Mali is one of the poorest countries in the world, heavily reliant on foreign aid and investment, and facing conflict over territorial gain and the growing threats of violent extremism. Yet it has also had over five percent growth each year since 2014 and possesses significant gold mines and agricultural resources. Though the US remains a symbolic ally, there are no trade agreements between Mali and the United States: Its FDI into Mali was a minor USD one million in 2014, and political risk limits its economic presence there. This was best exemplified by the suspension of Mali’s eligibility for the African Growth and Opportunity Act (AGOA) following the March 2012 coup d’état, and its reestablished status in the AGOA as of January 2014, due to the inauguration of a democratically elected government (1). The critical issue is that the current government is in fact threatened by militant groups that assert territorial claims over the northern region of the country. Groups like Ansar Dine, the Movement for Unity and Jihad in West Africa, and al-Qaeda in the Islamic Maghreb (AQIM) undermine the government and threaten to destabilize neighboring countries. Some maintain control of northern territories. Attacks against foreigners, kidnappings, mass shootings and violence against the Malian army further increase the risk of investment (2). Despite their decreased investment in Africa in 2015, China continues to embrace its new plan for global influence not excluding regions of conflict, and has made significant investments in Mali, in contrast with the United States. While China’s focus in Mali has been on infrastructure projects such as roads, bridges and railways, the slow-takeover of agricultural and mineral sectors is on the horizon.
Violence in Mali is most heavy based in the northern regions, but it is spreading quickly to the south, with more pinpointed attacks in major urban areas. Northern violence is largely connected to inter-tribal politics, friction between local tribes and the central government, smuggling and other criminal activities. The current wave of violence began in January 2012, when several armed extremist and separatist groups took advantage of an influx of arms and mercenaries traveling from Libya. A group known as the Movement for National Liberation of the Azawad (MNLA) launched a series of attacks on military installations in the north. Within months, they had pushed the Malian armed forces away from the northern regions of Gao, Timbuktu, Kidal and part of Mopti, and were within striking distance of the capital Bamako. The MNLA essentially denied the government control over half the national territory. On March 21, 2012, a coup d’état resulted in the overthrow of Mali’s democratically-elected government due to military reversals in the north (3). It is important to note that the MNLA is an organizational branch of the Tuaregs, a semi-nomadic group based in northern Mali and parts of Algeria, Niger and Libya. Their military advantage was found in heavy weapons and training acquired from Muammar Gaddafi’s Libyan army, of which many were once members. Additionally, the MNLA were supported by religiously motivated groups such as Ansar al-Dine, a Tuareg association motivated by extremist Salafi/Wahhabbi interpretations of Islam, and the more established Al-Qaeda in the Islamic Maghreb (AQIM).
In 2012, the MNLA and affiliated Tuareg groups lost power to groups more closely-aligned with AQIM, like Ansar al-Dine and the Movement of Unity and Jihad in West Africa (MUJAO) (4). Currently, the expansion of militant extremist groups into central and southern regions causes even more total national risk, in response to AQIM and the Macina Liberation Front, an affiliate of Ansar al-Dine better known as “Mali’s Boko Haram.” AQIM has gone as far as to attack neighboring Algeria, Mauritania and Niger. Major terrorist attacks in Mali that caught the world’s attention include a machine gun and grenade attack on a restaurant in Bamako in March 2015, another attack on an international hotel in Sevaré in August 2015, and a third at the Radisson Hotel Blu in Bamako in November 2015 (5).
While the spread of violent extremism southward poses a greater threat to urban societies, it also has a devastating effect on the allocation of resources located there. Mali’s two major resources, gold and raw cotton, account for 78 percent of all exports, 36 percent and 42 percent respectively (6). A vital consideration is that the majority of Mali’s gold mines lie in the southern and far southwestern regions, while agricultural zones are entirely in the center and south of Mali. Historic militant violence in the desert north did not pose a significant threat to the allocation of resources, aside from water; however, the current wave of violence moving southward will certainly entail increased security. In March 2015, Ansar al-Dine fighters easily took over a police base in the southeastern village of Misseni, just 150 km from the enormous open pit Morila gold mine run by foreign giants Randgold Resources and AngloGold Ashanti. Also in the mineral realm, there is a dispute over ownership of the northeastern Ansongo manganese lease, near the major city of Gao. This dilemma arose when the initial operators were forced to flee during the Islamist advance in 2012. In fact, that area has seen two attacks on UN peacekeepers since the incident. Also that year, Canada’s Great Quest Metals suspended its exploration program at the phosphate fields in Tilemsi in northeastern Mali for eighteen months, due to nearby attacks by armed groups (7).
