Bickering between Argentina and Brazil, in face of the ratification of EU-Mercosur FTA, could be a turn for the worse for the trade block. Are Brazil’s worries about Argentina unfounded, or will the new president of Argentina threaten the stability of the whole region?

Argentina’s and Brazil’s relations improved markedly after the election of Mauricio Macri as the president of Argentina. The two presidents, elected for the first time, Macri and Jair Bolsonaro, were elected on similar political platforms and promises to their electors.

The status of presidents elected for the first time put the two politicians on equal footing based on experience as the leaders of their respective countries. Although the time both Bolsonaro and Macri were simultaneously was only a year-long, the relations between the two countries remained stable.

This productive partnership is changing with the election of Alberto Fernández as the president of Argentina.

It’s important to employ a wider look to understand why relations between Argentina and Brazil took a turn for the worse so suddenly. It’s easy to put blame solely on different political platforms of the current leaders of the two countries. However, worries about the growing power of Argentina or Brazil from either countries did not stop cooperation in the past.

The critique Bolsonaro directed at Fernandez came even before his inauguration as a president. This shows that political decisions are not the root cause of the disagreement.

Rather, it is important to look at the internal matters of the two countries.

Internal opposition to elected politicians often indirectly affects the foreign relations between different countries.

In the case of Brazil and Argentina, the Brazilian president’s low approval polls, and the growing opposition, is likely to be a major cause of negative attitudes to the newly elected leader of Argentina.

Evangelical voters, and those looking for an alternative for socialist parties and their past presidents, are a fast-growing group in Brazil.

To gain the support of the group before the fast-approaching elections in 2022, Bolsonaro is very likely taking a stance against a politician that holds ideological views this group doesn’t support.

Any political disputes between the leading member states of Mercosur are bound to destabilise the whole block. This situation has already been a reality in 2015 when Brazil and Argentina disagreed on the issue of trade, and the relevance of Mercosur.

The South American countries, two largest by GDP in the whole continent, are also the leading members of Mercosur. Out of the four current active members of the trade block, Argentina and Brazil are largest by territory, exports, and population.

Paraguay and Uruguay, don’t boast such statistics. However, the two countries have managed to influence Mercosur (most notably with Uruguay pushing for a relaxation of the ban on bilateral FTAs). Although less powerful than the leading members, if the two countries chose the optimal strategy according to economics research (threats to leave), they could negotiate for better conditions.

The powerful impact disagreements between the leading members is not only caused by the sizes of their economies. Argentina and Brazil have many common areas, where disagreements and even stalling negotiations, can negatively impact the Mercosur.

Using trade and political blocks to solve trade problems between members isn’t an unusual occurrence. However, trade problems solved through trade block framework, often concern all or the majority of members of them. This is not the case with Argentina, Brazil, and the Mercosur.

As previously mentioned, the bilateral disagreement has happened in 2015. A possible disagreement on trade between Argentina and Brazil has become a new challenge in 2019.

This time, it concerns the Common Export Tariff (placed on imports into the block). The previous president of Argentina, Mr. Macri, agreed with Brazil’s ideas about the tariff. However, the new president Mr. Fernandez does not support this step. This has caused threats from the side of Brazil to leave Mercosur. A disagreement between two members is now a cause of worry for the whole integrity of the block.

Different takes of Brazil and Argentina on where, and at what speed, should the block’s development be moving, is a problem. For each of the two countries, the block delivers different benefits. Brazil, for one, is said to be using the block as a step to gain more power on the worldwide level.

Argentina, in contrast, is argued to use Mercosur for its free trade market. The two different benefits to the leading member states then contribute to quick destabilisation of the whole block, in case any of the states’ benefits are threatened.

Mercosur’s internal trade delivers different benefits to the member states. This is only natural when the sizes of the members’ economies vary from Brazil’s GDP PPP of $3.37T to Uruguay’s of $81.16B.

For Argentina, Paraguay, Uruguay, free trade in the block is an important export opportunity. The three countries have seen a yearly average growth in exports of 4.14%, since free trade among the member countries became reality in 1995.

Gauging the full benefits of 23 years of free trade is difficult. That’s because for the same period, before free trade in the Mercosur, the average yearly growth in exports of the three countries stood at 9.12% – almost 5 percentage points higher.

