New Japanese PM Suga: What’s new? What’s the same?

Key Q’s

• Caretaker PM or LT answer?

  • If LT, who will watch his back internally the way he did for Abe?

• Personality to establish mutual trust in foreign relations?

Perhaps former Japanese Prime Minister Shinzo Abe’s greatest success was relative stability.  Since the Japanese economy’s downturn in the early 90s, only Abe and former PM Koizumi governed for any extended period of time.  Instead, raucous domestic politics, limited by a weak economy, led to quick succession of PM’s -- all of whom failed to turn the economy.

Abe, on the other hand, managed to set a record as the longest serving PM (table below).

While Japan’s 250% (and rising) debt to GDP ratio may not prove sustainable, #Abenomics guiding hand provided stability for the country to direct attention to critical external issues: namely China.

Given the abrupt transition to new PM Suga last month, what do we know about him and what can we expect?  Our fear at TFG is that too many have grown accustomed to recent Japanese political stability and have forgotten that there were 16 Japanese prime ministers in the 31 years from PM Uno in 1989.

Keep in mind -- in 1989, the world thought the Japanese economy was going to conquer the world, and besides Tiananmen Square, very few had China on their global dominance radar.  

Japan’s Key Geopolitical & Economic Points

• Post WWI Constitution expressly limits offensive military capabilities (self-defense only)

  • This periodically comes up for re-examination

• Exceptionally close US ally w/US naval bases in Japan and Marines on Okinawa

• Japan’s historically aggressive behavior in Asia is forgotten by no one

• South Korea - key frenemy

• China - key enemy - disputes such as Senkaku Islands, though Japan business has invested enormously in Chinese manufacturing

• SE Asia - predominantly quiet, check-book diplomacy, including infrastructure and manufacturing

• Russia - Sakhalin & Kuril Islands dispute

• North Korean missiles are targeted on Tokyo

• Emerging - Quad along w/Australia, India and US

Japanese PM Suga

PM Suga - What do we know?

Yoshihide Suga, a career politician born in 1948, was a close ally of Abe, and prior to becoming PM, was Chief Cabinet Secretary since 2012.  Chief Cabinet secretary is an important role in Japanese politics as they speak to the press twice daily and effectively act as a COO for the government coordinating policy across ministries.

Ironically enough, personality wise Suga is described as less strongly present with the press and known for avoiding questions.  Others label him a control freak.  

While his personality was exceptionally effective managing internal domestic politics, we wonder how helpful it will be when trying to build rapport internationally with key partners such as the US, India and Australia?  By contrast, Abe (and Koizumi before him) displayed a level of charm in foreign relations which helped pave the way for greater cooperation.

In a similar vein, some refer to Suga as “kozaru” or little monkey, in reference to Toyotomi Hideoyoshi, one of Japan’s most powerful rulers.  Perhaps most importantly, Suga is known for working diligently to cover up for Abe when needed, which raises the following question in our mind:  

• Who will play this role for him now that he’s been promoted? 

The son of strawberry farmers in rural Akita prefecture, Suga worked at a cardboard factory to pay for his tuition at Hosei University’s night school, graduating with a Bachelor of Laws in 1973.  Suga’s roots have held deep meaning in his political rise: both being portrayed as coming from outside the established political elite and using this to his advantage.  

He is also an author, having written The Resolution of a Politician (2012) and contributed to several Japanese magazines. 

Perhaps most importantly, Suga takes input from a wide variety of sources and is willing to innovate, a trait less common in typically conformist Japanese culture.  For example, Suga introduced soapbox speeches in Japan when running for office by greeting morning commuters and handing out questionnaires listing policy topics for constituents to prioritize.

Primary controversy stems from rumored connections with organized crime (Yakuza), a long-time thorn of association for the LDP. 

Will Suga reign longer than a caretaker government?

This is the key question from our perspective.  

While the LDP is in control of both houses, the government does not need to call  elections until Oct 2021.  This raises the questions as to whether Suga’ premiership is designed for stability or the long term. Will the LDP use the coming months to align around a possible successor?  Or will Suga find a way to maintain a hold on power.  Given his patron, Abe, has now retired, and Suga has never outwardly maintained an independent power base, it’s an open question in our mind.

