Wednesday, July 11, 2012 / Damina Advisors

With the US presidential and congressional elections only 4 months away, increasing attention ought to be paid by global frontier markets investors to the structurally different foreign policy viewpoints held by US President Barack Obama and Republican presidential candidate, former Massachusetts Governor Mitt Romney. If Obama wins reelection in November the current status quo in American foreign policy will be maintained, however if Romney defeats Obama, the US faces a major shift in its foreign policy orientation – with significant implications for all emerging and frontier capital markets including Africa.

On two major economic areas – China and the Europe , Obama and Romney have strongly contrasting positions which emanates from their contrasting fundamental foreign policy orientations. Obama and Romney each hew to a contrasting foreign policy orientation that has existed in American politics since its founding. Obama hews to the restrained pragmatic John Adams-Franklin Roosevelt-Kissengerian-Bush I “non-values interests-based realpolitik” framework of defending American interests, even if that means forming temporary alliances with nations with dramatically different values, but avoiding any muscular projection of American power where narrow “national interests” are not at stake. Romney like Bush II, Reagan, Truman, Wilson and Theodore Roosevelt hews to a more romanticized idealistic orientation of American foreign policy based on protecting and projecting ‘traditional American values’ to the rest of the world. Romney’s views have their roots in America ’s religious history.

While both Obama and Romney in several of their public statements may seek to camouflage their true foreign policy ideological orientations, the implications of either an Obama reelection, or a Romney presidency could have profound effects on the global capital markets – especially on frontier markets like Africa because of their differing views on Europe and China . Romney will allow the EU to tend to its own financial fires, but will confront China and the Islamizing countries of the Middle East including Turkey and Egypt .

While Obama and his advisors largely believe that the rise of China, India and Asia is inevitable and generally benign and the relative decline of the USA in geopolitical terms is automatic, irreversible and non-detrimental to core US economic and security interests, in contrast the Romney team believes that the rise of China, Asia and the former ‘third world’ is not inevitable, and is likely to be non-benign to US interests and values, and the growing signs of economic, moral and military decline of the USA and Western Europe can (and ought) to be reversed.

These contrasting views imply that under a Romney presidency, the EU political integration project (a sine qua non of German Chancellor Angela Merkel as condition for joint fiscal budgetary operations); will not receive the strong backing of the United States . In Romney’s seminal foreign policy paper “An American Century,” the word “ Europe ” is barely mentioned. Romney believes that continental Europe and America do not share the same economic, political, moral or military values – a view that hearkens back to America ’s religious pre-Revolutionary founding.

Unlike Obama and his treasury department, which are dedicated to working with the EU to resolve the burgeoning self-inflicted monetary and currency crisis by neo-Keynesian expansionist and risk-sharing approaches, the Romney team favors an arms-length approach and support the UK’s Eurosceptic positions. Romney when he has generally spoken about Europe , has spoken derisively of its economic and social system. A Romney presidency is therefore unlikely to be sympathetic to Eurobonds or any other EU action that will seek to spread the risk of default of the southern European countries to all members of the zone. Romney is therefore not likely to support EU friendly US Federal Reserve Bank head Ben Bernanke for re-appointment in 2014. In 2013, a President Romney is very likely to signal his non-support for Bernanke for a third term.

Without coordinated financial support from the US , either thru the IMF, or thru a cut in interest rates, or anmassive appreciation of the US dollar against the Euro, it is not clear how the current Euro crisis will be resolved.

For French African countries whose currencies are pegged to the Euro, the continuing crisis in the Eurozone will have trade and investment repercussions, while a European recession will curb the demand for African commodities – particularly soft commodities like coffee and cocoa. South Africa ’s open economy is most vulnerable in this regard to the crisis in Europe .