For Brazil, the block delivers trade benefits. Nevertheless, other benefits have been prioritised by the country. These have been stronger positions in negotiations and growing political influence.

Mercosur’s external trade is just starting to take off. The signing of one of the most important FTAs, with the EU, happened in 2019. The FTA should contribute to increases in exports of all members of Mercosur – just at different quantities. Negotiating as a block, instead of each separate country, allowed the members to leverage the size of the Mercosur’s market in pursuit of better deal conditions.

As a political discussion and development platform, Mercosur has engaged in solving disputes between member states. Whether Mercosur can be stated to be a successful platform for conflict resolution, depends on the weight given to its successes and failures.

Successes, like the increasing role of the smaller states (a concern for Paraguay and Uruguay), are indicators of Mercosur functioning successfully as a platform for resolving a range of disputes.

The failures, such as the Argentina’s enactment of anti-dumping tariffs on Brazilian goods, if their impact is given weight, they would show the four-member block to be an ineffective and an inefficient platform for trade dispute resolution.

Since the members prioritise country-level concerns, then the platform, from an internal perspective, has been a successful aid.

Individual concerns, rather than block-wide problems are often given priority in Mercosur. Hence, it would seem that the trade block could easily fall apart given four different opinions. Even if the worries about other heads of states are often driven by internal political matters, rather than a genuine concern for foreign relations.

Since Mercosur delivers important benefits to each member, then even changing heads of state are unlikely to destabilise the foundation of the block.

Greater integration, and a movement towards supra-nationalism, could be the solution for any future country-level concerns destabilising the whole block. This solution would clash with the determination of each member to not give away individual political power. Yet, it would increase the confidence in the trade block and its members and would allow to avoid unnecessary political tension.

L'articolo Will Political Differences Split the Mercosur Trade Block? proviene da InsideOver.

Nigeria has closed its borders to all neighbouring countries to curtail its dependence on oil.

“Don’t give a cent to anybody to import food into the country,” President Muhammadu Buhari said in a move to bring about “steady improvement in agricultural production, and attainment of full food security [in Nigeria]”.

Africa’s biggest oil producer, Nigeria, relies heavily on food importation to feed its 190 million population. According to official statistics from the National Bureau of Statistics, in the first quarter of 2018, Nigeria spent $503m on agricultural imports. By the first quarter of 2019, this figure had increased by 25.8%.

Forgoing the development of its agricultural industry, the country has relied heavily on oil exportation as its major source of income. Between 2012 and 2016, the drop in oil prices from more than $109 per barrel to almost $41 per barrel would lead to a recession for the country.

Today, as the country attempts to diversify its exports, Buhari’s response to Nigeria’s economic and industrial problems are creating a ripple effect on neighbouring countries, especially Benin.

The border closure is destroying Benin’s economy, a country whose economy is heavily reliant on agricultural imports into Nigeria. Buhari has claimed that many of these imports are goods smuggled illegally into the country.

In Benin, food normally imported into Nigeria are rotting in the field.

This is a distressing sight,” Agriculture Minister Gaston Dossouhoui said this month, as he visited markets in the town of Grand Popo, one of Southern Benin’s main agricultural towns.

“It’s very difficult for our producers. It’s a disaster,” he continued.

Adjeoda Amoussou, head of Benin’s Chamber of Agriculture claimed that, because of the import ban, Benin’s small agricultural producers are millions of CFA Francs in debt.

On the Nigerian side, Hameed Ali, Comptroller General of the Nigeria Customs Service claimed that “the borders will remain closed until our neighbours control what goes through the borders and comply with the laws.”

Some Nigerians, on the other hand, claim that Nigerian border officials partake in the smuggling of goods between the Benin-Nigeria border. Earlier this year, Nigerian sea port officials were caught on camera stealing illegal opioid drugs they had seized.

Critics have described the border closure at the Southern part of the country as rash; a simplistic solution to a complicated problem. This criticism has previously been levelled at Buhari’s, now second-term, governance.