Given the globe’s pivot toward the Indo-Pacific, Japanese leadership remains critical for the balance of power in the region.

Cyprus: Where the EU, Russia, US, UK, NATO, Christians and Muslims all come together

Prior to 9/11, conflict on Cyprus between Greece (EU member) and Turkey (NATO ally) was widely considered a top 3 risk for global conflict. Since then, while the GWOT to US and to a lesser extent EU eyes off the prize, Turkish President Erdogan continued to consolidate power in Turkey, while antagonizing the west. As a reminder, Greece and Turkey most recently fought a war over Cyprus in 1974.

As a reminder, Cyprus is split w/Turkey controlling the northern portion

What is the dispute between Turkey and Greece/Cyprus?

Under Turkey’s definition of Exclusive Economic Zone, no islands, including Cyprus, may have full EEZ and are only entitled to a 12 nautical mile reduce EEZ (instead of usual 200nm entitlement). In turn, Turkey claims a portion south of Cyprus as its own which contains an offshore gas field. Cyprus and the international community do not acknowledge these claims.

The maps on the left depict the EEZ as defined by Turkey while the one on the right highlights the EEZ as defined by the UN.

In the past year, Turkey increased drilling activity west of Cyprus and continues to claim those natural resources should be shared between Turkish controlled Northern Cyprus and Greek-Cyprus. Additionally, the Government of Turkey signed an agreement with Libya in 1999 which created an EEZ from the Turkish southern coast to Libya’s north-east coast, ignoring the Greek island of Crete. Last month, Greece signed a deal with Egypt establishing a maritime zone between the two countries which would nullify the prior Turkish/Libyan agreement.

https://www.bbc.com/news/world-europe-53497741

Reaction from an admittedly distracted international community has called for increased dialogue - with the EU and Germany in particular emphasizing the need for talks. France has been more vocal in condemning Turkey’s actions while deploying a frigate and two fighter jets in the area alongside Greek fortresses.

Turkish Lira continues to new lows against USD under Erdogan

Going Forward

Turkish/Greece flare-ups are not new to long-time #geopolitical observers. What’s different now, is that Turkey is responding after 20+ years of increasingly authoritarian rule under Erdogan.

In that light, Erdogan is most likely leveraging Cyprus to trade for something else and distract his people from a poor economy (see Lira-Dollar chart above for example).

With the EU, Nato, Russia, US, & UK interests all directly involved, this continues to be a space to watch.

Vietnam: Ready for Take-off

We continue to highlight the growing importance of #Vietnam to world trade & #geopolitics It’s incredible to recall that just 25yrs ago US and Vietnam normalized relations.

A pic of Ho Chi Minh City to whet your appetite for development.

As tension with China rises (U.S., India, South China Sea, etc), we continue to assess Vietnam to be a key beneficiary as FDI is redirected.

Given this trend, we thought it worthwhile to share quick dive on Vietnam and why this #SEAsia economy of 90mm people has become so important, again.

Location, location, location...

Vietnam only recently opened its hybrid form of capitalism.

Pros

- Young, inexpensive, high-energy & growing workforce

- Agriculture and energy production sectors w/abundant resources, but still largely under-invested

- Alongside, socio-political stability and established military

Areas for Growth

- Continued health & transport infrastructure investment

- Improved banking sector regulation

- Improved legal transparency

The elephant in the room is China It's proximity is one of Vietnam’s greatest strengths, while also a potential Achilles heel Disputes regarding the #SouthChinaSea are just one area for friction and Vietnam historically looks at China with a wary eye.

Vietnam's role in tech manufacturing is established & growing For example, exports of smartphones and spare parts, mostly produced by Samsung, rose 4.4% last year to $51bn out of $274bn total exports in 2018.

Primary export destinations remain:

1) China

2) US

3) S. Korea & Japan (alternating)

To give you a sense of how fast this growth is occurring pre #SARSCoV2 & #ChinaUS trade war....

