the international court of law? Might a tactical retreat at this stage, including a recommitment to international law and institutions, better serve China's strategic interests than more domineering behavior?

A key principle of Chinese diplomatic statecraft beginning in the 1980s was taoguang yanghui, a phrase that basically means to exercise restraint as one steadily builds one's power. The Chinese national security establishment has forgotten that principle as it conducted its recent policy towards the South China Sea. It would do well to revive it.

       

South African court rules President Zuma violated the constitution

Thursday, South Africa’s highest court found President Zuma guilty of violating the constitution as he refused to reimburse the large sum of money spent on improvements to his personal home. Between 2010 and 2014, the home located in the president’s rural hometown of Nkandla received improvement which cost an estimated $23 million. The improvements include a chicken coop, an amphitheater, a swimming pool, and a helipad. President Zuma has stated that the improvements were necessary to ensure his security and should consequently be paid for with taxpayers’ money. In 2014, public prosecutor Thuli Madonsela ruled that the president should repay part of the taxpayers’ money spent on the improvements of his personal home. In refusing to do so, he violated the country’s constitution “by not complying with a decision by the public protector, the national watchdog.” The court has given the National Treasury 60 days to determine the sum the president must repay. The opposition has stated that they will seek Zuma’s impeachment.

In other South African news, this week, the rand strengthen against the U.S. dollar and reached its highest value since December 8, 2015, the day before President Zuma fired former Finance Minister Nhlanla Nene. The strengthening of the rand was coupled with the strengthening of other Emerging Markets currencies. This hike follows the statement from Federal Reserve Chair Janey Yellen, reiterating the importance to raise U.S. interest rates cautiously, amid risks in the global economy. Investors—weighting prospects of higher U.S. borrowing costs—were holding off in acquiring emerging-market assets.

Seventeen Angolan activists are sentenced to jail time

This week, 17 Angolan activists were sentenced to jail time for rebellion against the government of Jose Eduardo dos Santos. The sentences ranged from two years to eight and a half years. Last June, the activists were arrested during a book club meeting focusing on Gene Sharp’s book titled From Dictatorship to Democracy: A Conceptual Framework for Liberation—a book on nonviolence and resistance to repressive regimes. Monday, the activists were charged and sentenced with acts of rebellion, planning mass action of civil disobedience, and producing fake passports, among other charges. Amnesty International has accused the Angolan court of wrongfully convicting the activists and using the judicial system to “silence dissenting views.”

Later in the week, in response to the jailing of the young activists, the Portuguese branch of hacking group Anonymous claimed the shutdown of 20 government websites, including that of the Ministry of Education and the Ministry of Labor and Social Security, among others. In a Facebook post claiming the attack, the group states, “The real criminals are outside, defended by the capitalist system that increasingly spreads in the minds of the weak.” The functionality of the websites has been restored.  

Aid cuts due to disputed election rerun hit Tanzania

On Monday, March 28, the U.S. Millennium Challenge Corporation (MCC) withdrew $472 million in aid from the government of Tanzania after the result of the last weekend’s disputed presidential election rerun in the semi-autonomous archipelago of Zanzibar was announced. Incumbent President Ali Mohamed Shein of the ruling Chama Cha Mapinduzi party was declared the winner with 91.4 percent of the vote. However, the rerun was boycotted by the opposition Civic United Front party over the cancellation of last October’s election by the Zanzibar Electoral Commission. The commission claimed the October poll was fraudulent, while the opposition says the allegations of fraud were fabricated to thwart a victory by their candidate.

The MCC was planning a number of power and infrastructure projects in Tanzania, but its development assistance programming is conditional upon beneficiaries meeting certain standards of good governance. The MCC’s board of directors held a vote on Monday, in which they determined that Tanzania was no longer eligible to partner with the MCC given the election outcome. Although the loss of the MCC partnership is a sizable blow to the Tanzanian government, the Tanzanian finance minister appeared optimistic that the power projects would continue despite the MCC’s decision, as he stated: “We weren’t surprised at all because we were prepared for whatever the outcome. We will implement those projects using local sources of fund and the support of from other development partners.” Meanwhile, 10 out of the country’s 14 key western donors withdrew general budget support to Tanzania over the contested election.

       

       

       

At a news conference in Seoul today, the United States and the Republic of Korea jointly announced the decision to deploy a Terminal High Altitude Area Defense (THAAD) missile defense system on the Korean Peninsula, with operational deployment planned by the end of 2017. Though many details are still pending, the decision is not a surprise, and the purposes of the deployment are wholly transparent.

As elaborated in the official announcement, the THAAD deployments are intended to defend the infrastructure and citizens of South Korea, and to protect core military capabilities underpinning the U.S.-Korea alliance. It is not a panacea for South Korea’s potential vulnerabilities to North Korean missile attack, but it will appreciably buttress Seoul’s still-limited air and missile defense capabilities, and explicitly link them to the far greater assets of the United States. 

Seoul did not undertake this commitment lightly. In recent years, South Korean strategic analysts have hotly debated the missile defense issue, but the political-military leadership has proceeded very deliberately. It was only in the aftermath of North Korea’s fourth nuclear test in early January and a long-range rocket test that soon followed that President Park Geun-hye’s administration agreed to initiate consultations on the “earliest possible” deployment of a THAAD missile battery. The North’s accelerated missile testing program, evident since April, reinforced the need for a meaningful response to Pyongyang’s actions.

Neither China nor Russia seems mollified by today’s announcement. Beijing and Moscow both perceive a malign U.S. strategic design, purportedly intended to detect and intercept Chinese and Russian strategic missiles, thereby invalidating their respective deterrence capabilities. But these worst-case estimates attribute technical reach and refinement to the Raytheon radar system likely to accompany the THAAD deployment that substantially exceeds even the manufacturer’s claims. 

China and Russia also contend that the THAAD deployment will further complicate the larger goal of denuclearization and threat reduction on the Korean Peninsula. But this places the cart before the horse. Pyongyang’s determination to expand and diversify its nuclear and missile programs has triggered the THAAD decision. Without the North’s accelerated military efforts, it is very doubtful that sentiment in Seoul would favor deployment of THAAD. Beijing and Moscow assuredly know how to connect the dots, but they seem unwilling to do so. 

At a time of increased Chinese wariness about U.S. military strategy along China’s periphery, it is not a surprise that Beijing has paid little heed to American and South Korean assurances.

Beijing also calculates that warning South Korea of unspecified consequences will convince Seoul to forego the THAAD decision. But this underestimates the South’s determination to proceed with missile defense, which will tie Seoul even more integrally to longer-term cooperation with the United States. This decision is unwelcome in China, but it is wholly within Seoul’s sovereign right to defend its vital interests by all appropriate means; China routinely does the same.

In meetings with Chinese counterparts, senior Korean officials have repeatedly stated that the THAAD deployment serves one irreducible purpose: the protection of South Korean vital national security interests. Seoul is keenly aware of Chinese strategic equities, and will remain very mindful of Beijing’s concerns as it moves ahead with this program. 

At the same time, Seoul and Washington have repeatedly conveyed their willingness to impart to officials in Beijing the limited purpose of the THAAD deployment. It will be directed entirely towards the North’s threats against the South; it will be exclusively bilateral in design; and it will not be targeted against the capabilities of any other party. 

At a time of increased Chinese wariness about U.S. military strategy along China’s periphery, it is not a surprise that Beijing has paid little heed to American and South Korean assurances, at least publicly. But officials and analysts in China must quietly grasp the reasons for the THAAD decision. The North’s nuclear and missile programs worry China deeply, as well. 

