Coming Soon in Our January 2021 Political Risk Reports

PRS’ coverage of the Americas this month includes an update on recent developments in Colombia and fully revised reports on Brazil, Venezuela, and Chile, which has a busy electoral calendar in 2021. In addition to the regularly scheduled presidential and legislative elections in November (preceded by primary elections in July), voters will turn out on April 11 to select municipal representatives, mayors, and (for the first time) provincial governors, and will also choose the 155 members of a constitutional convention that will be responsible for overhauling the national charter inherited from the military regime that ceded power in 1990. The party alliances formed to contest the elections for the constitutional convention will provide a preview of the strategy and the outcome of the presidential and legislative elections held later in the year.

The report will assess the prospects of the main party blocs and the implications of a reunion of the Christian Democrats with their erstwhile allies in the Concertacion for the outcome of the presidential election and the next administration’s prospects for claiming majority support in the bicameral Congress. Our analysis will include a close examination of how the composition of the constitutional convention can be expected to shape the revisions that will be presented for an up-or-down vote in 2022, and the impact of the reform process on the climate for investment and hopes of addressing the socioeconomic tensions that triggered destabilizing unrest in late 2019.

As well as beginning the new year with a detailed report on Switzerland, our coverage of Western Europe this month focuses on the risks facing investors in the UK following the completion of the Brexit transition period at the end of 2020. We evaluate the key features of the “midnight hour” trade deal with the EU, avoiding the prospect of a cliff-edge withdrawal, as well as the economic, social and political ramifications of the COVID-19 crisis with the country now plunged into a third national lockdown that may extend into March to address the more infectious COVID-19 variant leading to more than 50,000 new cases per day that is putting healthcare services under acute pressure during the winter months. Our report looks at the impact of these two issues, notably on exports, investment and other key factors influencing UK assets, in addition to the government’s policymaking response and how it will all affect the UK’s longer-term investor attractiveness given the unanticipated widening of the fiscal deficit and rising sovereign debt burden to be addressed in future years. Our report also evaluates the risks of an unrealistic timetable for the vaccination program, which may not bring about the ‘return to normality’ the government predicts for the spring, and the political implications of this for Prime Minister Boris Johnson against the backdrop of potential losses for his Conservative Party at the elections for the Scottish Parliament, the London and Welsh assemblies, and English local councils and mayors scheduled for May 6.

Coverage of Eastern Europe will include reports on Slovakia and Kazakhstan, which is scheduled to hold parliamentary elections on January 10. Minor political reforms approved under President Kassym-Jomart Tokayev have facilitated the registration of parties, but only five parties are contesting the elections, one fewer than in 2016. The incumbent Nur-Otan currently claims 84 of the 98 directly elected seats in the 107-member Mazhilis, and there is little danger that the opposition might pick up enough seats to lose its majority status, the government’s poor management of the COVID-19 pandemic and a persistent taint of scandal notwithstanding.

The analysis will focus on the challenges facing the Tokayev administration’s program of economic diversification, the urgent need for which has been driven home yet again by the collapse of oil prices amid the global health crisis. Among the key potential obstacles to economic liberalization are the financial interests of former President Nursultan Nazarbayev (who remains the leader of Nur-Otan), his family, and his powerful political allies. The report will assess Tokayev’s prospects for making progress, despite those impediments, without provoking a power struggle with his predecessor.

Turning to the Middle East and North Africa, the roster for December includes an update on Egypt and fully revised reports on the United Arab Emirates and Kuwait, where gains for opposition candidates at parliamentary elections held last month figure to reinforce the chronic dysfunction that has characterized the emirate’s political climate for the better part of the last two decades. The re-election of a pro-government lawmaker, Marzouq al-Ghanim, as parliamentary speaker, achieved with the votes of members of the royally appointed Cabinet, may represent a missed opportunity for Kuwait’s new ruler, Sheikh Nawaz, to mark a fresh beginning in relations between the crown and the Parliament.

The report will discuss how the shift in the balance of power is likely to affect Prime Minister Sabah’s prospects building momentum behind a stalled program of economic reforms that are essential to diversifying the oil-dependent economy. The analysis will also include an assessment of the implications of recent political changes for the business climate more generally, focusing in particular on the outlook for medium-term financial stability and Kuwait’s relations with Saudi Arabia and the UAE against a backdrop of heightened regional tensions.

Our coverage of Sub-Saharan Africa includes reports on Kenya and South Africa. On the former, we’ll update the situation as regards COVID-19 and its effect on commercial activity, especially in urban areas.  We’ll also provide a look at the upcoming referendum: what’s at stake and the various issues that will dominate the discussions, as the vote is being cast as a precursor to the forthcoming presidential contest to succeed Kenyatta. It will likely come down to a contest between Odinga and Ruto but all eyes are on whether a repeat of 2007’s violence will be avoided and a smooth transition can be replicated. Kenya’s relations with Somalia will also be analyzed, and we’ll warn our clients about the risks to foreign assets and interests.

On the latter, we’ll provide clients with an assessment of overall government stability to the extent that it could undermine or cause distress to the legislative process.  We’ll look at cabinet relations and relations within the ANC and trends in overall support for President Ramaphosa. Of equal importance to our clients is the likelihood of default, as South Africa has a significant debt load and servicing costs. To what extent will the multilateral community and others provide a backstop or financial support to South Africa is an important consideration.

Our extensive coverage of Asia this month includes an update on Hong Kong as we evaluate what lies in store for investors who were greatly perturbed by last year’s instability caused by China imposing a new national security law, contrary to the spirit of the UK Handover agreement and to the detriment of foreign relations. Our report looks at how this will affect political and social stability in 2021 given the diminution of political freedoms it is causing, including the pressure on journalistic independence, the withdrawal of the opposition, and delayed legislative elections, amid an ongoing battle for judicial and electoral reform. We assess the effect this is having on assets and companies operating there, noting both the furor surrounding HSBC pressurized by authorities to freeze the accounts of protestors and the relative attractiveness of Singapore as a lower risk financial center. We also look into US policy under newly elected President Biden after sanctions were imposed by the Trump administration and how quickly the COVID-19 vaccination program will proceed. We round out looking at how the economy will fare, with mainland China seemingly on a stronger and sustainable growth trajectory, but with containment measures still required to stop the virus from spreading, uncertainty prevailing in major export markets and whether a recent surge in producer prices is warning of an impending inflation problem.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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