In 2007, total trade to Top 5 partners was ~$55bn

By 2019, total trade to Top 5 partners grew to $350bn, a 7x increase

This trend will accelerate as US China relations deteriorate and China continues its transition to a consumption & services driven economy, away from manufacturing. This transition will continue to driver higher manufacturing costs reducing China’s ability to be the low-cost industrial plant for the world.

Vietnam’s top trade partners, 2019

While Vietnam's Achilles includes reliance on and proximity to China, it also depends on the US Navy for safe passage of required petroleum imports to fuel its economy.

Notably, Vietnam is a net exporter of food, particularly rice and including to China; so it has its own cards to play.

After decades of relative quiet and growth in the shadows of larger, neighboring economies, #Vietnam now finds itself back in the global frame as a critical manufacturer and food producer located next to the Giant Panda, but also aligned with US, S. Korean, Japan and Oz interests.

Explosives in the Beirut Port: How did they get there?

The August 4 expulsion of nearly 3,000 tons of impounded chemicals in the Port of Beirut seemed to catch everyone by surprise, from the owner of the Moldovan-flagged MV Rhossus, which originally unloaded the cargo into the portside warehouses, to the entire Lebanese government, which thought it wise to put as much space between it and the inevitable questions that would need to be answered. 

Western nations who bargain imports and exports, tariffs, and hope to occasionally convince the IMF and the United Nations Commission on Trade Law that they want nothing more than a fair set of regulations by which to negotiate, no doubt are aware just how differently these issues are resolved in other parts of the world.

Since the end of the Second World War and the rise of the multinational state of Yugoslavia, the Balkans have become a pipeline utilized by a Black Market that makes a show of respecting international borders. 

Cigarettes, liquor, narcotics, prostitutes, you name it, have found their way from the former Soviet Republics, Moldova, and Eastern Europe down through what was once Yugoslavia before finding a bit of a bottle-neck at the border between Kosovo and Macedonia.

Interestingly enough, anyone driving through the Balkans will see just as many trucks stuffed full of what is assumed to be the same commodities one sees on the autobahns of Germany. The European Union has made every effort to facilitate the movement of goods from one member state to the next, with the necessary financial details resolved equitably behind the scenes according to EU protocol.

What is truly incredible to consider is that another system is in place that attempts to govern trade just as effectively for nations that are not part of the EU. The system, with security provided by criminal enterprises, pretends to make use of established customs offices that invariably exist at both land-based and maritime Ports of Entry. 

This system, to which the MV Rhossus and its illegal cargo no doubt belonged, has its tentacles wrapped around every imaginable item that carries value.  The real money comes from the smuggling through customs of illegal goods, which always find a market and bring in the highest profit ratio.

Don't be fooled by the en masse resignation of the Lebanese government- Beirut happens to be one of the more active locations for customs officials, government ministers and various criminal enterprises to ensure deliveries are on time and headed to the right destination. Customs officials get a proverbial new plaque on the wall for efficiency, and in a manner similar to the methods used by the Cosa Nostra in New York City in the 1960s and 70s, everyone gets a piece.

Since Yugoslavia sent Woodrow Wilson spinning in his grave in the 1970s and 1980s, Europe could do little more than express concern as the Balkans began to revert geographically to its pre-World War I borders. No doubt feelings of nationalism set in motion by the destruction of the Berlin Wall and the collapse of the Soviet state, fueled by 24-hour television news programming highlighting a new eneration of young Croats, Bosniaks, Kosovars, Slovenians and Macedonians carried these events into the living rooms of Serbia and Montenegro, two former pieces of greater Yugoslavia who had not jumped on the "dump Socialism" background. 

Since then, both Belgrade and Podgorica have instituted substantial reforms to open up their economies and attract the kind of foreign capital that allowed Croatia, Slovenia and Bosnia-Herzegovina to take advantage of unspoilt beaches, beautiful scenery, medieval ruins, and reasonable prices. 

As the international community follows the political and social changes occurring throughout the former Yugoslavia, one monolithic Tito-esque federal customs agency managed to avoid real efforts of reform. In reality, most of the former Customs Officers who inspected incoming traffic managed to keep their positions.