The need for a quiet, private conversation about the risks to stability on the peninsula has never been greater. The United States and South Korea are surely ready for this conversation. Whether China is ready remains to be seen.

       

       

       

Harsh geopolitical realities and historic legacies have pushed the South Caucasus states of Armenia, Azerbaijan, and Georgia back onto the foreign policy agendas of the United States, the European Union (EU), and Turkey, at a time when all three have pulled back from more activist roles in regional affairs. The South Caucasus states have now become, at best, second-tier issues for the West, but they remain closely connected to first-tier problems. To head off the prospect that festering crises in the Caucasus will lead to or feed into broader conflagrations, the United States, EU, and Turkey have to muster sufficient political will to re-engage to some degree in high-level regional diplomacy. In “Retracing the Caucasian Circle Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus,” authors Fiona Hill, Kemal Kirişci, and Andrew Moffatt explore the rationale and assess the options for Western reengagement with Armenia, Azerbaijan, and Georgia given the current challenges and limitations on all sides. Based on a series of study trips to the South Caucasus and Turkey in 2014 and 2015, and numerous other interviews, the authors review some of the current factors that should be considered by Western policymakers and analysts.

Constraints and considerations for U.S., EU, and Turkish engagement in the South Caucasus:

• Divergent trends in the South Caucasus
• Russia’s influence in the South Caucasus
• Regional conflicts
• The United States’ diminishing role in the South Caucasus
• Failure to integrate the South Caucasus into the EU
• Foundering relations with Turkey
• Dashed expectations in the South Caucasus of Western engagement

Despite the challenges that have beset the West’s relations with the South Caucasus and the growing disillusionment in Armenia, Azerbaijan, and Georgia, giving up on engagement is not an option.

Policy options for the future:

• The United States, EU, and Turkey must work together, rather than separately
• “Under the radar” coordination on creative interim solutions and working with other mediators
• Focus on the development of “soft regionalism”
• Work with Georgia as the hub for furthering soft regionalism
• Devise adaptable policies as relations with Iran and China develop in the region

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• Retracing the Caucasian Circle: Considerations and constraints for U.S., EU, and Turkish engagement in the South Caucasus

       

I write this as I learn of the beating death of an Azerbaijani journalist Rasim Aliyev. His “crime” was to post a Facebook item about football. What follows seems insignificant compared to his murder.

Two articles have appeared in prominent Western outlets in the past month addressing developments in the South Caucasus and the need for adjustments in U.S. (and Western) policy toward the region. The first was an excellent, in-depth Brookings report titled "Retracing the Caucasian Circle—Considerations and Constraints for U.S., EU, and Turkish Engagement in the South Caucasus"; the second was a shorter essay that Bill Courtney, Denis Corboy, and I penned for Newsweek on the need to reboot policy toward Armenia, Azerbaijan, and Georgia. Both reflected the difficulty of writing about the “South Caucasus” as if the three countries had common interests and objectives. Increasingly these interests and objectives are diverging, except for a growing unhappiness with the United States and the West for not paying attention to—or doing enough to support—the region. In the case of Azerbaijan, the frustration stems from U.S. leaders paying too much attention to the appalling human rights situation in the country.

What’s making the Azerbaijanis so upset with the West?

The authors of the Brookings report point to elite cynicism over Western disinterest and policy failures in the region as sources of Azerbaijani leaders’ unhappiness. This, in their view, is causing Armenia, Georgia, and Azerbaijan—for different reasons and in different ways—to tack toward Russia.

We have a different take in our Newsweek piece. We argue that the unhappiness results from governing elites recognizing that U.S. and Western policy regarding human rights, democracy building, corruption, and conflict resolution (especially the Nagorno-Karabakh conflict) threaten regime stability. Therefore, the tacking toward Russia is a conscious choice to avoid pressure and the transparency that closer association with the United States and Europe would involve.

The new orientation of these countries requires serious adjustment in Western policies. There are four new drivers prompting change (beyond the role of Russia): the regional consequences of the Iran nuclear agreement; the growing economic crisis, which is affecting the South Caucasian states in different ways; the threat of renewed military conflict between Armenia and Azerbaijan; and the internal security implications of suppression of human rights. While each country responds to these drivers in different ways, they are the source of a new dynamic in the South Caucasus that requires a fresh Western policy approach.

Three wild cards will shape these drivers and the Western approach to them: First, how hard will Russian President Vladimir Putin push his objective of rolling back the degree of Western influence achieved since the fall of the Soviet Union? Second, how well will Iran play the nuclear agreement card, especially regarding its reentry into global energy markets? Third, how distracting will Turkey’s military response to the Islamic State and the Kurdistan Workers’ Party (PKK) be for Turkey’s interests in the South Caucasus and its objective of becoming a regional energy hub?

The shortcomings of soft regionalism

What is to be done? Faced with such a challenging situation, the default policy response is to provide more assistance (economic and military), dispatch senior officials from Western capitals to visit the region, and indulge (rather than criticize) democracy and human rights abuses, all in the name of developing a strategic partnership. In other words: Show more love.

That business-as-usual approach is inappropriate for these challenging times. In the case of Azerbaijan, it is an inappropriate response to the continued violations by the Baku regime of basic human rights and freedom of expression.

The Brookings paper suggests a multilateral approach (involving the United States, EU, and Turkey) based on soft regionalism. I do not believe that soft regionalism will work. The best we can hope for is parallel bilateral engagement on the basis of common interests (e.g. conflict prevention) and shared values (e.g. democratic evolution, observance of human rights). We need to treat the energy issue in the region as a commercial rather than geopolitical one. Changes in the global energy market have undermined the geopolitical significance of Caspian energy resources compared to two decades ago. With low energy prices likely the norm for the near future, energy no longer plays a strategic role for the region. Among other weaknesses, the soft regionalism prescription implies coordinated interests with Turkey—this will be difficult absent an opening in Turkish-Armenian relations.

Who needs who more?

The burden of choice in this relationship with the West must shift from the outside parties to the South Caucasian states themselves. The outsiders should stop talking about “strategic” partnerships, trans-Caspian pipelines and Silk Roads because this perpetuates a “you-need-us-more-than-we-need-you” starting point. Rather, the time has come for Armenia, Azerbaijan, and Georgia to decide on their own where their interests coincide with those of the West. That’s where we and they can begin to develop meaningful relationships, rather than trying to invent a veneer to cover differences—as in the case of Azerbaijan’s record on human rights.

Another recent article in Newsweek, by Theodore Gerber and Jane Zavisca, raised questions about promoting democracy and human rights where populations and elites are skeptical of U.S. motivations in promoting these issues. Fairly, the article questions the effectiveness of the traditional instruments of promoting opposition political parties and local NGOs as a way of winning “hearts and minds” in the former Soviet Union. Unfortunately, these traditional instruments tend to emphasize the attractiveness of the “American way of life” through student and scientific exchanges. This offers a variant on the soft regionalism theme advanced in the Brookings paper. Both require a receptivity to change that both elites and populations increasingly find threatening. Developing a values-based relationship is difficult when values diverge.

To the extent our interests do not coincide, then the Western policy focus must be transactional and rest exclusively on conflict prevention and/or amelioration. It also should not shy away from pressing all three South Caucasian states on their obligations to observe international standards regarding human rights, democracy, and freedom of expression.

       

       

This is the fourth in a series of reports on the demographic and political dynamics under way in key “battleground” states, deemed to be crucial in deciding the 2008 election. As part of the Metropolitan Policy Program’s Blueprint for American Prosperity, this series will provide an electoral component to the initiative’s analysis of, and prescriptions for, bolstering the health and vitality of America’s metropolitan areas, the engines of the U.S. economy. This report focuses on two major battleground states in the South, Virginia and Florida, which serve as bookends to an emerging New South.

