Opinionista Saliem Fakir 18 May 2018

The cloak that hides the dagger – nuclear deals and geopolitics

The nature of nuclear plants make them very prone to sovereign compromise if national governments can no longer pay their debt bills.

Nuclear deals should not be seen as pure commercial arrangements but sometimes an apparatus of geo-politics, especially in state-to-state relations. They is always more than what you can see from the surface. Perhaps, what is true about nuclear may be true about other technologies and large-scale infrastructure or resource extraction deals.

The question arises as to whether South Africa is not long overdue in having a foreign investment review process for private or state foreign firms in matters that of national security and where investments could pose a sovereign risk to the national economy

Large-scale infrastructure projects concentrate capital (usually debt), technical expertise and long-term supply and maintenance arrangements with foreign firms. Unpaid debt can be converted into odious obligations by a foreign power.

There has been some focus on Russia’s nuclear interests, via Rosatom, in South Africa’s bid to secure a nuclear fleet – with somewhat dubious reasons under Jacob Zuma’s presidency.

While, the Russians got the lion’s share of attention the courts in fact ruled, in the case brought by Earthlife Africa (ELA) and the South African Faith Communities Environment Institute (SAFCEI), against all agreements signed by the South Africa government forcing a retreat from early agreements signed with the US, South Korea, China and Russia.

The courts sent the government back to the drawing board with parliament to debate and vet these agreements in future.

This is all now a moot point given that nuclear power is unlikely to be pursued as part of South Africa’s energy mix under President Cyril Ramaphosa. This being said some future insights can be gained on the nexus between large infrastructure programmes and their relation with geo-politics and geo-economics.

This is a topic less of a focus here and hardly debated nor appreciated given how much of the world is now in the throes of multi-polarity and geopolitical rivalry. In this world – state-to-state relations will gain ascendency even if market mechanisms are used. When it comes economic rebooting even ‘non-interfering’ states in liberalised market economies are willing to do the bidding of their flagship firms. Foreign relations easily mesh with geo-economic interests.

This is because liberal economists see the utopia of markets and not the world as it is, and the world as it is, is being slowly shaped by great power rivalries, in a range of geographies vital to sustaining such power.

On the geographical point consider Djibouti: its strategic location at a crucial choke-point and Sea Lane  of Communication (SLOC), through which vital shipping passes between Europe and Asia, is home to multiple military bases of rival powers. Djibouti’s economy is highly dependent on revenue from these military bases and its entire economic logic is shaped by security concerns in the Gulf of Aden and Bab-al-Mandeb – the narrowest point going through the Red Sea given the situation  of conflict in Somalia and Yemen.

It is vital that we no longer see economies as a product of pure economic theory (which in  any case is a heuristic of the real world) and market formation only but rather to see all national economies too as subjects or being subjected to a specific geopolitical architecture. The way global power is divided, in all its variety of dimensions, exerts a field force on economic policy and choices. Even markets are a product of geopolitical hegemony- those choke points and sea lanes that are kept open each hour of the day come with a significant military subsidy and have determined consequences for trade flows to and from the shores of great powers.

Take the hidden hand of geopolitical power  out of the picture our world be a rumbling cesspool of mini and grand wars soon the limelight of human progress – so far – will be flickering dim light and as to markets, well a Hobbesian world will prevail.

Geo-political forces – largely the doing of great powers and their networks always live in hope that voluntary cessation or coerced tilting of sovereign national economies towards them, rather than their rivals, is what would give lustre to the prevailing architecture. If, all of life were a under the conventional notions of free market and trade then geopolitics ought to stay out of commerce but this is not how the life of realpolitik works.

Consider the increasing role of secretive government foreign investment oversight committees such as the Committee on Foreign Investments in the United States (CFIUS) in the US and Australia’s Foreign Investment Review Board (FIRB), that routinely scrutinise Chinese and other foreign investment bids in sectors deemed by them to be capabilities and technology platforms that are of importance to national security.

