5 September 2024

This Week:
China/Africa Summit
Twitter Banned in Brazil
Biden Administration Seeks to Secure Internet Traffic
Disruptions to the Semiconductor Market Impacts Global Economy
Trade Group Seeks More Chips Investment
Possible Cyber Militias with the “Franklin Project”
Swedish Security Companies Note Russian Aggression
Far Right Party Gains a Victory in Germany

See previous editions of P&M here

China/Africa Summit

 

Officials from about 50 African nations have gathered in Beijing for a China-Africa summit, marking the first such event since the BRICS bloc expanded last year to include Egypt and Ethiopia. The summit will also address resource extraction deals, with African leaders seeking fairer terms from China, India, and Western nations. Notable discussions include Senegal's review of its oil and gas contracts, Zambia's railway projects, and the Democratic Republic of the Congo’s efforts to add value to its mineral exports. Chinese President Xi Jinping is expected to promote green energy projects and support for African development at the summit.

 

China has become Africa's largest trading partner, with significant trade in metals, minerals, and fuel. However, the trade balance often heavily favors China. At the summit, South Africa’s President Cyril Ramaphosa discussed reducing this trade deficit and improving local job creation through Chinese investment. Kenya’s President William Ruto sought additional funding for infrastructure projects and to revive stalled initiatives, like the Standard Gauge Railway. Ethiopia, represented by Foreign Minister Taye Atske-Selassie, is set to make several agreements with China, focusing on smaller-scale green technology projects rather than large infrastructure loans. Ethiopia has been leveraging Chinese investments in its transport infrastructure and is now focusing on the electric vehicle (EV) industry, with plans to import electric buses and cars and build locally from Chinese components.

 

Concerns about debt sustainability have been prominent, as many African nations face debt distress. The IMF forecasts slowing Chinese economic growth, urging African countries to enhance regional integration and structural reforms to reduce reliance on foreign powers. However, China has committed to enhancing its Belt and Road Initiative (BRI) with promises of "high-quality cooperation" as it hosts a summit with African leaders in Beijing. The BRI has significantly invested in Africa, with Chinese companies signing over $700 billion in contracts between 2013 and 2023. However, the initiative faces criticism for causing debt burdens and environmental damage.

 

Key BRI projects in Africa include:

  1. Kenya's Standard Gauge Railway: This $5 billion project connects Nairobi to Mombasa but has faced delays and corruption issues. Plans to extend the railway to Uganda were halted due to debt issues.
  2. Port Facilities in Djibouti: China established its first overseas naval base in Djibouti and developed the Doraleh port. There are concerns about espionage due to its proximity to a U.S. base, and the port's ownership transfer has been contentious.
  3. Mozambique's Suspension Bridge: The longest suspension bridge in Africa, connecting Maputo to Katembe, cost $786 million, primarily financed by Chinese loans. Critics argue it was overpriced.
  4. Mining Investments: China has invested heavily in African mining, including a $1.9 billion purchase of a copper mine in Botswana and a $2 acquisition of Zambia's Lubambe copper mine. Conflicts in regions like the Democratic Republic of Congo have occasionally disrupted these investments.


All of this demonstrates the centrality of Africa to geopolitical competition, especially over resources necessary for modern economies. The scope of China’s involvement in Africa will be extremely difficult for the West to overcome, and Western companies will find it problematic competing with Chinese ones. This is exacerbated by rising anti-Western sentiment generally as African nations prefer non-Western partners.

Twitter Banned in Brazil

 

Elon Musk's Starlink has complied with a Brazilian Supreme Court order to block access to the social media platform X, despite initially refusing to do so. The order came after Judge Alexandre de Moraes directed Starlink to freeze its accounts to potentially cover fines related to X, which Musk also owns. Although Starlink had informed Brazil's telecom regulator, Anatel, that it would not comply, the company reversed its stance and began blocking X in Brazil. This follows a broader legal dispute over X's lack of a legal representative in Brazil, which led to its nationwide shutdown. Starlink is challenging the legality of Moraes' order, citing constitutional violations, and is exploring legal options to reverse the account freeze. Despite the shutdown, some Brazilians are still accessing X via VPNs. Musk’s problems in Brazil highlights the continued threat to Western technology companies as multiple regions are trying to push back against them through legal and extralegal mechanisms. Such events continue to push the balkanization of technology globally as well.