Virginia and Florida have eligible voter populations that are rapidly changing. White working class voters are declining sharply while white college graduates are growing and minorities, especially Hispanics and Asians, are growing even faster. These changes are having their largest effects in these states’ major metropolitan areas, particularly Miami and rapidly-growing Orlando and Tampa in Florida’s I-4 Corridor and the suburbs of Washington, D.C. in Northern Virginia. Other large metro areas in these states are also feeling significant effects from these changes and will contribute to potentially large demographically related political shifts in the next election.

In Virginia, these trends will have their strongest impact in the fast-growing and Democratic-trending Northern Virginia area, where Democrats will seek to increase their modest margin from the 2004 election. The trends could also have big impacts in the Richmond and Virginia Beach metros, where Democrats will need to compress their 2004 deficits. Overall, the GOP will be looking to maintain their very strong support among Virginia’s declining white working class, especially in the conservative South and West region. The Democrats will be reaching out to the growing white college graduate group, critical to their prospects in Northern Virginia and statewide. The Democrats will also be relying on the increasing number of minority voters, who could help them not just in Northern Virginia, but also in the Virginia Beach metro and the Richmond and East region.

In Florida, these trends will have their strongest impacts in the fast-growing I-4 Corridor (36 percent of the statewide vote), which, while Democratic2 trending, is still the key swing region in Florida, and in the Miami metro, largest in the state and home to 27 percent of the vote. The trends could also have big impacts in the South and North, where Democrats will be looking to reduce their 2004 deficits in important metros like Jacksonville (North) and Sarasota and Cape Coral (South). Across the state, the GOP needs to prevent any erosion of support among white working class voters, especially among Democratic-trending whites with some college. They will also seek to hold the line among white college graduates, whose support levels for the GOP are high but declining over time. Finally, the support of the growing Hispanic population is critical to GOP efforts to hold the state, but this group is changing generationally and in terms of mix (more non-Cuban Hispanics), which could open the door to the Democrats.

Both of these states are near the top of the lists of most analysts’ list of battleground states for November 2008. Florida was a very closely contested state in both 2000 and 2004 (especially 2000). But Virginia’s status as a battleground is new to 2008. Yet in both states the contested political terrain reflects the dynamic demographic changes occurring within them. With 27 and 13 electoral votes, respectively, all eyes will be on Florida and Virginia on election night.

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U.S. policy towards South Asia has changed considerably over the last seven decades. The nature of U.S. engagement with different countries in the region has varied over time, as has the level of U.S. interest. While India and Pakistan have received the most attention from Washington, the United States has also been engaging with Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka, albeit to different degrees. 

On May 19, The India Project at Brookings hosted a panel discussion exploring the past and present U.S approaches towards South Asia, based on Senior Fellow Stephen Cohen’s new book, “The South Asia Papers: A Critical Anthology of Writings” (Brookings Institution Press, 2016). Panelists also assessed the Obama administration’s policies toward the region, and the challenges and opportunities that lie ahead for the next U.S. administration. Fellow Tanvi Madan, director of The India Project, moderated the discussion.

After the discussion, the panelists took questions.

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While the South African labor market faces many large challenges, some more subtle trends might also be developing that undermine the country’s growth. Yes, the current level of unemployment stands at 24 percent. True, school dropout rates remain high: Only 50 percent of students will make it to the last year of high school, which means that the number of skilled workers in the country remains low. In addition, income inequality in South Africa is an overwhelming obstacle—with the country having one of the highest Gini coefficients (a statistical tool commonly used to measure inequality) in the world—and has been slowing its fight against poverty.

In their recent paper, Demographic, employment, and wage trends in South Africa, Haroon Bhorat, Karmen Naidoo, Morné Oosthuizen, and Kavisha Pillay examine important, perhaps precarious, trends in South African employment, such as the combination of South Africa’s weak educational system and labor demand biased toward skilled workers and the significant rise in temporary employment over full-time positions. However, the authors argue that perhaps the most interesting is the spike in public sector employment and the subsequent development of a new segment of the labor market, what they call a “new elite”: the unionized public sector employee.

The shift to services and the public sector

Like so many of sub-Saharan African countries, South Africa’s labor makeup (as well as contributions to GDP) has swiftly been shifting towards the services sector, especially since 2001. Table 1 clearly shows the dramatic shift in labor towards community, social, and personal (CSP) services and financial services: These two areas accounted for 73 percent of the shift in employment between 2001 and 2012 (Column 3). 

Employment Shares            Share of Change (ΔEi/ΔE) (a)
	2001	2012	(2001-2012)
Primary	0.15	0.07	-0.28
Agriculture	0.1	0.04	-0.2
Mining	0.05	0.02	-0.08
Secondary	0.2	0.21	0.21
Manufacturing	0.14	0.12	0.04
Utilities	0.008	0.008	0.004
Construction	0.05	0.07	0.16
Tertiary	0.63	0.71	1.08
Trade	0.21	0.21	0.2
Transport	0.04	0.6	0.11
Financial	0.09	0.13	0.31
CSPS	0.17	0.22	0.42
Private households	0.09	0.08	0.04
Total	1	1	1

Note: 1. CSPS stands for community, social, and personal services, which is predominantly made up of public sector employment.⁾

2.^(a) The ratio of the percentage change in the share of employment to the overall change in employment over the period (share of change in employment). This measure shows, within each broad sector, where the sources of employment growth are. For example, employment in the tertiary sector is 1.08 times (or 108 percent of) the level of employment in 2001, which is the sum of the changes for all the industries within this sub-sector. CSPS then is the greatest contributor to employment growth in the tertiary sector.

Source: Bhorat et al. (2014) using PALMS dataset (2012).

Importantly, the authors emphasize, the CSP sector, which accounted for 42 percent of this shift, is mostly made up of public sector jobs—hinting that expansion of the public sector has contributed to this trend. The share of public sector employment rose to 17.5 percent by the end of 2014 from 14.2 percent in 2004. In addition, they note that the largest expansion of the public sector came in 2009, just after the global financial crisis, showing that the public sector was more capable of absorbing” excess unskilled and medium-skilled labor at times of economic and labor market distress.”

Another important trend the authors point to within the shift to the public sector between 2008 and 2014 is that a great number of jobs in which employment grew quickly involve unskilled workers (such as sweepers, farmhands and laborers, helpers and cleaners, construction and maintenance laborers, and garbage collectors) and medium-skilled workers (such as police and traffic officers, institution and home-based care workers, prison guards, cooks, and childcare workers) (Figure 1). For a deeper analysis of South African labor market’s skill needs, see the full paper.

Figure 1: Share of change in public sector jobs by detailed occupation (2008 Q1-2014 Q4)

Notes: These occupations are the largest 42 public sector occupations, making up 80 percent of total employment in the public sector in 2014, and 97 percent of the change in the number of public sector jobs over the 2008-14 period.

Source: StatsSA QLFS 2008Q1; StatsSA QLFS 2014Q4; own calculations.

From these trends, the authors infer that the South African government’s Expanded Public Works Program (EPWP)—which “creates jobs through government-funded infrastructure projects, through its non-profit organization and community work program, as well as through its public environment and culture programs”—has played a major part in the expansion of the public sector.