In May 2016, under the directive of the Nigerian government, the Central Bank of Nigeria (CBN) limited access to foreign currency, to influence the population to buy Nigerian goods. SME businesses dependent on importation were badly affected, resulting in a hike in prices for commodities. Inflation soon rose, causing the restrictions to be lifted in the summer of 2016,

Kevin Daly, from Aberdeen Asset Management, would accuse the Nigerian government of being fiscally irresponsible.

Speaking in 2016, he said: “A lot of Nigeria’s current predicament could have been avoided. The country is so reliant on oil precisely because its leaders haven’t diversified the economy.

“More recently, they have tried, and failed, to prop up the naira [Nigerian currency], which has had a ruinous effect on the country’s foreign exchange reserves and any reputation it might have had of being fiscally responsible.”

Today, as Nigeria struggles to meet a national demand for rice, a staple, food continues to be smuggled from Benin into Nigeria. In the last two months, border closure has hiked up rice prices in Nigeria from €22 to more than €55 per 50kg bag of rice, resulting in hunger for many.

The societal and financial impact of the border closure is felt in both Benin and Nigeria – although Benin has been hit harder.

Last year, Benin’s GDP was worth $10.36b, as opposed to Nigeria’s GDP, worth $397.30b. Benin’s economy is neither big nor strong enough, for border smuggling to significantly hurt Nigeria’s agricultural industry, were it well-developed.

Nigeria’s attempts to diversify its exports have led to rash and irresponsible decisions. The economy of a small, precarious neighbouring country is damaged, and Nigerian citizens cannot afford to eat.

To build the country’s agricultural industry, Buhari must offer a transition period that benefits the Benin-Nigerian relationship, without leaving citizens on both sides poor and hungry.

L'articolo Nigeria’s Border Closure is Hurting Both Sides on the Benin-Nigerian Border proviene da InsideOver.

The escalation of the dispute related to the strait of Hormuz shows how vulnerable many of today’s oil routes are. What oil shipping routes and bottlenecks could become hotspots in the future?

The dispute of oil shipments through the Strait of Hormuz can be said to have begun in 2019. However, the threats of blocking shipments through the strait have been a constant in Iran’s foreign relations.

This time, the threat came because of USA’s exit from the JCAP, and the subsequent block on Iranian oil exports.

Iran doesn’t have a strong reason to lose one of its largest bargaining chips. Hence, a full block in 2019, or the near future, isn’t going to happen. Instead, the closing of Hormuz will continue to be used as a scare tactic.

The strait of Hormuz isn’t going to become a hotspot because of an oil shipment blockade. Instead, these three routes and bottlenecks could meet this fate in the near future.

Suez Canal in Egypt has the potential to become a hotspot. Terrorism in Egypt is on the rise, and intra-country problems haven’t improved since the Arab Spring.

Tensions in some regions of Egypt (North Sinai, particularly), and the declined economy of Egypt, both could be a catalyst, and the impacted area, because of potential problems with the Suez canal.

Egypt’s economy in numbers is radically different from the proposed plans of development. The relocation of Egypt’s capital, Cairo; the proposed large-scale projects in North Sinai; and the reclamation of desert land does not fit in with the recent poor showing of Egypt’s economy.

Regional dissatisfaction with the central government, and a weak economy are never indicators of a strong state. This is the current state of Egypt – residents committing terror acts directed at the central government, and the economy not having recovered after the overthrow of two leaders.

The most likely possibility of the blockade of the Suez could come from either the terrorists operating in Egypt, or another case of government overthrow. After local terrorists in North Sinai started operating as a subsidiary of Daesh, the security risk in this region increased. Moreover, civilians being targeted for terror attacks means that operations of even larger impact have become a viable possibility.

The security case for oil shipments in Suez canal is complicated by the two southern neighbours of Egypt – Sudan and Eritrea. The internal problems of these countries have the potential to bring negative consequences to Egypt, and its internal security.

While Eritrea is a drawn-out case of internal problems, Sudan could see another overthrow if the conditions in the country won’t improve. After all, the transitional government has to deliver reforms quickly, even if it is impossible to fix three decades of a dictatorship in a short time frame.

Libya’s governments haven’t moved to unification. Good news is that the fighting between the two main factions at least has not moved into foreign territory.

