This month’s coverage of the Americas will feature an update on Mexico, where President Enrique Peña Nieto’s impressive progress toward implementing badly needed structural reforms has been overshadowed by growing public frustration over the government’s failure to stem an epidemic of deadly violence fueled by drug-related crime. The disappearance of 43 students has uncovered a conspiracy of corruption involving high-ranking political officials, the police, and drug cartels that has triggered mass protests, rioting, and calls for the president’s resignation. Although Peña Nieto is not in serious danger of being pushed out of office, the upheaval will create a distraction from efforts to liberalize investment and trade rules in the near term, and could jeopardize the administration’s effectiveness over the medium term, if the president’s slumping support translates into significant losses for the governing PRI at the mid-term congressional elections in July 2015.
Reporting on risk in the Middle East and North Africa will include an update on Tunisia, which in the past 12 months has managed to approve a new constitution and successfully organize legislative and presidential elections. The presidential race will be decided in an upcoming run-off contest. Regardless of who wins, the victor can be expected to cooperate with the new secular government to implement the reforms needed to create a foundation for long-term economic and social stability.
However, the exclusion of the Islamist Ennahda from the governing coalition carries a risk of creating resentment among the party’s supporters that could contribute to increased support for less moderate religious groups. The potential for dangerous sectarian tensions will be a focus of our examination of the risks for investors.
Turning to sub-Saharan Africa, PRS will issue a new report on Cameroon, where turmoil risk is rising in the northern area of the country, the result of increasingly brazen cross-border raids by Boko Haram, a Nigeria-based Islamist militant group that has targeted security forces and local communities. The evident inability of Cameroon’s elite military units to contain the threat is fast becoming a major political headache for President Paul Biya, as security issues are disrupting trade and tourism in the Far North Region, and featuring centrally in the risk calculus of foreign investors.
The report will include an assessment of the implications for political risk if Boko Haram’s capacity to make war continues to strengthen, as is likely as long as the group’s effective control of territory in Nigeria provides a secure base of operations. At present, the direct threat inside Cameroon is limited to the northern border region, and poses no immediate danger offshore oil operations. The government has recently announced plans to expand the security forces with 20,000 fresh recruits, while restructuring the army command in the north, and regional governments have agreed to establish a joint 3,500-member anti-terrorism force. However, the prospects for genuine cross-border cooperation are not especially encouraging. Other potential risks that will be examined include the possibility of public disquiet over rising prices in the aftermath of a cut in fuel subsidies earlier this year.
We also take an in-depth look at Portugal this month, which unlike the other debt-distressed euro zone sovereigns has been unnerving investors lately with the optimism generated by the country’s much-trumpeted exit from its EU/IMF bailout in May all but evaporating. The failure in August of Banco Espirito Santo, the nation’s largest listed lender, has raised concerns for the stability of the banking system and for Portugal meeting its EU-inspired fiscal targets, which will be further impeded by political pressure slackening the pace of reform and by Portugal’s rather sluggish economic growth in comparison to stronger recoveries in Greece, Ireland and Spain.
Our report identifies the main investor risks stemming from the electoral cycle as the two-party coalition government aims to complete its final year in office, but will invariably face increased internal bickering in its latter months, while we also assess a spiraling corruption crisis implicating in particular the main opposition Socialist Party, which could affect the outcome of the parliamentary elections due to be held by October 2015. Our report also looks at the economic obstacles for the government as it tries to rebuild it popular support over the next 10 months.
A general election is approaching in the United Kingdom, andinvestors have cause for concern, as neither the governing Conservative Party nor its main rival, the opposition Labour Party, is a safe bet to win a majority of seats in the Parliament. The British economy is in far better shape than it was in 2010, when the Conservatives came to power in partnership with the Liberal Democrats. However, support for the Lib Dems has collapsed, the fiscal arithmetic remains challenging, and the political agenda is intently focused on divisive electioneering strategies, ranging from National Health Service funding and falling living standards to immigration and Britain’s role in Europe.
Our report analyzes how these political issues are likely to develop as the elections approach, including an assessment of the effect that Scotland’s failed bid for independence could have on the outcome of next year’s vote, and will present the alternative coalition options in the event of a hung Parliament, examining the likely impact of each of the coalition possibilities on the outlook for political and economic stability. A key element of the analysis will be an assessment of the risks associated with the UK’s possible withdrawal from membership in the EU.
Looking further east, PRS will also assess the risk implications of recent developments in Russia, where the negative diplomatic fallout from President Vladimir’s Putin’s aggressive actions toward Ukraine is wreaking havoc with the economy, and sowing tension between the president and the powerful business figures who make up a key component of Putin’s political base of support.
The nationalist fervor generated by the annexation of Crimea and Moscow’s defiance of demands by the US and the EU that Russia abandon its meddling in Ukraine has helped to sustain the president’s very high approval rating, despite the mounting economic woes. However, with a plummeting ruble fueling inflation and a combination of monetary tightening and decreasing global prices for crude oil pushing the economy ever-closer to recession, it is debatable whether Putin’s popularity can be sustained without additional nationalist gestures, a consideration that bodes ill for relations with foreign investors and, in a worst-case scenario, could heat up the renewed cold war between Russia and its western neighbors.
PRS’ coverage of Asia this month leads with South Korea as we assess in detail whether the country’s reputation as one of the region’s safer and more lucrative investment destinations is still justified in the light of rising domestic political pressures, heightened regional tensions, and economic risks stemming from the favored treatment of huge export-focused conglomerates (chaebol) and an uncomfortably high level of personal debt. Our report looks at the many challenges facing President Park Geun-hye’s center-right Saenuri government, which has a parliamentary majority, but is under increasing pressure to act on its “economic democratization” agenda and take greater responsibility in the wake of several unfortunate high-profile missteps, scandals, and disasters that have contributed to a perception of weak governance. Our report highlights the short-term impact of a Cabinet reshuffle carried out earlier this year, focusing in particular on the effects of the new finance minister’s “Choinomics” strategy for business, household spending, debt accumulation and bank stresses, the fiscal balance, and long-term economic growth potential.