Recently, the CFIUS blocked the attempt by ANT Finance, a Chinese firm, in its attempt to purchase MoneyGram and in Australia the bid by Chinese state owned company Stategrid (2016) to buy a large stake in Ausgrid was opposed on the grounds, essentially, of geopolitics – Australia has a long-history of aligning with western interest in the Pacific and China is busy contesting these interests at the moment.

The irony is that the hand of geopolitics is everywhere to be seen but little examined here on our shores both in theory and as its existence manifests within the sinews of each deal that involves state-to-state relations or even seemingly independent market pursuits by flagship multinationals who are also proud carriers of their national flag.

Geopolitical interests mixed with geo-economic outcomes live often between apparentness and ambiguity.

Understood in this way a new lens by which countries approach deals requires a gestalt shift on the question of economy and geo-politics. For example and not exclusively, Chinese and Russian firms have strong ties to their State where ambiguity has always been an issue when it concerns investments from these countries – are they pure commerce or too the hidden of geopolitics?

The nature of nuclear plants make them very prone to sovereign compromise if national governments can no longer pay their debt bills.

If one is beholden to a long continuity of dependence (given the long life-span of nuclear plants) for expertise and debt obligations then autonomy will have to soften and give way to compromise and concessions in other arenas of the economy if these obligations cannot be met. A quick scan of the history of sovereign debt and foreign relations will easily make clear the poignancy of the narrative presented above.

The answer to the question of what are their geo-economic interests ought one automatically to use prudence as a better ally to guard sovereignty than the lack of it.

State-to-state relations are not the only levers foreign powers can exercise if their leading nuclear firms are at an arms-length from their state. There are other means to an end.

Here one thinks of the nuclear support group (NSG), the Nuclear non-Proliferation Treaty (NPT) and the supervision provided by the International Atomic Energy Agency (IAEA) are instruments of both geopolitics and commerce. The NSG was set up soon after India conducted nuclear tests for its own bombs in 1974. The NSG is a group of 40 or so member states that seek to ensure nuclear technology is used for civilian and not military purposes. In the 1990s the NSG  listed items in the nuclear supply chain that are to be subject to IAEA supervision. The NSG is essentially a gate-keeper over nuclear technology access given the dual-purpose nature of nuclear technologies.

When it comes to nuclear reactors where geo-economics start and where geopolitics ends is perhaps not easily discernible. It is no surprise then to find than that the Washington Institute, a US think-tank, was eager to draw attention on the Rosatom deal negotiated between Rosatom and the Egyptian government. Of chief concern was not the strike price Russia was willing to sign nor the hefty costs involved but whether Egypt’s long-term relation with the US as the sole ally, forged in the post-Nasser period, was at risk.

A similar geopolitical story is unfolding as Saudi Arabia is seeking to build nuclear plants putting the US in a Catch-22.

The US has to give permission to the Saudi requests  for it to go ahead with a nuclear power programme as US companies are also keen to bid and be freed up to supply the necessary technology and materials to the Saudis through the behest of the NSG. Otherwise the Saudis will turn to others.

Naturally, the US is concerned about nuclear arms race in the Middle East in the light of the now collapsing nuclear deal with Iran under the Joint Comprehensive Plan of Action (JCPOA) given that the US has withdrawn from it. Other fronts where national interests confront foreign control over strategic assets are the interest of China Nuclear Gen’s bid to buy a stake in Britain’s NuGen in Moorside. The British desperately want foreign investment but also do not want to have their economy held at ransom to Chinese nuclear plant operators if Britain is still part of the western alliance. China’s bid has not been short of anxious Brits concerned about national security.

The litany of examples need not be given further detail here as the point has been made.

The question of geopolitics and sovereign geo-economic interests will become more the norm than not in the future. A foreign investment review process is long overdue in the light of the fact that  South Africa nearly saw itself caught up in a foreign power’s geopolitical games: even when hidden under the cover of commerce there is the fear that behind the silky cloak there is possibly also a dagger. DM

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