The "welcome" pamphlets provided to incoming tourists have softened their language substantially, and each major highway crossing the border into one of the Yugoslav Republics will provide snack shops, kiosks set up to sell tourists little curios to bring home to friends in Oslo and/or Dublin, and the ubiquitous modest museum.

The rapid changes that the citizens of the Former Yugoslavia have shared include substantial growth in persons working for the government. Interestingly enough, special attention was given to any and all efforts to reform the customs offices.  During the 1970s and 1980s, the Customs Bureau was basically a law unto itself. Trucks laden with cigarettes or beer knew the drill well. No vehicle without the correct "paperwork" would be allowed entry. Normally, though, issues relating to permits are resolved beforehand.

Corrupt enterprises that control the smuggling routes throughout the Balkans, and down into Turkey and Lebanon are similar to the Mafia, but with arguably less violence. Every customs officer working in the former Yugoslavia, Macedonia, down to Cyprus and Turkey, fulfills a vital role. It's their job to ensure that the system continues to work as it always has, and they are compensated accordingly. Those who show patience and dedication to the process can earn enough money following through on their part (shipments arrive on time, local police officers are kept satisfied, and payoff is very consistent).

For the relatively new governments popping up in and around the Balkans, it's important that they understand exactly what position they occupy in the grand scheme of things.  The triumvirate that basically controls the endemic corruption includes:

1) the Customs Unions that have been representing in many cases the same Customs employees,

2) the rich businessmen who skim their cut off the top of everything that moves, and

3) the crime bosses that control the truck driver's unions and the dock workers.

The MV Rhossus was absolutely a part of this corrupt enterprise. The speed in which the Lebanese government disappeared, along with any local brokers and related businessmen should send a message that the yearly take of billions of dollars through extortion, bribery, and intimidation is now being targeted by international law enforcement entities. Although the writing was on the wall, the incident involving the MV Rhossus and its cargo has forced the issue to the forefront. If Montenegro, Macedonia, Croatia, and the other Balkan states, alongside Moldova, Ukraine, and the numerous former Soviet Republics of the Caucasus, choose to take control of their own future, the resources that will legally become available can truly change the lives of generations.

France and China Face Different Emerging Challenges in Africa

Opposite responses from Paris and Beijing to last week's Mali coup underscore the risks China accepted in the last decade to supplant France as "most-favored" superpower in West Africa and gain access to minerals, chemicals and metals that drive econ and military.

With the exception of Sierra Leone, Ghana, and Nigeria, France has been part of the West African community for >100yrs spreading the lingua franca from Dakar to N'Djamena and creating economies supported by the French Franc which has proven valuable in post-colonial Africa.

Beijing underappreciated the bonds that had developed between Paris and many West African countries following the end of colonialism which included programs to assist members of former French colonies to apply for French citizenship.

Chinese President Xi Jinping didn't hesitate to follow previous examples of Chinese intervention in other parts of Africa by assuming that every govt would be directly influenced by cash and feel-good projects including pipelines and highway construction.

In Burkina Faso, for example, the funding of the Textile Industry was a way of co-opting the local press and providing jobs. As hordes of Chinese govt engineers and metallurgists started plotting out GPS locations xenophobia reared its ugly head

Unfortunately for Xi, the local Burkinabe did not respond well to the influx of Chinese construction workers and various support staff. The Burkinabe place a great deal of import on courtesy and friendliness while the Chinese working abroad tend to keep to themselves which increased local unease.

Just as the Chinese began to address this problem with culture and language instruction for its in-country employees,SARSCov-2 arrived 💥💥💥

The media in Niamey, Abidjan, Dakar, Bamako and Ouagadougou, always on the lookout for western abuses of African resources, followed AFP, Le Figaro and Le Monde in placing at least a part of the blame for the virus on Wuhan lab and the CCP.

Counterintuitively, however, last week's coup in Bamako may provide Xi a bit of breathing room, as Beijing formulates a new policy to retain hard-earned and expensive access to the priceless resources in Mali, Niger, and Burkina Faso.

So far, Beijing has followed the UN/international line which makes perfect sense as it's essential for the Bamako interim government to keep control and provide the Chinese some level of security for the billions invested

👉as more than just Mali is at stake in W Africa