Interestingly, though, the authors also find that overall the public sector has a bigger proportion of high-skilled employees than the private sector), though, between 2008 and 2013 the public sector barely saw a change in its proportion of high-skilled workers. Rather, it experienced its largest growth in the medium- and low-skilled jobs, as noted in Figure 1. They note that this phenomenon suggests that “the state [is] able to absorb excess unskilled and medium-skilled labor at times of economic and labor market distress.” The private sector’s proportion of high-skilled workers, on the other hand, grew by 25 percent. There is then, they say, a “mismatch” between the supply and demand of South Africa’s labor market when it comes to high-skilled workers.

After exploring this trend, the authors also delve into the demographic differences between public and private sector workers. For example, they find that the average public sector worker is older (41 versus 38) and likely to have a higher educational level on average. There are more women in the public sector—52 percent compared to 44 percent. There are also more Africans—77 percent in the public sector (up from 72 percent in 2008) and 66 percent in the private sector (unchanged). The authors argue that these two statistics demonstrate that public sector has “transformed” its labor force at a faster pace since both are groups that historically have been marginalized in the South African labor market.

The impact of unions in the South African labor market

The public sector in South Africa also has a higher unionization rate: 69.2 percent compared to the private sector’s 24.4 percent rate in 2013). As public sector employment has grown, the authors say, so has its proportion of workers in unions. Unions in South Africa are influential, as the authors note, “Powerful labor unions are often associated with creating a wage premium for their members, given their ability to mobilize industrial action and negotiate in favor of their members during times of wage negotiations.”

Indeed, this seems to be the case. Past studies have found that bargaining power—as part of a bargaining council or a union—presents a wage premium.  The authors have similar results: The average public sector worker makes 11,668 rand ($1,209) per month compared to an average private sector employee (7,822 rand per month). Most importantly, though, when the authors disaggregate based on participation in a union, they actually find that, among non-unionized workers, the private sector employee actually receives a higher wage than the public sector worker, by about 952 rand per month. This finding, they say, suggests that the public sector premium might be tied to public sector union membership.

The authors admit a caveat: Public sector union workers tend to be white, older, and better educated than their non-unionized public sector counterparts. In fact, non-union public sector workers are 80 percent African and 10 percent colored[1] (two groups more likely to be under the EPWP). In addition, non-union occupations are usually less skilled (elementary occupations, service and sales occupations, and technical and associate professional occupations). However, they emphasize, “Ultimately though, the wage distributions above suggest that, at least in terms of earnings, a dual labor market may indeed be prevalent in the South African labor market.”  (For the authors’ full quantitative analysis, including an examination of how this trend interacts with state-owned enterprises and temporary workers, see the full paper.)

Thus, they argue, a “new labor elite” is forming.

Note: The African Lions project is a collaboration among United Nations University-World Institute for Development Economics Research (UNU-WIDER), the University of Cape Town’s Development Policy Research Unit (DPRU), and the Brookings Africa Growth Initiative, that provides an analytical basis for policy recommendations and value-added guidance to domestic policymakers in the fast-growing economies of Africa, as well as for the broader global community interested in the development of the region. The six papers, covering Mozambique, Kenya, Ghana, South Africa, Ethiopia, and Nigeria, explore the key constraints facing African economies as they attempt to maintain a long-run economic growth and development trajectory.

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[1] In this paper, “African” is used to refer to people classified by the apartheid state as “native,” “Bantu,” or “black.” “Colored” refers mainly to people in the Western Cape province, and is an ethnic label for people of mixed ethnic origin who possess ancestry from Europe, Asia, and various Khoisan and Bantu tribes of Southern Africa.

       

       

Editor’s Note: This blog post is part of a series on the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, which were launched at a Brookings public event on August 26. Previous posts have highlighted five key findings from the 2015 FDIP Report and explored groundbreaking financial inclusion developments in India. Today’s post will compare financial inclusion outcomes and opportunities for growth across several Asian countries included in the 2015 Report and Scorecard.

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Of the 21 countries ranked in the 2015 Financial and Digital Inclusion Project (FDIP) Report and Scorecard, no countries in Asia placed in the top 5 in the overall ranking. However, all of the FDIP Asian countries have demonstrated progress within at least one of the four dimensions of the 2015 Scorecard: country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services.

This blog post will dive into a few of the obstacles and opportunities facing FDIP countries in central Asia, the Middle East, and southeast Asia as they move toward greater access to and usage of financial services among marginalized groups. We explore these countries in order of their overall score: Turkey (74 percent), Indonesia (70 percent), the Philippines (68 percent), Bangladesh (67 percent), Pakistan (65 percent), and Afghanistan (58 percent). You can also read our separate post on financial inclusion in India, available here.

Turkey: Clear economic advantages, but opportunities for enabling regulation and greater equity remain

Turkey is one of the few upper-middle income countries in the FDIP sample, ranking in the top 5 in terms of gross domestic product (GDP) measured in US dollars. Turkey’s fairly robust banking infrastructure contributed to its relatively strong adoption rates: As of 2013, the International Monetary Fund’s Financial Access Survey found that Turkey had about 20 bank branches per 100,000 adults (the 4^th highest density rate among the 21 FDIP countries) and about 73 ATMs per 100,000 adults (the 2^nd highest density rate among the FDIP countries).

According to the World Bank’s Global Financial Inclusion (Global Findex) database, about 57 percent of adults in Turkey had an account with a mobile money provider or formal financial institution as of 2014. Turkey’s performance on the adoption dimension of the 2015 Scorecard contributed to its tie with Colombia and Chile for 6^th place on the overall scorecard.

With that said, Turkey received lower mobile capacity and regulatory environment scores, ranking 16^th and 17^th respectively. Although Turkey’s smartphone and mobile penetration levels are quite robust, a limited mobile money provider landscape, combined with a lack of regulatory clarity surrounding branchless banking regulations (particularly agent banking), constrained Turkey’s scores in those categories.

Nonetheless, there is promising news for Turkey’s financial inclusion environment. In 2015, Turkey assumed the G20 presidency and has renewed its focus on financial inclusion in association with this transition. Turkey’s 2014 financial inclusion strategy is one example of the country’s commitment to advancing inclusion.

To date, financial inclusion growth in Turkey has been limited, as evidenced by the results of the 2011 and 2014 Global Findex. However, if the country’s stated commitment translates into concrete initiatives moving forward, we can expect to see accelerated financial inclusion growth. This will be critical for facilitating access to and usage of quality financial services among the nearly 60 percent of women in Turkey without formal financial accounts. Reducing the approximately 25 percentage point gap in account ownership between men and women — one of the highest gender gaps among the 21 FDIP countries — should be a key priority for the country moving forward.

Indonesia: High mobile money potential, but enhanced awareness needed to drive adoption

Recent changes to Indonesia’s regulatory environment have facilitated a more enabling digital financial services ecosystem, although there is still room for improvement in terms of reducing supply-side barriers. Increasing mobile money awareness could help leverage Indonesia’s strong mobile capacity rates to increase access to and usage of formal financial services. However, moving from a heavily cash-based environment to greater use of digital financial services will take time: A 2014 InterMedia survey in Indonesia found that although 93 percent of bank account holders could access their accounts digitally, 73 percent preferred to access their accounts via an agent at a bank branch.

The differing mandates of Indonesia’s new financial services authority, Otoritas Jasa Keuangan (OJK), which focuses on branchless banking (specifically agent banking) and Bank Indonesia, which focuses on electronic money regulation, may have created some confusion regarding the regulatory environment. Solidifying the country’s financial inclusion strategy and clarifying the roles of the various financial inclusion stakeholders could provide opportunities for greater coherence in terms of financial inclusion objectives.

