Newsletter, Edition 6, Vol 2, July 2013

Editor’s Welcome

Welcome to our July edition of the newsletter. The latest seminar in July was presented by Her Excellency, Clemencia Forero Ucros, the Ambassador to the Republic of Colombia to Australia. Her Excellency spoke about developments in Colombia and presented valuable insight into Colombia’s past, present and future.

The next event we can look forward to will be held on the 13th of August at Harris Terrace, when Dr Andrew Selth, an Adjunct Research Fellow with the Griffith Asia Institute at Griffith University, will present ‘Recent developments in Burma (Myanmar)’. Please check the AIIA website or Facebook page for more details.

This edition of the newsletter features articles on three strikingly different, but equally fascinating, topics. Gina Williams writes about the change of leadership in Iran. Samad Aftab discusses regional integration in South Asia and Paul Ransom presents us with a meaningful view of the Ukrainian economic system as experienced by the people of Ukraine.

If you have any feedback or wish to contribute, please email us at qld.branch@aiia.asn.au Mi lly Arsic | AIIA Council Member Sub-editor: Mary Overington | AIIA Intern

Hassan Rowhani: A New Player in the Same Game Words by Gina Williams

Has the recent election of a new liberal minded President signalled a game-changer both locally and internationally on Iran’s playing field? The global stage was shocked as Hassan Rouhani was elected as Iran’s new president by a landslide victory.1 His first remarks implied a shift towards a more liberal society by building trust with the U.S. and ushering in personal freedoms.

The election of Hassan Rouhani is a breath of fresh air against a police state backdrop brought by Iran’s outgoing President Ahmadinejad. One of the reforms voiced by Rouhani in regards to improving liberal freedoms is to put an end to Internet censorship. “A strong government does not mean a government that interferes and intervenes in all affairs. It is not a government that limits the lives of people,” Rouhani publicly spoke emphasizing a time of reform for Iran1.

Internationally, Rouhani promised to open negotiations with the U.S. in regards to Iran’s nuclear program. Rouhani vouches to work with the U.S. and abide by the standards set by the International Atomic Energy Agency in exchange for the dissolution of Iran’s economic sanctions and the recognition of Iran’s right to its nuclear program1.

Although these promises may illustrate that all is about to be well in Iran, the fact is, Hassan Rouhani is still playing the same

game, a game governed by Iran’s chief player the Ayatollah. It cannot be possible for the Ayatollah to lose in a game where he not only gets to choose his players but control every outcome of their actions making it impossible to defeat the monster at the end of the line. Unless the old consul is disposed and a new one installed, evidence of Iran’s progress will remain confined to the gaming screen.

   1 Australian Broadcasting Cooperation 2013, ‘Moderate cleric Hassan Rowhani to become Iranian president on August 3,’ July 8, viewed July 10 <http://www.abc.net.au/news/2013-07-08/rowhani-to-become-iran-president-on-august-3/4807364> 1 BBC News 2013, ‘Hassan Rouhani wins Iran Presidential Election,’ 15 June, viewed 3 July <http://www.bbc.co.uk/news/world-middle-east-22916174> 1 Khalaji, M, 2013, ‘Hassan Rowhani emerges as Iran’s New Hope,’ The Australian, June 22, viewed July 4th, <http://www.theaustralian.com.au/opinion/world-commentary/hassan-rowhani-emerges-as-irans-great-new-hope/story-fnfi3iga-1226667755685>

Iran's outgoing president Mahmoud Ahmadinejad meets newly-elected president Hassan Rouhani in Tehran, Iran on June 18, 2013. Source: UPI

Regional Integration in South Asia

Words by Samad Aftab

South Asia is beset with a number of problems that are common to many of its sovereign states. These include abject poverty, high levels of illiteracy, rising extremism, vulnerability to natural disasters, poor infrastructure, the mismanagement of water resources and concerns over energy security. In fact, the region, along with Sub-Saharan Africa, ranks amongst the lowest across the majority of development indicators.1

Regional integration in South Asia would benefit all of its states by providing a platform to alleviate these problems through the opportunities that can be availed from economic integration and the joint management of common resources. Many of the development problems in South Asia are inextricably interconnected to the intraregional political morass and the inability of the states to cooperate on issues that require common solutions.