The country’s main export is oil, and the main extraction fields are under the governance of LNA. A disturbance in the shipments of oil through Suez, and the subsequent higher oil prices would benefit this internationally unrecognized faction.

Historical background of Egypt’s governance of the Suez points to positive conclusions. In all of the history of Egypt’s management of the Suez canal, it only has been closed to foreign vessels during wars.

Another important route for oil is the Bosphorus. 2.46% of the world’s crude oil and petroleum liquids were shipped through the Bosphorus in 2016.

After the failed coup in 2016, the security state in the western part of Turkey has stabilized. On the west, Bulgaria and Greece present a non-existent threat to the steady flow of shipments through the Bosphorus.

From the point of view of economics, Turkey has been able to easily come back both after a worldwide downturn, and after intra-country problems. Turkey’s unemployment level has remained at the same level since 2016. A growing manufacturing sector and a steady unemployment level, mean that at least from the economic side, Turkey’s situation is not getting worse.

Shipments of oil could be stopped, if Turkey’s goals will diverge from the countries, or the allies, of oil companies using the Bosphorus. In the past, Turkey’s government has not been above using economic threats. When relations worsened with Russia, Turkey took steps to delay the passage time of the ships. After a diplomatic spat with the US, Turkey imposed tariffs on American goods.

For oil shipments, Central Asian countries (Kazakhstan, Azerbaijan) and Russia, are the main users of the Turkish straits. It means that these governments, at least, would not be interested in starting a conflict with their logistics partner country.

If the past trends of Turkey’s bargaining will continue, a hard move, instead of soft sanctions, has a low probability of happening. After all, Turkey has much more to gain, and less to lose with economic or diplomatic sanctions.

Moreover, the president of Turkey, Mr. Erdogan is enjoying a strong level of support – 39.1%. More impactful moves are not only unnecessary, in the context of gaining voter support, but also could harm the president’s chances at re-election.

Hypothetically, if the migrant flows from MENA to Europe through Turkey will start to increase, and the support from EU to Turkey for their management will decrease, protests from Turkish refugee supporters, or violence from migrants is a possibility.

If a conflict impacting the shipments through Dardanelles were to occur, it would have a large impact on the balance of power in the region.

A slowdown in the shipments through the Bosphorus could highlight how oil and petroleum products still rule many of the world’s powerful economies. Or, why location and physical trading routes still matter in a now largely digital world.

The very large repercussions to the Turkish power in the Black Sea and the Mediterranean regions, would be the most negative consequence for the owner country of the Bosphorus. Turkey is still on its way to firmly establishing itself as not only a regional power. Oil exporters exploring alternative routes to the Turkish straits, could threaten Turkey’s geopolitical gains.

Another strait, Bab el-Mandeb and the Eastern Africa shipping route, has seen major security improvements in recent years.

For one, the military bases of three countries (USA, Russia, China) in Djibouti contribute to a safer transportation of goods in the strait of Bab el-Mandeb. Goods, which include 4.94% of world’s oil and petroleum products shipped in 2016.

The Eastern African oil shipping route has received worldwide attention because of the activities from the pirates from Somalia and its contested territories. Attacks on oil tankers are rarer than attacks on other ships. Piracy in the Eastern Africa declined in the late 00s – early 2010s, but could be making a comeback due to Somalia’s increasingly fragile state.

The most likely possibility for a blockade has changed from internal problems of the surrounding Eastern African countries to the conflict caused by Yemen’s rebels. Both pose a low risk against the military and negotiating power of the countries using the strait.

The regions, which would be hit the hardest if shipping through the Bab el-Mandeb became impossible, are the importing regions like Europe, and exporting regions of Africa and Asia. A larger share of oil through the strait flows northwards towards Europe. This means that the Bab el-Mandeb becoming a hotspot would contribute more negatively to the exporters orienting their oil exports towards Europe.

Conflict escalation in Eastern Africa, and some of its poorer states (by a measure of GDP per capita), won’t only negatively impact the countries exporting or importing oil through the Bab el-Mandeb. News even about unrelated negative events or trends in a region, have the power to decrease investor confidence. Especially, in a region where foreign investments have just started to flow.