OJK’s recent branchless banking regulations have led to several positive changes within the regulatory environment. For example, these regulations enabled financial service providers to appoint individuals and business entities as agents and to provide simplified customer due diligence requirements. The 2015 FDIP Report highlights in greater detail some possible improvements to the branchless banking and e-money regulations.

On the mobile capacity side, Indonesia tied for the second-highest score on the 2015 Scorecard. Indonesia is one of the few countries where mobile money platform interoperability has been implemented, allowing different mobile money services to “talk” to one another in real time. Indonesia also boasted the third-highest 3G network coverage by population among all the FDIP Asian countries, as well as the third-highest unique subscribership rate among these countries. However, only about 3 percent of adults were aware of mobile money as of fall 2014, according to the InterMedia survey.

In terms of adoption, the 2014 Global Findex found that women in Indonesia actually had slightly higher rates of account ownership than adults in general, although there is still significant room for growth across all adoption indicators. Given Indonesia’s strong mobile capacity ranking, increasing awareness of mobile money services could drive growth in the digital finance sector. Clarifying existing regulatory frameworks and removing some remaining restrictions regarding agent exclusivity and other agent criteria could further boost financial inclusion.

Philippines: Strong commitment, but geographic barriers have inhibited scale

The Philippines tied with Bangladesh to garner 15^th place for adoption, which contributed to the country’s overall ranking (also 15^th place). In both Bangladesh and the Philippines, about 31 percent of adults had an account with a mobile money provider or formal financial institution as of 2014. According to the 2014 Global Findex, the percentage of women with formal financial accounts was about 7 percentage points higher than the overall percentage of adults with accounts — a rarity among the 21 FDIP countries, which generally exhibit a “gender gap” in which women are less likely to have formal financial accounts than men.

The Philippines’ efforts to foster financial inclusion earned it the second-highest country commitment and regulatory environment rankings among the FDIP Asian countries. The Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, has issued a number of circulars providing guidance regarding electronic money and allowing non-bank institutions to become e-money issuers. The BSP also has the distinction of being the first central bank in the world to create an office dedicated to financial inclusion. Most recently, the BSP launched a national financial inclusion strategy in July 2015.

On the mobile side, according to the GSMA Intelligence database, as of the end of the first quarter of 2015 the Philippines had the highest unique mobile subscribership rate among the FDIP Asian countries, as well as the second-highest rate of 3G network coverage by population among these countries.

In terms of mobile money, the Philippines is home to two of the earliest mobile financial services products, Smart’s Smart Money and Globe’s GCash. It also boasts the second-highest rate of mobile money accounts among adults in all the FDIP Asian countries, according to the 2014 Global Findex.

There is still significant room for improvement in adoption of traditional and digital financial services in the Philippines. The country’s geography has posed a challenge with respect to advancing access to financial services among the dispersed population. While the extent of banking infrastructure has improved over time, as of 2013 610 out of 1,634 cities and municipalities did not have a banking office, and financial access points remained concentrated in larger cities. Expanding agent locations and facilitating interoperability could enhance mobile money adoption, mitigating the consequences of these geographic barriers.  

Bangladesh: Rapid growth, but high unregistered use and low adoption overall

While Bangladesh performed strongly on the country commitment and mobile capacity dimensions of the 2015 FDIP Scorecard, it received one of the lowest adoption rankings among the FDIP Asian countries. According to the Global Findex, about 31 percent of adults age 15 and older had an account with a formal financial institution or mobile money provider as of 2014. Indicators pertaining to the country’s rates of formal saving, credit card use, and debit card use all received the lowest score.

Bangladesh has a robust mobile landscape, with fairly strong unique mobile subscription rates — as of the first quarter of 2015, it was tied with Indonesia for the third-highest unique mobile subscribership rates among the FDIP Asian countries, after the Philippines and Turkey. This mobile coverage is combined with a multiplicity of mobile money providers (although a 2014 InterMedia survey noted that nearly 90 percent of active mobile money customers used the bKash mobile money service).

Awareness of mobile money as a service in Bangladesh is very high, although understanding of the concept is less prevalent — in 2014, about 91 percent of respondents in an InterMedia survey were aware of at least one mobile money provider, although only about 36 percent were aware of mobile money as a general concept.

Unregistered use of mobile money accounts is high. While about 37 percent of adults had a mobile money account or bank account or both as of 2014, according to the InterMedia survey, only about 5 percent had registered mobile money accounts, while 4 percent had active, registered mobile money accounts (meaning an account that is registered and has been used in the previous 90 days).Transitioning to registered accounts will help enable individuals to connect with more extensive financial services, such as receipt of government payments.

Overall, adoption of mobile money and the expansion of agent locations have been increasingly rapid in Bangladesh — as of 2014 Bangladesh was one of the fastest growing markets in terms of total accounts globally. Over 60 percent of respondents in a 2013 InterMedia survey stated that they “fully” or “rather” trusted mobile money. Moving forward, increasing financial capability might help individuals feel more at ease registering their accounts and using them independently of an agent.

Pakistan: Public and private sector initiatives advance inclusion

Pakistan ranked 7^th in terms of the percentage of adults with mobile money accounts among the 21 countries, achieving the highest percentage of all of the Asian FDIP countries. Yet there is significant room for growth — as of 2014, only about 6 percent of adults had a mobile money account.

The State Bank of Pakistan (SBP) has clearly expressed its commitment to advancing financial inclusion, which earned the country a commitment score of 100 percent. The SBP developed Branchless Banking regulations in 2008, with revisions in 2011. These regulations were explicitly intended to promote financial inclusion. More recently, the country’s National Financial Inclusion Strategy was launched in May 2015. In terms of quantitative assessments of financial inclusion, the SBP tracks supply-side information on branchless banking in its quarterly newsletters.

Recent public and private sector initiatives may help advance mobile money adoption. For example, a re-verification initiative for SIM cards was mandated by the government and initiated earlier in 2015. Mobile network operators have been promoting registration of mobile money accounts since the biometric re-verification process is more intensive than the identification requirements needed to register a mobile money account.

Earlier, in September 2014, the EasyPaisa mobile money service decided to eliminate fees related to money transfers between Easypaisa account customers and cash-out transactions for a set period. As of April 2015, the number of person-to-person money transfers had increased by about 2500 percent.

Still, barriers to financial inclusion remain. A 2014 InterMedia survey noted that while distance was less of a barrier to registration than previously, distance did affect the frequency with which users engaged with mobile money services. Therefore, expanding access points could further facilitate use of mobile money. Increasing the number of registered accounts could also provide individuals with more opportunities to engage with financial services beyond basic transfers — the InterMedia survey found that as of 2014, about 8 percent of adults were over-the-counter mobile money users, while 0.3 percent were registered users.

Afghanistan: Commitment to improving infrastructure and adoption

Instability and systemic corruption in Afghanistan over the past several decades have damaged trust in formal financial services and limited the development of traditional banking infrastructure. In addition to having one of the lowest levels of GDP among the 21 FDIP countries, as of 2013 the Financial Access Survey found Afghanistan had the lowest reported density of commercial banks per 100,000 adults. Even among individuals who can access banks, adoption of formal accounts is constrained by a lack of trust in formal financial services.

On the mobile side, Afghanistan has fairly widespread 3G network coverage (over 80 percent of the population, according to the GSMA Intelligence database), which helped boost its mobile capacity ranking to 2^nd place. However, Afghanistan received the lowest score possible for each of the 15 adoption indicators. According to the 2014 Global Findex, financial account ownership as of 2014 was at about 10 percent of adults, and financial account ownership among women was at only 4 percent. Tracking gender-disaggregated data at the national level could help the government better identify underserved populations and target financial solutions toward their needs.