On China, while Obama’s foreign policy has largely sought to accommodate the rise of India and China on almost equal terms, and dealt with various foreign policy challenges – stretching from Iraq, Iran, Pakistan, Afghanistan, North Africa, Sudan, Venezuela, Russia to North Korea as ‘distinct’ problems that can be resolved with a customized pragmatic approaches, the Romney view, much like the Reagan or Truman view tends to see foreign policy challenges in thematic and unifying frameworks. Romney is likely to strongly push for closer ties with democratic India , while seeking to contain China ’s rise with an ambitious increase in US naval power in the Pacific. Romney intends to “put [the US ] Navy on the path to increase its shipbuilding rate from 9per year to approximately 15 per year” – with the new vessels deployed to the Pacific Rim . In addition Romney will set defense spending at a “floor of 4%” while raising the issue of “human rights” to a high prominence on the US-China agenda. Romney also calls for a resumption of supply of US arms to Taiwan as well as the forging of stronger relations with democracies in Asia, Africa and Latin America to contain Chinese foreign policy ambitions. All these actions, if implemented are likely to escalate tensions between China and the US – with dramatic repercussions on the global capital markets. This duopolistic competition will place many African nations in a strategic quandary – to either align fully with China or with the US .

Countries such as Liberia , Ghana , Tanzania , Guinea , DR Congo and South Africa , which have played ‘footsie’ with both the US and China , will finally have to make a choice. US laws on rare earth metals from Africa and controls on mineral exports from central Africa (contained in the Dodd-Frank Wall Street reform law) will likely be strengthened to favor American companies seeking to do business in Africa . Unlike Obama’s Africa foreign policy document which barley mentions energy, a Romney presidency will strongly favor ties between American energy companies operating and prospecting for oil and gas in Africa .

“Human rights,” a term which makes realpolitik foreign policy experts shudder in public and jeer in private, is a favorite theme for the values-based Romney foreign policy team. Despite speeches in support of human rights, the Obama administration, highlighting its core realist orientation neither put ground troops in Libya nor strongly backed the Arab Spring, when it was in its infancy. Even today, a year after the overthrow of Mubarak in Egypt , the Obama administration is still ambivalent about the ongoing democratization in the Middle East . On China , the Obama administration has relegated human rights concerns to the bottom of the rung in terms of issues on the agenda. Romney will resurrect all these nettlesome human rights issues.

Romney is likely to impose strong sanctions on Sudan or even set up a-no-fly zone over its border with south Sudan . Zimbabwe , which has been left to tend to its own affairs, is likely to come once again in the cross hairs of American policy. Relations with South Africa are likely to worsen as that country approves measures to nationalize key industries after its December Mangaung African National Congress (ANC) policy conference.

The ongoing Islamization of North Africa, which the Obama administration has accepted as a fait accompli will not be tolerated by a Romney White House. Just like the Reagan White House suppoed anti-communists in Latin America and Africa, Romney is very likely to order the state department and other US agencies to support non-Islamic parties during elections in the those regions. (In the recent poll between the Muslim Brotherhood and secularist Ahmed Shafik in Egypt ), Romney is unlikely to have taken a neutral stance as the Obama White House did. .

Finally, Romney’s philo-Semitic religion of Mormonism (where he rose to the position of a bishop and branch president) may also play a role in shaping Romney’s foreign policy views. Romney will give strong (almost carte blanche support) to Israel . With respect to the defense of the American homeland and domestic anti-terrorism policies, the importance of the American homeland to Mormon eschatology and religious symbolism (the only major modern religion founded on American soil), cannot be underestimated. This may strongly influence Romney’s view of the defense of the American homeland as not simply prosaic but also the defense of his eternal Vaterland. Obama on the other hand, being the first American president to have been born outside the mainland in Hawaii , and of bi-national birth, and ambivalent Christian religious faith is less strident in his defense of the American Weltanschauung.

 
READ more on Mitt Romney’s worldview here - http://www.mittromney.com/sites/default/files/shared/AnAmericanCentury-WhitePaper_0.pdf

 Disclaimer/Advice to Readers:

While the website is checked for accuracy, we are not liable for any incorrect information included. The details of this publication should not be construed as an investment advice by the author/analyst or the publishers/Proshare. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All opinions on this page/site constitute the author’s best estimate judgement as of this date and are subject to change without notice. Investors should see the content of this page as one of the factors to consider in making their investment decision. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions. This information is published with the consent of the author(s) for circulation in/to our online investment community in accordance with the terms of usage. Further enquiries should be directed to the author.

For further information and review of this analysis, kindly contact Sebastian Spio-Garbrah <sebastian@daminaadvisors.com>