Despite most noted armed conflict occurring in the north, the predicted route of southward bound violence in the coming months and years may not worry investors as much, but the government will certainly take measures to lessen threats to agricultural resources. The fact is, Mali’s economy is highly reliant on cotton. The head of Mali’s state-owned textile development company, CMDT, recently announced that Mali’s target cotton production for 2018 is 800,000 tons. Cotton production in Mali is a process that guarantees food security, as Malian farmers tend to plant one-third of their land with cotton and the remaining two-thirds with staple grains like maize or millet (8). Mali’s cotton industry is, like most African states, extremely dependent on rainfall, and with that comes definite vulnerability if militant groups were to take control over water resources, thus holding entire agricultural zones hostage.
Though it appears a dangerous zone for investment, Mali will certainly benefit from Chinese involvement, as opposed to funding from Western powers, which are less likely to invest in a region of risk. The Chinese government has proposed approximately USD 11 billion to improve Mali’s economy. Most of China’s influence in Mali has been in areas of infrastructure and minerals (9). Chinese firms have already explored and extracted from mineral fields in the south, and pledge to invest in railways between Bamako and ports in Conakry and Dakar in order to transport minerals like iron ore and bauxite (10). China certainly is aware of the inherent volatility in transporting heavy minerals across the borders of West Africa, and potential terrorist activity in the south of Mali will be a serious concern that may result in increased security to protect railways from attack or robbery.
Conflict-based risk is inherent in Mali, and will continue to be a threat until violent extremism is halted through military means, and until a significant peace agreement is developed with moderate Tuareg rebels by granting autonomy in their “Azawad” homeland. Economic conditions naturally must also improve, and Mali will continue to rely on foreign investment and aid for the foreseeable future. China will follow through with its global ambitions and become the major player in Mali through investment in infrastructure and the control over mineral fields. Measures of protection will play a significant role in water and transport in order to protect Mali’s dominant economic providers: minerals and agriculture.
(1) U.S. State Department. "Mali: 2016 Investment Climate Statements." U.S. Department of State. Bureau of Economic and Business Affairs, 5 July 2016. Web.
(2) CFR. "Destabilization of Mali." Council on Foreign Relations. Council on Foreign Relations, 5 Oct. 2016. Web.
(3) U.S. State Department. "Mali: 2016 Investment Climate Statements." U.S. Department of State. Bureau of Economic and Business Affairs, 5 July 2016. Web.
(4) Bak-Christensen, Jesper, and Kevin Amirehsani. "Investing in Mali? An In-depth Look at Malian Political Risk | GRI." Global Risk Insights. Global Risk Insights LLC, 09 Dec. 2015. Web.
(5) U.S. State Department. "Mali: 2016 Investment Climate Statements." U.S. Department of State. Bureau of Economic and Business Affairs, 5 July 2016. Web.
(6) Observatory of Economic Complexity. "Mali Exports." Observatory of Economic Complexity. MIT, 2014. Web.
(7) Bak-Christensen, Jesper, and Kevin Amirehsani. "Investing in Mali? An In-depth Look at Malian Political Risk | GRI." Global Risk Insights. Global Risk Insights LLC, 09 Dec. 2015. Web.
(8) Wroblewska, Anna. "Mali’s Cotton Industry: Come Rain Or Come Shine." AFK Insider. AFK Insider, 16 Feb. 2015. Web.
(9) Zakaria Dit Zan, Sangare. "Economic Impact of China’s Investments in Mali’s Construction Sector on Mali." Journal of International Relations and Foreign Policy. American Research Institute for Policy Development, Dec. 2015. Web.
(10) Bak-Christensen, Jesper, and Kevin Amirehsani. "Investing in Mali? An In-depth Look at Malian Political Risk | GRI." Global Risk Insights. Global Risk Insights LLC, 09 Dec. 2015. Web.
Image: © Tiziano Casalta | Dreamstime.com - Market
Russia faces extreme security and economic concerns which hinder its power as an exporter of oil and gas, and thus its national survival. Amid such an energy crisis the coal industry is set for a rebound in Russia, but its future is certainly not risk-free.
