Foxconn finds growing pains in India’s tech manufacturing

Teething issues in India attest to China’s enduring advantages

As part of its ‘China +1’ strategy, iPhone manufacturer Foxconn wants to expand its production base in India. It has begun construction on a factory close to Hyderabad for smart headphones and has purchased land in Bengaluru to build a new iPhone plant. Foxconn, the world’s largest tech manufacturer, is also reportedly looking to open two factories in the southern state of Karnataka and recently discussed the potential for new investments in Tamil Nadu. Foxconn aims to produce 25 percent of iPhones in India by 2025.

There may be limits to Foxconn’s diversification push. Since 2020, India has slowed the regulatory process for Chinese nationals to secure working visas in response to skirmishes along the Himalayan border, contributing to a shortage of tech engineers and posing particular challenges for Foxconn given its heavy Chinese presence. Workers in India also tend to be less willing to move long distances to Foxconn’s campuses than those in China. Incentives have also proven hard to obtain. Last month, Foxconn withdrew plans to establish a US$19.5 billion semiconductor facility with Indian mining company Vedanta in the western state of Gujarat after it failed to obtain a subsidy for half of the facility’s construction costs. That China now accounts for 75 percent of Foxconn’s global operations, up from 70 percent before the pandemic, is illustrative of China’s advantages in manufacturing. India appears unlikely to replace China as Foxconn’s – or indeed the world’s – primary manufacturing hub any time soon.

Trilateral water and energy deal between Israel and Arab states advances

A sign of economic potential of the Abraham Accords

Negotiations for a water and energy trade deal between Israel, Jordan and the UAE are advancing, in a sign that economic elements of Abraham Accords are bearing fruit. Earlier this month, officials from the three countries and the US met in the UAE to discuss plans for the so-called Prosperity Project. Under the terms of the deal, the UAE would finance a 600-megawatt solar power plant in Jordan. Jordan would sell the offtake of the facility to Israel. Israel would also sell 200 million cubic metres of desalinated water from a facility on its coast to Jordan, helping Jordan to increase its scarce water supplies. The Prosperity Project was announced in 2021 following the Abraham Accords as a means of engendering economic ballast to the political rapprochement.

There may be more to come. Last month, Israeli President Netanyahu announced that an upcoming rail project running from the north to the south of Israel will also connect to Saudi Arabia. This followed a meeting between the I2U2 (Middle Eastern Quad) countries – India, Israel, the UAE and the US – earlier this year to discuss the construction of a regional road and railway network that would also connect to India. There have been talks between Israel, Jordan, Saudi and the UAE to establish free commercial truck passage between Israel and the UAE’s ports. These deals will hinge on whether Saudi and Israel can normalise relations. The prospective normalisation agreement is subject to an array of large concessions including a halt to Israeli annexation of the West Bank and a NATO-like military agreement between Saudi and the US.

Gabon completes first of its kind debt-for-nature swap

Complicated agreement structure may prevent other African countries from emulating the initiative

Gabon this month finalised continental Africa’s first ‘debt-for-nature’ swap, a novel debt financing structure being used to advance biodiversity goals in return for debt relief. The deal lowers the interest rate from between 6.625 to 7 percent to 6.097 percent on US$500 million of Gabon’s national debt. It replaces bonds set to mature in 2025 and 2031 with a 15-year loan. The deal, struck by the Bank of America, provides the company with a stronger foothold into Africa. The swap arrangement is expected to generate $125 million over 15 years in funding for ocean conservation and help the government meet its commitment to protect 30 percent of its maritime territory by 2030. Similar deals have been agreed in other countries such as Belize, Barbados and Ecuador.

Despite being touted as a potential solution for other debt-stressed developing countries in Africa like Kenya, the deal may be difficult for other countries in Africa to replicate. The convoluted structure of the deal could make it difficult for countries with differing environmental priorities and debt structures to follow. The agreement sees Gabon buying back US$500 million worth of three different bonds for US$436 million in exchange for a new US$500 million loan. It also remains unclear how the third-party, The Nature Conservancy, will monitor the biodiversity outcomes of the deal. Ultimately, debt-for-nature swaps are likely to remain a small part of the solution to resolving pressing global debt and biodiversity challenges.

Australia mulls instituting an EU-style CBAM

Canberra’s CBAM may run against interests of key trade allies

Australia is considering adopting an instrument similar to the EU’s carbon border adjustment mechanism (CBAM), in an attempt to address carbon leakage and level the playing field for Australian firms subject to a carbon price. Carbon leakage describes the outcome where the imposition of carbon pricing displaces investment to countries with less ambitious climate policies. Under a CBAM, importers would pay a tariff that mirrors the price of carbon under Australia’s Safeguard Mechanism – or the differential between this price and any carbon price that exists in the country from where goods are imported. Australian Carbon Credit Units are currently trading at around A$30/tonne (US$19/tonne). The government will consider a suite of design options over the coming months, although Australia has signalled that the cement and steel sectors would be a priority for inclusion in any eventual mechanism. Ammonia and aluminium are also obvious choices for inclusion given their sensitivity to carbon leakage. The EU’s proposed CBAM will initially apply to cement, steel, aluminium, fertiliser, hydrogen and electricity imports.

The Albanese government will be treading carefully to ensure any proposal is not seen as discriminatory against foreign industries. Australia’s CBAM runs the risk of not being compliant with World Trade Organisation (WTO) rules which prohibit protectionist trade policies. China has already pushed for WTO meetings to discuss the effects of the EU’s CBAM on other countries. The government’s desire to not further upset the apple cart with key allies and partners might result in the negotiation of some targeted exclusions for countries like Japan and South Korea. These countries have been irked by recent Australian government policies, such as extending a A$12/GJ (US$8/GJ) gas price cap until mid-2025, which some foreign buyers view as Australia “quietly quitting” the gas business. Japan is also set to be at a disadvantage from increasing coal royalties in the state of Queensland.