The government has made an effort to promote financial inclusion and digital financial services. For example, Da Afghanistan Bank committed to the Alliance for Financial Inclusion in 2009, and the Republic of Afghanistan is a member of the Better Than Cash Alliance. In 2008, the Money Service Providers Regulation was issued, with amendments instituted a few years later pertaining to e-money. The Afghanistan Payments Systems, which is still being fully operationalized, aims to allow payment service providers such as mobile network operators to connect their mobile money systems.

While several mobile money options are available, adoption of these services is low. According to the 2014 Global Findex, about 0.3 percent of adults had a mobile money account. Implementing interoperability across platforms might help increase the utility of mobile money services for consumers, and as in Turkey, developing specific agent banking regulations could provide clarity to the sector and drive innovation.

By expanding financial access points, educating consumers about traditional and digital financial services, and monitoring providers to ensure consumer protection, Afghanistan’s regulatory entities and financial service providers may be able to better reach underserved populations and inculcate trust in formal financial services.

       

       

       

On Friday, June 3, S&P Global Ratings announced that it would not downgrade South Africa’s credit rating to junk, letting South Africa breathe a sigh of relief. The outlook, however, remained negative. While some experts were confident that the rating would not be cut, most continued to warn that future economic or political turmoil could spark a downgrade later this year. The South African Treasury agreed, but remained positive releasing a statement saying:

Government is aware that the next six months are critical and there is a need to step up the implementation [of measures to boost the economy] … The benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway.

South Africa, whose current rating stands at BBB- (one level above junk), has been facing weak economic growth—at 1 percent—over past months. The International Monetary Fund has given a 2016 growth forecast of 0.6 percent. Many feared that a downgrade could have pushed the country into a recession. Borrowing by the government would have also become more expensive, especially as it tackles a 3.2 percent of GDP budget deficit for the 2016-2017 fiscal year.

Other credit ratings agencies also are concerned with South Africa’s economic performance. Last month, Moody’s Investors Service ranked the country two levels above junk but on review for a potential downgrade, while Fitch Ratings is reviewing its current stable outlook and BBB- rating.

For South African Finance Minister Pravin Gordhan’s thoughts on the South African economy, see the April 14 Africa Growth Initiative event, “Building social cohesion and an inclusive economy: A conversation with South African Finance Minister Pravin Gordhan.”

Former Chadian President Hissène Habré is sentenced to life in prison by African court

This week, the Extraordinary African Chambers—located in Dakar and established in collaboration with the African Union—sentenced former Chadian President Hissène Habré to life in prison. Habré seized power in 1982, overthrowing then President Goukouni Oueddei. He fled to Senegal in 1990 after being ousted by current Chadian President Idriss Deby. After he fled to Senegal, the African Union called on Senegal to prosecute Habré. In 2013, the Extraordinary African Chamber was created with the sole aim to prosecute Habré. The Habré trial is the first trial of a former African head of state in another African country.

Habré faced a long list of charges including crimes against humanity, rape, sexual slavery, and ordering killings while in power. According to Chad’s Truth Commission,  Habré’s government murdered 40,000 people during his eight-year reign. At the trial, 102 witnesses, victims, and experts testified to the horrifying nature of Habré’s rule. His reign of terror was largely enabled by Western countries, notably France and the United States. In fact, on Sunday, U.S. Secretary of State John Kerry admitted to his country’s involvement in enabling of Habré’s crimes. He was provided with weapons and money in order to assist in the fight against former Libyan leader Moammar Gadhafi. Said resources were then used against Chadian citizens.

Also this week, Simone Gbagbo, former Ivorian first lady, is being tried in Côte d’Ivoire’s highest court— la Cour d’Assises—for crimes against humanity. She also faces similar charges at the International Criminal Court though the Ivoirian authorities have not reacted to the arrest warrant issued in 2012. In March 2015, Simone Gbabgo was sentenced to 20 years in jail for undermining state security as she was found guilty of distributing arms to pro-Laurent Gbagbo militia during the 2010 post-electoral violence that left 3000 dead. Her husband is currently on trial in The Hague for the atrocities committed in the 2010 post-election period.

Despite Mozambique’s debt crisis and low global gas prices, energy company Sasol will continue its gas investment

On Monday, May 30, South African chemical and energy company Sasol Ltd announced that Mozambique’s ongoing debt crisis and continuing low global gas prices would not slow down its Mozambican gas project. The company expressed confidence in a $1.4 billion processing facility upgrade stating that the costs will be made up through future gas revenues. In explaining Sasol’s decision to increase the capacity of its facility by 8 percent, John Sichinga, senior vice president of Sasol’s exploration and production unit, stated, “There is no shortage of demand … There’s a power pool and all the countries of the region are short of power.” In addition, last week, Sasol began drilling the first of 12 new planned wells in the country.

On the other hand, on Monday The Wall Street Journal published an article examining how these low gas prices are stagnating much-hoped-for growth in East African countries like Tanzania and Mozambique as low prices prevent oil companies from truly getting started. Now, firms that flocked to promising areas of growth around these industries are downsizing or moving out, rents are dropping, and layoffs are frequent. Sasol’s Sichinga remains positive, though, emphasizing, "We are in Mozambique for the long haul. We will ride the waves, the downturns, and the upturns."

       

       

March 18 was an historic day for early childhood development (ECD) financing—the Departments of Social Development and Health of the Western Cape province of South Africa committed 25 million rand ($1.62 million) in outcome funding for three social impact bonds (SIBs) for maternal and early childhood outcomes. This is the first ever funding committed by a middle-income government for a SIB—to date no low-income country governments have participated in a SIB either—making South Africa’s choice to pioneer this new path especially exciting.

A SIB is a financing mechanism for social outcomes where investors provide upfront capital for services and a government agency repays investors contingent on outcome achievement. There are currently two active development impact bonds or DIBs (where a donor provides outcome funding rather than a government agency) in middle-income countries, one for coffee production in Peru and one for girls’ education in India. The South African SIBs, whose implementation was facilitated by the Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town and Social Finance U.K. as well as other organizations, will be the first impact bonds in Africa.

We have been following closely the development of these SIBs over the last two years through our research on the potential applications of impact bonds for ECD outcomes, and recently hosted a discussion on the topic at Brookings. There are currently nine other impact bonds worldwide that include outcomes for children ages 0 to 5, including two recently announced impact bonds in the U.S. for nurse home-visiting in South Carolina and support for families struggling with substance abuse in Connecticut.

Impact bonds are well suited to fund interventions that have high potential returns to society; that require learning, adaptability, and combinations of services to achieve those returns; and that are not core government-funded services (often resulting in a relative proliferation of non-state providers). In our recent report, we find that a majority of evaluations show ECD can have unparalleled returns, but there are also a number of evaluations that show no significant impact or where impact fades out. Overall however, there are few evaluations relative to the number of service providers and interventions, an indication of how little we know about the effectiveness of the majority of service providers. For example, there are only 15 studies examining the effects of ECD interventions in low- and middle-income countries on later-life socioemotional development, which has been shown to be a critical determinant of success in school and life.

The case for government investment is strong, but continuous learning and adaptation is needed to ensure the high potential impacts are achieved. Tying payments to outcomes could help the ECD sector in three ways: it could encourage new government investment in ECD, it could encourage performance management and adaptability, and, crucially, it could help develop the knowledge base of what works in ECD. Unlike some other sectors where providers are able to finance their own operations to participate in a results-based (performance-based) contract through fees or other cash flows, ECD providers will almost always require upfront capital in order to reach the most vulnerable. Consequently, we find that, despite some significant challenges, ECD interventions are particularly well suited to impact bonds.