Despite being an endemic environmental circumstance, the devastation caused by the floods can most certainly be mitigated through cooperation. All of the South Asian states, except for Sri Lanka and Maldives, share common rivers that originate in the Himalayas. Disputes over shared rivers and the absence of collaboration on infrastructure projects have hampered the ability for the countries in the region to meet their water needs, and also contribute to the terrible damage caused by annual flooding. However, the states in the region are even reluctant to share hydrological data between themselves, which in turn, precludes timely flood warnings.1 In addition, the states of South Asia also face energy shortages, as can be seen with Pakistan’s current energy crisis that is crippling the economy. Therefore, the collaborative management of water resources and the strategic and economic partnership in energy provision should be a leading agenda for the governments of the region. The South Asian states would benefit from economic integration through market enlargement that would ensue from the liberalization of trade and government reforms that proliferate intraregional Foreign Direct Investment (FDI). At present, intraregional trade lies at a paltry 5% of total trade in the region. This is a dismal figure,

especially when one takes into account the high volumes of trade between members of other regional blocs.1 The economic growth that would result from trade, investment and labour flows would boost the ability of the states to pursue development goals. Intraregional FDI can contribute to GDP growth in South Asia as well, and furthermore, can birth positive externalities such as technology and skills, roads and other infrastructure, and can also provide a stimulus to economic growth in the form of industry and jobs creation at various levels of the supply chain.

A central factor for the lack of South Asian regional integration has been the visceral animosity between India and Pakistan and their coolness towards a multilateral and collaborative approach to development issues in the region. The perennial conflict over the disputed Kashmir region hovers as a dark cloud that dims hopes for a concrete and tangible economic partnership between the two states. Subsequently, their fractious relationship lies at the heart of the inability of the South Asian Association for Regional Cooperation (SAARC) to foment palpable regional integration.

Muchkund Dubey1 writes: “Due to the lack of genuine commitment to regional integration, most of the decisions made by SAARC are of the nature of public relations campaigns designed to impress domestic audiences and foreign powers. Thus the entire SAARC process is an exercise in competitive deception. The institutions are created, and decisions, recommendations, declarations, and even legal instruments are signed with the implicit understanding and intention not to allow the institutions to function effectively and not to abide by the obligations incorporated in the agreed-upon documents.”1

Ergo, a collective will across the governments of South Asia is necessary if SAARC and, in the long run, the concept of ‘regionalism’ in South Asia itself, are to stand any chance of making tangible progress. India and Pakistan, in particular, must take serious steps towards not letting their bilateral security issues continue to hijack the widespread potential benefits that all South Asian states can accrue from regional integration.

1  Sneider, D. C., Sood, V., & Dossani, R. (2010). Does South Asia exist? Prospects for Regional Integration. Stanford, CA: The Walter H. Shorenstein Asia-Pacific Research Center. 1 Khadka, N. S. (2013, July 19). South Asia disunity 'hampers flood warnings'. BBC. Retrieved from http://www.bbc.co.uk/news/science-environment-23358255 1 Sneider, Sood, Dossani (2010) 1 Professor Muchkund Dubey is a former ambassador and former Indian Foreign Secretary. Presently, he is the President of Council for Social Development and Chairman of the Asian Development Research Institute, Patna. 1 Sneider, Sood, Dossani (2010)

Leaders of SAARC member-states at the 16th SAARC Summit in Bhutan, April 2010.

Does its future lie to the east or west? Many international scholars have a passing knowledge of these questions, but to answer them, knowledge of the country and its people is needed. This article aims to provide a brief (and largely anecdotal) glimpse into the Ukrainian economic system as experienced by its people.

The Economic Realities of Ukraine

Words by Paul Ransom

Usage note: this article uses latin transliterations of Ukrainian and Russian words. Where they are pluralised, it is by adding ’s’ (as in English) to the transliterated word.

Introduction

Ukraine doesn't hold a great amount of space in the global consciousness of Anglophone Westerners. Unless there is a personal link to Ukrainians, as is common with the significant diaspora communities in Canada and the United States (and to a lesser extent in the United Kingdom and Australia), knowledge of the country is typically limited to its membership in the Soviet Union and possibly the Orange Revolution of the mid-2000s (as well as unfortunate stereotypes like mail order brides).

In the 21st Century, however, Ukraine is important to the future of Europe. It sits, both geographically and politically, just outside the EU. There is still a battle being fought for the soul of Ukraine: is it European or Russian?

Consumer market

As an emerging economy, the Ukrainian consumer market is both like and unlike those in the West. Many global brands are available and in regular (even primary) use by Ukrainians. Calls are made on Samsung and Nokia phones, clothes are washed in

Khreshatik St is the main street of Kyiv

fast food franchises, all to the benefit of Ukrainian waistlines. Still popular are traditional buffet-style stolovayas, such as Puzata Hata, where traditional and nutritious Ukrainian food is served at very low prices. Puzata Hata is the franchised version of stolovayas, which have transitioned from a workers' kitchen to commercial service model.