Biden Administration Seeks to Secure Internet Traffic

 

The White House’s cybersecurity office issued new guidance on securing the Border Gateway Protocol (BGP), a key technology for routing internet traffic, highlighting its long-standing vulnerabilities. BGP, which networks use to share routing information, lacks sufficient security features, making it susceptible to exploits such as cryptocurrency theft, malware distribution, privacy breaches, and censorship. To address these issues, the Office of the National Cyber Director (ONCD) recommends that network operators implement Resource Public Key Infrastructure (RPKI), which involves digital certificates from Regional Internet Registries to verify internet addresses. Technologies like Route Origin Validation (ROV) and Route Origin Authorization (ROA) are part of this approach and help confirm address reachability. 

 

The ONCD's guidance acknowledges that securing BGP is challenging and notes that federal networks have not fully adopted ROAs yet. The agency plans to improve federal implementation by the end of the year and will lead a new Internet Routing Security Working Group with industry and federal partners. Hijacking BGP can lead to malicious rerouting of traffic, DDoS attacks, and disruptions in telecommunications.

Disruptions to the Semiconductor Market Impacts Global Economy

 

On September 4, global shares declined, primarily due to a significant drop in tech stocks triggered by a record sell-off of U.S. chipmaker Nvidia. This slump in tech stocks and concerns about slowing global growth led to a broader market decline, affecting oil prices and boosting bond prices. European markets fell by about 1%, with semiconductor companies, including ASML Holdings, experiencing the largest losses. Wall Street also saw sharp declines, with futures for the S&P 500 and Nasdaq down as well. Nvidia's stock dropped substantially, reflecting a broader pullback in enthusiasm for AI-related investments.

 

The MSCI world equity index, which tracks global shares, fell by 0.5%. Weak U.S. manufacturing data and increased market volatility contributed to the market downturn. Oil prices fell to multi-month lows, with Brent crude and U.S. crude both declining due to concerns about reduced fuel demand amid a potential global economic slowdown and sluggish outlook in China. Asian markets were hit hard, with major indices in Tokyo and Taipei falling more than 4%. Tech stocks in Asia, such as Japan's Advantest and Taiwan's TSMC, also suffered losses. In currency markets, the Japanese yen strengthened as a safe-haven asset, while the dollar remained stable. The market is also anticipating upcoming U.S. economic data, including job reports, which could influence expectations for Federal Reserve rate changes. The U.S. Treasury yields saw minor decreases as a result.

Trade Group Seeks More Chips Investment

 

The European Semiconductor Industry Association (ESIA) has urged the European Union to accelerate support for the chip sector by introducing a new "Chips Act 2.0," which would streamline aid and reduce export restrictions. The ESIA, representing major chipmakers and research institutions, called for a dedicated "Chips Envoy" to oversee semiconductor policies and ensure a more focused and advantageous industrial strategy. 

 

The original EU Chips Act, launched in April 2023 with a €43 billion subsidy plan, aimed to increase Europe's share of the global chip market to 20% by 2030. However, a recent review suggests Europe is falling short of this goal. Despite significant investments, such as TSMC’s €10 billion plant in Dresden and Intel’s €30 billion project in Magdeburg, delays and uncertainties—particularly concerning Intel’s project—have raised concerns. ESIA advocates for a shift from restrictive export policies to supportive measures, balancing technology protection with economic incentives. 

 

Currently, export restrictions affect companies like ASML, which faces limits on shipping advanced technology to China due to U.S.-led restrictions. The Dutch government is considering ASML's economic interests as it reviews further export controls. Importantly, Europe is falling significantly behind when it comes to technology investment, and the overly onerous regulations of the EU will essentially prevent the industry from gaining traction on the continent. Even another round of subsidies is extremely unlikely to change that direction.