Annually the US Chamber of Commerce publishes the International Index of Energy Security Risk, which takes into account the 25 large energy-consuming countries, assessing security and risk. In its 2016 report, it was determined that Russia, with a risk score of 1,192 and coming in 20th place, is one of the least energy secure states in the world. In comparison, Norway, the most energy secure country in the index, has a total risk score of 733 and is 16 percent below the OECD average of 869. Russia exports large volumes of fossil fuel and is one of the world’s largest producers of natural gas, crude oil, and coal. Despite Russia’s diverse bounty of energy resources, its energy security remains volatile. Considering metrics measuring energy use, transportation, and emissions, Russia ranks extremely poor, and geopolitical conflicts create further volatility (1). Security concerns include an ongoing war in Eastern Ukraine following Russia’s unlawful annexation of Crimea in March of 2014, tension between Russia and NATO members, and the existing threat of terrorism and radicalization in the south of Russia. Furthermore, economic troubles have worsened, marked by weak growth and foreign investment, public and private-level corruption, and the downfall of the ruble. Additionally, the global drop of oil prices and worries over effective transport of energy resources to the rest of Europe pushed Russia into an emergency state, a natural result of the extreme reliance on its energy sector. Such economic and security issues hinder Russia’s power as an exporter, and thus its national survival. This report takes a closer look at the coal industry in Russia amid a state of energy chaos and the risks that come with its resurgence.
First, let’s take a look at the assets, also known as vulnerable responsibilities. These create Russia’s tremendous reliance on foreign and domestic consumption of its energy resources. Russia holds the world’s largest natural gas reserves and is second in production, behind the United States. It holds the second largest coal reserves and ranks sixth in production. Russia also has the seventh largest oil reserves and is third in production behind Saudi Arabia and the United States. Russia also maintains the world’s fifth largest electricity grid in terms of annual generation--1,069 terawatts per hour--and when the EU is excluded as an entity, it places fourth in carbon dioxide emissions. Russia is thus unsurprisingly one of the top five producers and consumers of electricity in the world, with fossil fuels (mainly natural gas) generating about 68 percent of Russian electricity followed by hydropower (20 percent) and nuclear (11 percent) (2).
The reliance on energy exports in the private sector, which is widely regulated by the state, is critical: in 2014 oil and gas companies earned 98 percent of all profits made by large Russian firms. Firms in the energy sector together earned almost 2 trillion rubles ($52 billion), while all other companies combined saw profits of only about 47 million rubles ($1.2 billion). Such findings shine light on Russia's failure to direct its economy away beyond energy sales. Its economy saw growth rates of around 7 percent annually as oil prices rose through the 2000s, but when oil prices fell from highs of above $100 per barrel to the recent lows of less than $50, the country went into a deep recession and forced the government to curb spending at dangerous levels. In addition, taxes from the energy sector make up around 50 percent of Russia's federal budget. In 2015, Prime Minister Dmitry Medvedev called for diversification away from oil and gas and the need to find new internal sources of investment (3). As a result, the coal industry is on the rise.
Faced with extremely low oil prices, concern over the transport of natural gas to Europe due to political reasons stemming from a conflict with Ukraine, and the threat of terror attacks on pipelines and energy-transport hubs, coal becomes a reasonable alternative despite environmental consequences. From a risk-analysis standpoint, considering its predominantly Siberian area of extraction, coal is located in regions free from conflict or serious terrorist activity. Also, unlike the transport of petroleum from Russia, which is majorly exported to Europe (volatile considering geopolitical tensions as Ukraine is critical transport territory), about half of Russia’s coal is exported to East Asia, which is much more reliable when looking at political-economic arrangements. Furthermore, this secure option contrasts with the fall of the coal industry in Eastern Ukraine, a once global powerhouse of coal production now in collapse due to a violent conflict between pro-Russian separatists and the Ukrainian government. Following the annexation of Crimea, Russian troops continue to occupy Ukrainian sovereign territory in Donbass, an area with immense coal reserves, and fighting still occurs despite ceasefire agreements, creating further uncertainty and therefore increased risk in the energy sector in Eastern Ukraine concerning which group maintains control of resources. New measures at the public and private and private level prove coal is making a significant return.