The cost of basic staples is cheap by Western standards. Basic imported items are similar in cost to those in the West, as these items are part of the same global manufacturing system, and mostly come from the same sources in China.

These goods are different in terms of their impact on wage earners, though, due to lower earning capacity. A $5 plastic bucket will be a more meaningful purchase decision to a worker earning $350AUD per month than an Australian consumer. Luxury goods are comparatively expensive as they service a small and status-conscious market- for instance, Apple products can be 120-150% of Australian prices. Not as prevalent as in Russia but still present is the Ukrainian nouveau rich who would prefer to pay more than necessary for these products, which are not standards of the middle class as in the West but status items.

Whirlpool machines, and the dental effects of Pepsi and Coca Cola are kept at bay by Colgate and Listerene.

Increasingly, these products are being purchased in supermarkets and large-format, comprehensive hypermarkets, rather than in small shops or kiosks. There are many

shopping centres (trade centres) in suburban areas and the glitzy Ocean Plaza just opened not far south of the centre.

McDonald's is present in the country, though far rarer than in Australia. KFC just opened its first and only store in Kyiv's Ocean Plaza. Burger King is absent, as are any other global

KPI is one of the best (in some polls the best) universities in Ukraine

Labor and freight input costs play a role in determining costs. For example, restaurants may pay staff to wash dishes, as their labor is cheap compared to the cost of a mechanical dishwasher. Legal obligations to warrant and repair faulty goods can also be weak, and it can be difficult to find service centres outside a few major cities.

Household goods tend to be smaller, reflecting smaller living spaces and a cultural aversion to waste and overuse (whether by necessity or as a holdover from harder times more recently experienced than most).

Structural realities

Foreign investments is still low, even though the economic trials of the 1990s are over. A combination of corruption and a weak rule of law (including enforcement of contracts) directs foreign capital to other jurisdictions, despite a low cost base in Ukraine. In fact, bribery of officials and dealings with criminal elements are accepted as part of the cost base of business operations in Ukraine, rather than a distortion that sits atop it.

Gates of bureaucracy rusted closed since the Communist era have still not creaked open to

capitalist system. In reality, capitalism is everywhere in Ukraine, and in a much purer form than Australia's mixed economy. The reason for this is that a business either operates outside the field of view of the bureaucracy or is given free rein once the toll is extracted.

Businesses are generally smaller operations, often literally. Women (and they're usually women) stand in hole-in-the-wall shops and kiosks that line the pedestrian tunnels and streets. Men (and they're usually men) drive those streets in marshrutkas; private buses organised into an efficient and comprehensive city transit system. Fares range from 1-3UAH

The VDNKh in Kyiv (the other, larger one is in Moscow) was an exhibition centre, marketplace, and trade complex

Make Shift Medicine Words and photo: Sylvia C. Frain

at time of writing 13-40¢). Larger, often newer, and cheaper public auto- and trolleybuses form a less comprehensive public network that is less widely-utilised.

Conclusion

Ukrainians live more Westernised lives and are more free to start and organise their own commercial affairs. However, there is still a gatekeeper mentality. Brand penetration and the mentality of international trade is not as prevalent as in neighbouring Poland, though the EU is

A metrostation in Kyiv

the Soviet education system (over 60% are degree holders, whereas Australia has announced an initiative to struggle its way to 40%). This article has focused on perhaps the most dire circumstances of Ukraine’s present; its economic and institutional reality. I hope to explore social aspects of the country in future articles.

Ukraine’s largest (non-arms) export market. The largest barriers to private enterprise are the lack of dependability and enforceability of legal (especially contractual) arrangements.

This article assumes that Ukraine will be pursuing a capitalistic path in the future, but comment should be made on the alternative. There are still entrenched privileges within the social system, such as free healthcare, broad pensioner and veteran entitlements, and city planning initiatives. However, while the mentality is there for a strong safety net, the practice is that weak institutions, corrupt officials and a desperate lack of funding make these arrangements practically non-existent. While healthcare is free, it is still commonly accepted that a patient will pay a ‘fee’ (bribe) to see a doctor, who will then be functioning without a legal framework requiring their competence or care, and with outdated and often faulty equipment.

Ukraine has a dynamic and incredibly resilient population. It is rich in culture and natural resources (both of exploitable and aesthetic value). The people are also very well- and broadly-educated, as a holdover of

‘….the glitzy Ocean Plaza just opened not far south of the centre.’