For every push to conflict, stabilizing factors also exist. The low economic development and political instability in the countries surrounding the strait, would only get worse if the Bab el-Mandeb became a hotspot. The increasing military presence in the area, and the gamble with even worse living conditions should prevent domestic activists from destabilizing this oil route.

Transfer of revenues and power, onto alternative shipping lines, is also a major stabilizing factor.

Not only the main managers of these potential hotspots, are interested in keeping them stable. Many nearby countries and industries benefit from oil shipments in Suez, Bosphorus, and Bab el-Mandeb. The probability that a certain location in the world will move towards instability, hinges on many factors. It’s possible to take into account all of them. Yet, an unexpected or an underestimated force can muddle all constant inputs.

L'articolo Why These Oil Routes Could Become Hotspots in the Future proviene da InsideOver.

In the courtyard of her home in Valparaiso, Chile, Dominga Mondaca pointed to the barren land where the water once irrigated strawberry and citrus plantations. She is one of over 600,000 people who need to be supplied with water since the country has been hit by the worst drought in 60 years.

“We had very little water for many years, but this year was the worst. It didn’t rain at all,” Dominga told FreshPlaza.

According to the Agriculture Ministry, around 106,000 animals have died due to lack of water and fodder, and about 37,000 farmers are now at risk. Photos of the area show parched and drylands where riverbeds previously ran; what used to be lush vegetation is now nothing more than rust-coloured fields.

Emergency measures

It has been estimated that around 76% of the population in Chile has been hit by the ongoing mega-drought, which led the government to declare an agricultural emergency in various regions. Part of the move meant that aid has been offered to farmers and those affected, which includes the provision of drinking water, building wells, improving irrigation, and medicine for animals.

Diálogo Chino reported that US$63 million has been allocated by the government for a series of these emergency measures, which today only reaches 40% of the country’s territory. Water companies have committed investments of more than US $5 billion for infrastructure improvements since pipes are said to be responsible for the loss of almost 35% of urban drinking water.

Furthermore, as part of their long-term plans, the government also intends to invest $6 billion to build 26 new reservoirs. This poses a dilemma that does not provide immediate relief, however, since such ventures took around 25 years for completion in the past.

Are avocados to blame for the drought?

In stark contrast, despite the arid landscapes, avocado plants remain lush, green, and abundant. Mass farming of the latest trendy staple has been partly blamed for the recent water shortage; thousands of hectares of the plant have continued to flourish through the drought.

According to the Water Footprint Network, avocados require 2,000 litres of water to yield just one kilogram – which is essentially just two medium-sized avocados. That is ten times the amount needed by tomatoes and four times the amount for oranges. With the insatiable and growing international demand for avocados, Chile has become one of its biggest exporters.

QZ reported that the UK’s imports of avocados more than doubled between 2013 and 2017, while European imports of Chilean avocados rose 300% between 2012 and 2017. Chile exported almost 224,000 metric tons of avocados to the world in 2017, with Europe being the biggest importer of about 60% of that total, which amounts to some 134,000 metric tons.

Additionally, it is believed that numerous avocado farms install well and pipes to divert water from nearby rivers to keep their crops hydrated. Consequentially, it has put a strain on the water supply and in the past, many villagers have been forced to either use contaminated water or go without.

The Dirección General de Aguas, Chile’s water authority, published its findings from an investigation, which revealed at least 65 illegal underground channels siphoned water from rivers to avocado plantations. The inquiry resulted in some senior businessmen and politicians being convicted of the illegal theft of water.

Avocado exports continue to boom

The avocado industry in Chile, however, is continuing to do business as normal. Last week, the Chilean Avocado Importers Association announced its plans for the second year of partnership with pro golfer Joaquin Niemann. At 20-years old, Nieman is the first PGA Tour winner from Chile, as well as the youngest international winner since 1923. It has been reported that Niemann will be the official brand ambassador for Avocados from Chile and will be involved in the social media and advertising aspects of the brand.

In a statement, Karen Brux, managing director for the Chilean Avocado Importers Association, said “In our marketing approach from Avocados from Chile, we strive to share the unique qualities of Chile that contribute to the supply of consistently great avocados, and we can’t think of a more authentic way to showcase the country than partnering with Joaquin.”

L'articolo Are Avocados Responsible For Chile’s Worsening Drought? proviene da InsideOver.