Our coverage of the Middle East and North Africa includes a revised report on Libya, where the formation of a UN-backed government of national accord (GNA) has done little to facilitate the restoration of order in the deeply divided country. The GNA, an alliance of various political and armed factions previously aligned with the rival administrations based in Tripoli and Tobruk, enjoys the strong support of the international community and has been endorsed by key government institutions in Tripoli, including the central bank and the National Oil Corporation. However, it has yet to win formal recognition from either of the competing regimes. The GNA’s endorsement by Misrata-based militias and army units that had previously supported the Islamist-dominated administration in Tripoli poses an obstacle to gaining broader backing for the unity government in the east. At the same time, troops loyal to Gen. Khalifa Haftar remain aligned with the Tobruk-based government, and have signaled that they will not shift their support to the GNA without assurances that the general will hold a position of influence within a unified national administration, a condition that is likely to be unacceptable to the Islamists.
The report will include a detailed examination of the main obstacles to closing the overlapping east/west and secular/Islamist divides, an assessment of the prospects for overcoming the impediments, and an analysis of what success or failure in that regard will mean for the deeply troubled economy and an abysmal business climate. PRS will also discuss the implications of the domestic political dysfunction for the security climate, both in Libya and in the broader region, paying particular attention to the threat posed by ISIL and other armed extremist groups.
Our coverage of Western Europe this month leads with an in-depth report on the United Kingdom, where a national referendum to decide on whether to remain a member June 23. The plebiscite is naturally dominating the UK’s political risk profile and is splitting sympathies within parties, not least the governing Conservatives, where Prime Minister David Cameron and his finance minister, Chancellor George Osborne, who are both in favor of remaining in the EU, are becoming involved in some heated exchanges with fellow party members wishing to leave, including former London Mayor Boris Johnson, who is tipped to replace Cameron if Brexit succeeds.
Our report looks at both sides of the campaign, and what it will mean for political and social stability after the result is known, including the vexed question of Scottish independence, which may be revisited should a majority of British voters decide to leave the EU. We round out with a careful inspection of the UK economy, presenting alternative scenarios based on the two sides of the argument, and the implications for asset classes.
We also cover France in detail this month, as the euro zone’s second-largest member moves nearer to presidential and parliamentary elections that are scheduled to take place in April and May 2017, with fresh strikes and public protests erupting over the government’s labor reforms. We assess the key actors in the campaign, who is likely to win at this stage, and what it will mean for a country which has failed to impress for so long on the economic stage, and is struggling to convince investors it has terrorism risks under control with a state of national emergency continuing since the Paris atrocities in November 2015. Our report looks closely at what President François Hollande’s Socialist Party government will do in its final year in office, and how public opinion might influence policy-making. We also identify what the fuel shortages and industrial action will do for the economy, which has been showing some encouraging signs of recovery, but is vulnerable to risks stemming from the high-temperature political climate.
This month’s coverage of Eastern Europe includes a fully updated report on Poland, where the conservative populist PiS government elected last fall is living up to the worst expectations of its critics, with negative implications for the business climate. Prime Minister Beata Szydlo’s administration has used its parliamentary majority to implement numerous controversial measures, the most far-reaching one involving a curtailment of the Constitutional Court’s ability to act as a check on an overzealous legislature, The government’s actions have fueled large protests in the capital, and attracted unwanted attention from the European Commission, which has warned that it could be forced to make unprecedented use of EU powers to penalize Poland for its defiant refusal to abide by European norms.
The report will examine the PiS government’s policy agenda, and discuss what the implementation of the various measures will mean for foreign businesses operating in the country. PRS will also assess the risk of significant deviations from economic orthodoxy, and the likely effect of populist policies on economic performance in the near term and over a five-year forecast period.
Turning to sub-Saharan Africa, PRS will examine recent risk-related developments in Cameroon, which has stepped up joint operations against Boko Haram militants in northern Nigeria, as part of a western-backed task force of regional governments. The militants have responded by avoiding direct confrontation with the military in favor of suicide attacks against soft targets in Cameroon’s far north, where the security situation is likely to continue to deteriorate. The fight against Boko Haram remains a drain on Cameroon’s resources, though the group’s reach remains limited to remote areas of the northern regions. The principal threat to political stability is the uncertainty over succession to President Paul Biya. There is mounting speculation that the long-serving leader will stand for another term in 2018, raising the prospect of opposition protests and violence over the next 18 months.
Questions over executive stability could dent Cameroon’s reputation as a favored destination for foreign investors. Low oil prices pose the second downside risk Cameroon’s robust economic growth, as twin deficits force the government to ramp up non-concessional borrowing. A 25% increase in oil production last year, along with high capital spending, helped sustain growth at 5.9%, but the rate is expected to decelerate toward the 5 percent-mark in 2016 as oil output stabilizes.
Our extensive coverage of countries in Asia this month includes a detailed analysis of the risks to investors in Malaysia, where the government’s popularity, and that of Prime Minister Najib Razak, in particular, will be tested in two by-elections to be held in June. Asset prices, including the currency, are still being affected by the fallout from the default of 1MDB, the state development fund, which remains under investigation for financial irregularities, notably concerning the alleged involvement of Najib heading up its advisory board. With the ringgit one of Asia’s worst performing currencies this year, and credit default swap markets factoring in the increased risk of sovereign debt default, we look at what investors can anticipate in the coming months, and whether Malaysia’s prospects can improve at all, bearing in mind potential setbacks to the economy and the social tensions arising from the government’s decision to enforce a stricter penal code based on Islamic Shari’a law, which is dividing the country’s ethnoreligious communities. Our report rounds out with forecasts for real GDP growth, inflation, and the current account balance, incorporating developments in the key commodity export industries.