Domestically, the government is approving new coal power stations through 2020, as gas will drop from 68 percent of energy supply to 50-57 percent, while coal will increase from 25 percent to 38-39 percent. The Unified Energy System of Russia projects the country will more than double its coal consumption (4). Meanwhile, exports will only continue to rise. In June, Energy Minister Alexander Novak projected the whole-year coal production for 2016 to be 390 million metric tons--a 4.3 percent increase. Novak also claimed that the Asia-Pacific region is its highest priority for the future, signifying the slow shift away from Europe (5). In fact, the recent Russian-China energy partnership calls for coal to be reliably exported out of Siberia and the Russian Far-East to fuel growing markets in Asia and while allowing adequate technologies and intellectual property to be attained in avoidance of Western sanctions. Russia is also increasing the exportation of coal to China using the Trans-Siberian railway: 3.5 million tons of coal crossed the Russian-Chinese border in 2012; that doubled to 7 million tons in 2013 and is only set to rise with the implementation of the 2014 “Road Map on the Development of the Russia-China Partnership for the Coal Industry.” According to the “Coal Industry Development Program” coal production in Russia will increase to 380 million tons in 2020 and 430 million tons in 2030. State-sponsored companies have plans to not only build new coal plants but to also increase the capacity of the country’s coal terminal ports up to 300 percent. In order to achieve such goals, at least $200–$360 billion of investment is needed to update existing coal-fired power plants by 2030. The Russian government can only provide $13 million of this funding, so the rest is left to energy companies and investors (2).
Though it appears Russian coal is on the rise again, investment in the industry is still filled with risk. While advantages include practically limitless deposits of coal, competitive returns on investment, creation of jobs and the rural economic modernization of areas such as Siberia, maintaining geopolitical ties with Asia, and developing coal technology, risks include stranded assets, social costs of the mining process, effects on climate change, and the lack of private investment to fund new projects which are required to maintain increased production levels. Russia’s poor business climate, widespread corruption, state interference, and and a lack of market demand to invest in new coal projects when oil and gas investment opportunities are considered more secure and profitable all contribute to an underwhelming amount of investment in its economy. The average rate of return for oil and gas extraction normally tops double digits, even coming close to 20 percent in some years, while the main source for coal, electricity or heat supply, has returns below 5 percent. Private investors are also less likely to invest in coal when most developed and developing countries, including Russia, are incentivizing renewable energy resources in understanding the long term benefits of their development. Additionally, the decrease in technical skills and education throughout the industry, corruption at the local level, and dependence on foreign technology makes coal a less attractive investment (2). While political-security reasons such as the safety of Siberian coal zones, closer partnerships with East Asia, and the danger of a reliance on oil and gas exports to Europe will allow Russia to increase coal production. But a necessary investment to modernize the coal industry is limited due to a heavy set of risks.
(1) US Chamber of Commerce. International Index of Energy Security Risk 2016 Edition (2016): Institute for 21st Century Energy. US Chamber of Commerce. Web.
(2) Gorbacheva, Natalia. "Pain without Gain? Reviewing the Risks and Rewards of Investing in Russian Coal-fired Electricity." Applied Energy. Applied Energy, 15 Sept. 2015. Web. 04 Sept. 2016.
(3) Hobson, Peter. "Energy Sector Accounts for 98% of Russian Corporate Profits." MT. Moscow Times, 24 Sept. 2015. Web. 04 Sept. 2016.
(4) SRK News. "The Russian Coal Industry." SRK Worldwide. SRK Consulting, 2016. Web.
(5) "Coal Production to Rise in Russia." Coal Age. Mining Media International, 30 June 2016. Web.
Image: © Rotarepok | Dreamstime.com - Moscow urban scene
Daniel Orlov currently attends the University of Southern California where he is majoring in International Relations with a minor in Geospatial Intelligence and Human Security. He is a midshipman in the United States Navy, en route to becoming a surface warfare officer. He started work in the field of foreign policy in Russia, where he interned for two full summers at the Center for Policy Studies in Russia (PIR Center). Then, in 2014 he interned at the Geneva Center for Security Policy for the start-up of the US Department of State-sponsored Global Community Engagement and Resilience Fund to counter terrorism. Over the summer of 2016 he attended Career Orientation Training in Naval Region Southwest for training exercises with the Marine Corps, surface ships, submarine, and aviation communities. Mr. Orlov enjoys research in the fields of risk analysis, conflict resolution, naval strategy, and trade.