Possible Cyber Militias with the “Franklin Project”

 

The Franklin Project, initiated by DEF CON founder Jeff Moss and former White House official Jake Braun, aims to harness volunteer hackers to protect critical infrastructure, such as water systems and schools, from cyber threats. This initiative, inspired by Benjamin Franklin’s establishment of the first volunteer fire department in the 1730s, seeks to address vulnerabilities in these sectors by providing basic cyber protections through skilled volunteers. 

 

The project emerged amid rising cyber threats and federal efforts to bolster cybersecurity. Despite the Biden administration's initiatives to enhance cybersecurity for water utilities and K-12 schools, these sectors remain highly vulnerable due to limited resources and rising ransomware attacks. Additionally, another Newmark-supported project, “UnDisruptable27,” led by Josh Corman, focuses on strengthening resilience against cyberattacks on critical infrastructure like water and healthcare. 

 

This initiative is particularly concerned about potential threats from China and aims to prepare for scenarios where cyber and physical disruptions intersect. Both projects reflect a growing push to involve the hacker community in defending against cyber threats, driven by the need for increased security in essential public services. These projects will likely be the use cases for developing cyber militias in the future, and they represent changes to 21st century security that oddly is bringing back old ideas for the technology space.

Swedish Security Companies Note Russian Aggression

 

Swedish authorities have raised alarms about an increased risk of Russian sabotage, especially targeting weapons facilities, as the country's defense industry reports a surge in aggressive espionage and cyber-attacks. Security firms in Sweden have noted a rise in sabotage attempts, including drone surveillance of defense sites, intensified espionage, and disinformation campaigns. Recent incidents in Europe, such as a thwarted assassination attempt on a German arms manufacturer and a fire at a Berlin metal factory, are believed to be linked to Russian activities. The Swedish Security Service (Säpo) has observed a higher risk propensity from Russia, including more frequent and daring influence operations and sabotage aimed at Sweden due to its support for Ukraine.

 

The Swedish security and defense industry association (SOFF) reports increased efforts by Russia to gather sensitive information through espionage and sophisticated cyber-attacks. Smaller companies are facing more advanced cyber threats and disinformation aimed at undermining trust in Swedish defense capabilities. SOFF is calling for legal changes to enhance protection against drone surveillance and improve security measures for workers. They advocate for increased resources for supervisory authorities and better information sharing between government and businesses. Säpo is responding by strengthening counterespionage efforts and enhancing businesses' awareness of their vulnerabilities.

 

These incidents highlight the role of security companies (and subsequently corporate security) in protecting corporations and the country’s national interests. Security professionals will likely need to increase efforts to counter great power aggression, not just in the cyber domain, but in the increasingly convergent world of cyber and physical operating together.

Far Right Party Gains a Victory in Germany

 

Recent German state elections have dealt a significant blow to Chancellor Olaf Scholz's coalition government, leading to a rise in support for anti-establishment parties and heightening instability within the ruling coalition. With national elections approaching in a year, the results are likely to pressure Scholz to adopt tougher stances on immigration and the Ukraine conflict, which were key issues during the campaign. The elections in Thuringia and Saxony saw the ruling Social Democrats (SPD), Greens, and Free Democrats losing ground, with projections showing the SPD garnering only 6-7.6% of the vote. The Greens and Free Democrats risk losing their parliamentary seats in Thuringia. The far-right Alternative for Germany (AfD) and the leftist Sahra Wagenknecht Alliance (BSW) made historic gains, with the AfD winning 33.2% in Thuringia and the BSW surpassing all coalition parties in vote share.

 

These results exacerbate the fragmentation of the political landscape, complicating coalition-building at both state and federal levels. The increased influence of anti-NATO, anti-immigration, and pro-Russia parties could make it more difficult to form stable, ideologically coherent coalitions. The current coalition's legitimacy is questioned, and renewed tensions over budget issues are anticipated. The election outcomes are likely to affect Germany's role in European policy, with potential implications for migration policies and support for Ukraine. Analysts suggest that the rise of anti-establishment parties could lead to more fragmented and ineffective governance, further straining the country's political and economic stability.

"Read not to contradict and confute, nor to believe and take for granted, nor to find talk and discourse, but to weigh and consider."
- Francis Bacon

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