For this reason, there are three things we find particularly exciting about these new SIBs for early childhood development in South Africa:

1. Collaboration of two departments to ensure a continuity of outcome measurement and, hopefully, achievement. Given their different mandates, the Department of Health will fund outcomes for pregnant mothers and children in their first 1,000 days and the Department of Social Development will fund outcomes for children ages 2 to 5. The Bertha Centre writes that “the funding will be made available to three community based organizations working with pregnant women and children up to five years of age with outcomes including improved antenatal care, prevention of mother to child transmission of HIV, exclusive breastfeeding, a reduction in growth stunting, and improved cognitive, language and motor development.” 

The continuity of quality services is essential to sustaining the impacts of early childhood services, and this is the first set of impact bonds to address outcomes across the development spectrum from age 0 to 5. Selecting outcomes however, particularly for more complex learning outcomes for children ages 3 to 5, can be one of the greatest challenges for impact bonds in the ECD sector.

A full list of recommended outcome metrics for ECD impact bonds is available in our report.

2. Outcome fund structure. The SIBs in South Africa have been designed as impact bond funds, where the outcome funder issues a rate card of prices it is willing to pay for certain outcomes and multiple service providers are awarded contracts to provide those outcomes. This structure, which has been implemented in four instances in the U.K., could help facilitate impact bonds at greater scale than what we have seen thus far.

At the Brookings event on impact bonds, Louise Savell of Social Finance U.K., explained that scale was critical in the South African case because there are few providers that work across the entire province. While the discussion around pricing outcomes in the U.K. was more focused on future value to the economy, the discussion in South Africa had to be more attuned to the price of providing services. These delivery prices differ greatly by township, which may result in different outcome payment prices by township. The impact bond designers also had to ensure the outcome price allowed for providers to serve the hardest to reach.

3. Matching of private-sector outcome funds. This is the first impact bond to date where private-sector actors will augment outcome funds, in addition to serving as investors. Impact bonds take a great deal of work for a government agency to establish—though it will likely drop over time—and additional or matching of outcome funds will be critical to making this effort worthwhile for low- and middle-income country governments.

Looking forward, it will be interesting to compare and contrast the structure and design of these SIBs with the impact bonds for ECD outcomes in Cameroon, India, and potentially other countries as they launch in the coming years. Each impact bond must be designed taking into consideration the particular issues and challenges in a given context. However, sharing learnings from one impact bond to the next will likely improve both efficiency and quality of the impact bond implementation. 

       

       

Volunteer, civil society and governmental delegates from 22 nations gathered in Johannesburg this month for the Southern Africa Conference on Volunteer Action for Development. The conference was co-convened by United Nations Volunteers (UNV) and Volunteer and Service Enquiry Southern Africa (VOSESA), in observance of the 10th anniversary of the United Nations International Year of Volunteers (IYV).

Naheed Haque, deputy executive coordinator for United Nations Volunteers, gave tribute to the late Nobel Laureate Wangari Mathai and her Greenbelt tree planting campaign as the “quintessential volunteer movement.” Haque called for a “new development paradigm that puts voluntarism at the center of community-centered sustainable development.” In this paradigm, human happiness and service to others would be key considerations, in addition to economic indicators and development outcomes including health and climate change.  

The international gathering developed strategies to advance three key priorities for the 15 nations in the Southern Africa Development Community (SADC): combating HIV/ AIDS; engaging the social and economic participation of youth; and promoting regional integration and peace. Research data prepared by Civicus provided information on the rise of voluntary service in Africa, as conferees assessed strategies to advance “five pillars” of effective volunteerism: engaging youth, community involvement, international volunteers, corporate leadership and higher education in service.

VOSESA executive director, Helene Perold, noted that despite centuries of migration across the region, the vision for contemporary regional cooperation between southern African countries has largely been in the minds of heads of states with “little currency at the grassroots level.” Furthermore, it has been driven by the imperative of economic integration with a specific focus on trade. Slow progress has now produced critiques within the region that the strategy for integrating southern African countries cannot succeed on the basis of economic cooperation alone. Perold indicated that collective efforts by a wide range of civic, academic, and governmental actors at the Johannesburg conference could inject the importance of social participation within and between countries as a critical component in fostering regional integration and achieving development outcomes. 

This premise of voluntary action’s unique contribution to regional integration was underscored by Emiliana Tembo, director of Gender and Social Affairs for the Common Market of Eastern and Southern Africa (COMESA). Along with measures promoting free movement of labor and capital to step up trade investment, Tembo stressed the importance of “our interconnectedness as people,” citing Bishop Desmond Tutu’s maxim toward the virtues of “Ubuntu – a person who is open and available to others.”

The 19 nation COMESA block is advancing an African free-trade zone movement from the Cape of South Africa, to Cairo Egypt. The “tripartite” regional groupings of SADC, COMESA and the East Africa Community are at the forefront of this pan-African movement expanding trade and development.

Preliminary research shared at the conference by VOSESA researcher Jacob Mwathi Mati noted the effects of cross border youth volunteer exchange programs in southern and eastern Africa. The research indicates positive outcomes including knowledge, learning and “friendship across borders,” engendered by youth exchange service programs in South Africa, Mozambique, Tanzania and Kenya that were sponsored Canada World Youth and South Africa Trust.   

On the final day of the Johannesburg conference, South Africa service initiatives were assessed in field visits by conferees including loveLife, South Africa’s largest HIV prevention campaign. loveLife utilizes youth volunteer service corps reaching up to 500,000 at risk youths in monthly leadership and peer education programs. “Youth service in South Africa is a channel for the energy of youth, (building) social capital and enabling public innovation,” Programme Director Scott Burnett stated. “Over the years our (service) participants have used their small stipends to climb the social ladder through education and micro-enterprise development.”

Nelly Corbel, senior program coordinator of the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo, noted that the Egyptian Arab Spring was “the only movement that cleaned-up after the revolution." On February 11^th, the day after the resignation of former Egyptian President Hosni Mubarak, thousands of Egyptian activists  removed debris from Tahrir Square and engaged in a host of other volunteer clean-up and painting projects. In Corbel's words: “Our entire country is like a big flag now,” from the massive display of national voluntarism in clean-up projects, emblematic of the proliferation of youth social innovation aimed at rebuilding a viable civil society.

At the concluding call-to-action session, Johannesburg conferees unanimously adopted a resolution, which was nominated by participating youth leaders from southern Africa states. The declaration, “Creating an Enabling Environment for Volunteer Action in the Region” notes that “volunteering is universal, inclusive and embraces free will, solidarity, dignity and trust… [creating] a powerful basis for unity, common humanity, peace and development.”  The resolution, contains a number of action-oriented recommendations advancing voluntarism as a “powerful means for transformational change and societal development.” Policy recommendations will be advanced by South African nations and other stakeholders at the forthcoming Rio + 20 deliberations and at a special session of the United Nations General Assembly on December 5, the 10^th anniversary of the International Year of the Volunteer.

      

       

       

Professor Riek Machar, former vice president of South Sudan and now leader of the rebel group that is fighting the government of South Sudan for control of the apparatus of the government, has publicly threatened to capture and take control of both the capital city of Juba and the oil-producing regions of the country. Branding South Sudan’s president, Salva Kiir, a “dictator” and arguing that he does not recognize the need to share power, Professor Machar stated that the present conflict, which has lasted for more than five months and resulted in the killing of many people and the destruction of a significant amount of property, will not end until Kiir is chased out of power.

Violent mobilization by groups loyal to Machar against the government in Juba began in December 2013. It was only after bloody confrontations between the two parties that targeted civilians based on their ethnicity had resulted in the deaths of many people (creating a major humanitarian crisis) that a cease-fire agreement was signed in Addis Ababa on January 23, 2014, with the hope of bringing to an end the brutal fighting. The cease-fire, however, was seen only as the first step towards negotiations that were supposed to help the country exit the violent conflict and secure institutional arrangements capable of guaranteeing peaceful coexistence.

If Machar and his supporters have the wherewithal to carry out the threats and successfully do so, there is no guarantee that peace would be brought to the country. For one thing, any violent overthrow of the government would only engender more violence as supporters of Kiir and his benefactors are likely to regroup and attempt to recapture their lost political positions. What South Sudan badly needs is an institutionalization of democracy and not a government led by political opportunists. In fact, an effective strategy to exit from this incessant violence must be centered around the election of an inclusive interim government—minus both Kiir and Machar—that would engage all of the country’s relevant stakeholders in negotiations to create a governing process that adequately constrains the state, establishes mechanisms for the peaceful resolution of conflict, enhances peaceful coexistence, and provides an enabling environment for the rapid creation of the wealth needed to deal with poverty and deprivation.

On March 9, 2012, less than a year after South Sudan gained independence, then-Vice President Machar met with several Brookings scholars, including myself, in New York City. The meeting was part of the new country’s efforts to seek assistance from its international partners to address complex and longstanding development challenges, including critical issues such as the effective management of the country’s natural resource endowments, gender equity, the building of government capacity to maintain law and order, the provision of other critical public goods and services, and poverty alleviation. Among participants in this critical consultation were Mwangi S. Kimenyi, senior fellow and director of the Africa Growth Initiative (AGI) at the Brookings Institution; Witney Schneidman, AGI nonresident fellow and former deputy assistant secretary of state for African Affairs; and me. The vice president, who appeared extremely energetic and optimistic about prospects for sustainable development in the new country, requested an analysis of the commitments and achievements that the government of South Sudan had made since independence and suggestions for a way forward. The scholars, working in close collaboration with their colleagues at Brookings, produced a policy report requested by the vice president. The report entitled, South Sudan: One Year After Independence—Opportunities and Obstacles for Africa’s Newest Country, was presented at a well-attended public event on July 28, 2012. Panelists included Peter Ajak, director of the Center for Strategic Analyses and Research in Juba; Ambassador Princeton Lyman, U.S. special envoy for South Sudan and Sudan; Nada Mustafa Ali scholar at the New School for Social Research; Mwangi S. Kimenyi and me.

The report provided a comprehensive review of the policy issues requested by the vice president—the provision of basic services; future engagement between South Sudan and the Republic of Sudan; efficient and equitable management of natural resources; ethnic diversity and peaceful coexistence; federalism; eradication of corruption; and the benefits of regional integration. Most important is the fact that the report placed emphasis on the need for the government of South Sudan to totally reconstruct the state inherited from the Khartoum government through democratic constitution making and produce a governing process that (i) guarantees the protection of human and fundamental rights, including those of vulnerable groups (e.g., women, minority ethnic groups); (ii) adequately constrains the government (so that impunity, corruption and rent seeking are minimized); (iii) enhances entrepreneurial activities and provides the wherewithal for wealth creation and economic growth; and (iv) establishes mechanisms for the peaceful resolution of conflict and creates an environment within which all of the country’s diverse population groups can coexist peacefully.

Unfortunately, when the report was completed, members of the ruling Sudan People’s Liberation Movement were already embroiled in a brutal power struggle that eventually led to President Kiir sacking his entire cabinet, including the vice president. The collapse of the government raised the prospects of violent and destructive mobilization by groups that felt the president’s actions were marginalizing them both economically and politically. The ensuing chaos created an environment that was hardly conducive to the implementation of policies such as those presented in the Brookings report.

The government of Sudan has failed to engage in the type of robust institutional reforms that would have effectively prevented President Kiir and his government from engaging in the various opportunistic policies that have been partly responsible for the violence that now pervades the country. South Sudan’s diverse ethnic groups put forth a united front in their war against Khartoum for self-determination. Following independence, the new government engaged in state formation processes that did not provide mechanisms for all individuals and groups to compete fairly for positions in the political and economic systems. Instead, the government’s approach to state formation politicized ethnic cleavages and made the ethnic group the basis and foundation for political, and to a certain extent, economic participation. This approach has created a "sure recipe for breeding ethnic antagonism," and has led to the crisis that currently consumes the country.

While the most important policy imperative in South Sudan today is the need to make certain that the cease-fire continues to hold, long-term prospects for peaceful coexistence and development call for comprehensive institutional reforms to provide the country with a governing process that guarantees the rule of law. Hence, both the opposition and the government—the two sides in the present conflict—should take advantage of the cease-fire and start putting together the framework that will eventually be used to put the state back together. A new interim government, without the participation of the two protagonists—Kiir and Machar—should be granted the power to bring together all of the country’s relevant stakeholders to reconstitute and reconstruct the state, including negotiating a permanent constitution.

      

Dear South Sudan's Leaders:

Today, the country that all of you and your fellow citizens fought to establish is at a crossroads. And you, the country’s leaders, are now standing at the proverbial “fork in the road.” The question now is: Which road will each of you take? Your choice will determine not only your place in history but will significantly impact the future of your shared country, its diverse peoples and your neighbors. Each of you can choose to chase after personal power, primitive accumulation, and self-enrichment—using the ethnic group that you belong to as a foundation for that quest. This disastrous decision would plunge your country further into violent and destructive mobilization, effectively shutting the door to the type of state formation that is undergirded by a desire to achieve national integration, peaceful coexistence and sustainable development. Alternatively, each of you can opt to maximize a different value, one that places you among the world’s greatest leaders—that is, those who, when they came to the fork in the road, chose to lead their people down the road of opportunities for peaceful coexistence, prosperity and liberty.

As the citizens of South Sudan watch and wait in utter fear and disgust, it is time for you, the country’s leaders, to decide whether you want to lead them into a future filled with unending violence, hunger, and desolation, or into one where all of the country’s various peoples, regardless of their ethnic or religious affiliation, gender, and economic status, can live together peacefully and pursue their values and interests without molestation from others.

In the early 1990s, Nelson Mandela and his compatriots found themselves at a similar crossroads. They chose not to act opportunistically and retreat to their various ethnic enclaves.  Like the great leaders that history has proven them to be, they knew that, as apparently beneficial as such an option would have been to them, they would have plunged their country into an abyss from which it was unlikely to recover anytime soon. Instead, they chose the road that led them and their country to the type of state formation that is undergirded by institutional arrangements that provide an enabling environment for wealth creation and economic growth. That is why, today, the country that they founded has one of the world’s most progressive and human-rights friendly constitutions.

South Sudan is a new and relatively underdeveloped country, but it has the potential to emerge as a highly developed and peaceful one. However, in order for that potential to be fully exploited and used effectively to enhance development, the latter must be provided with institutional arrangements that guarantee the rule of law.

To you, the leaders of this new country: All of you can gracefully exit the scene, serve as elder statesmen, and provide the country’s new crop of leaders with the type of advice and support that can help the country successfully emerge from its violent and destructive past, as well as chart a path towards peace, sustainable economic growth and development, and equitable and fair allocation of national resources.

How will history judge you? As tyrants, opportunists, despots, exploiters, and oppressors, who used their public positions to grab power and riches for themselves or as public servants who spearheaded and led the transformative processes that brought peace, security, and development to their country? The choice is yours.

Posterity will judge you well, but only if you choose wisely!