Coming Soon in Our July 2020 Political Risk Reports

In addition to fully revised reports on Colombia and Cuba, PRS’ coverage of the Americas this month includes updates on Canada and Brazil, where President Jair Bolsonaro’s popularity has been weakened by corruption allegations against members of his family and a growing perception that he badly mismanaged the COVID-19 pandemic by wrongly downplaying the severity of the health threat.  The danger of a damaging political backlash is magnified by risks that the death toll will be magnified by the inability of the health-care system to accommodate the rapidly rising number of COVID patients.

The update will focus on the implications of the health crisis for political stability in Brazil, taking into account as well the significant damage that the global response to the pandemic will inflict on the export sector, which will be compounded by the abysmal economic situation in Argentina, Brazil’s most important commercial partner.  In addition to assessing the prospects for eventual implementation of promised tax, labor, and administrative reforms, which will remain a low priority as long as the crisis persists, the analysis will examine how the erosion of Bolsonaro’s credibility and popularity could affect the outcome of the presidential and legislative elections scheduled for October 2022, and the degree to which a change in the composition of the government might affect policy preferences.

Our coverage of Western Europe this month includes detailed reports on both Denmark and the United Kingdom, comparing the political fallout from the coronavirus crisis. The UK Conservative Party government was elected with a strong mandate, but is already hugely challenged, fielding accusations of mishandling the crisis by allowing the country to have one of the highest death tolls in Europe from COVID-19. Our report looks at how Prime Minister Boris Johnson will respond to all this, including a more formidable challenge in Parliament from the new Labour Party opposition leader, Keir Starmer, a lawyer renowned for his detailed probing, as we look at the fiscal and economic implications of the crisis and how it will impact on domestic politics and ultimately UK assets and pound sterling over the coming months. To that end we analyze the government’s recovery plans, looking at major public spending projects in the pipeline as well as the social risks associated with rising unemployment and the withdrawal of emergency support schemes. Our report also endeavors to outline post-Brexit scenarios to ascertain whether negotiators are likely, or not, to sign a deal to avoid the added risk of imposing tariffs on EU trade.

Our coverage of Eastern Europe leads off with a pre-election assessment of the August vote in Belarus, where longtime strongman, President Alexander Lukashenko continues to walk a political tightrope, knocked by mounting public discontent over his administrations’ handling of the COVID-19 pandemic, rising incidents of social turmoil and security crackdowns, and arrests of the political opposition. PRS will consider what these events mean for overall political legitimacy going forward and for the country’s relations with the US and Russia – two world powers that Lukashenko has in the past played against each for his own political benefit.  We’ll look at what the likely election outcome means for foreign investment going forward, especially in light of declining living standards and some much-needed reforms in key economic sectors.

PRS will also consider Armenia and recently-passed legislation that alters the composition and tenure of the country’s Constitutional Court, which, in turn, has raised questions about judicial independent as well as the ire of the European Commission for Democracy through Law (the Venice Commission). PRS will consider what this all means for the state of democracy in Armenia and investor rights, particularly has they affect property and other pecuniary rights.

Additionally, PRS will also include updates on Czech Republic and Slovakia, where the anti-corruption message of Igor Matovič’s OĽaNO carried the Christian conservative party to victory at parliamentary elections held in late February. Matovič cobbled together a majority coalition that includes the right-wing Sme Rodina, the economically liberal but somewhat euroskeptic SaS, and For the People, a conservative party led by former President Andrej Kiska.

The COVID-19 pandemic has temporarily rendered moot any disagreements among the governing parties about fiscal priorities, but pressure to quickly narrow the large budget deficit created by emergency spending measures will give rise to tensions as the government drafts its budget for 2021. The update will examine the policies that are likely to result from the compromises required to ensure that the coalition remains intact, along with an assessment of how the failure to achieve consensus would affect the climate for investment and relations with the EU, which are likely to be less amicable than was the case when Robert Fico’s center-left Smer was at the helm.

Turning to the Middle East and North Africa, the roster for July includes an update on United Arab Emirates and a fully revised report on Egypt, where recently approved changes to electoral rules greatly increase the likelihood that parliamentary elections scheduled to take place later this year will produce a legislative body in which a majority of members support the government of President Abdel Fattah al-Sisi. The increase in the percentage of lawmakers seated on the basis of closed party lists from 20% to 50% represents another step toward a restoration of the one-party autocratic rule that prevailed until Hosni Mubarak was unseated by a popular uprising in February 2011.

The prospect of closer cooperation between the executive and the legislature bodes well for continued implementation of a program of liberal economic reforms under the guidance of the IMF.  The report will assess the investment opportunities that can be expected under that scenario, but will also examine the continuing risks on the security front, which look set to expand as Egypt becomes more deeply embroiled in the civil conflict in Libya, and the deterrents to investment created by widespread corruption and direct military involvement in the economy, all of which could combine to produce a surprising election result against the backdrop of the health and economic risks stemming from the COVID-19 pandemic.

Turning to Sub-Saharan Africa, our analysts will focus on Madagascar’s geopolitical risk profile in light of the most recent lockdown that has been imposed in order to contain a spike in COVID-19 cases, especially in the capital, Antananarivo.  The economy had already been battered by the initial wave of infections and the latest moves to contain the disease do not augur well restarting the economy anytime soon and pursuing select reforms in a number of sectors.  Botswana is also on tap in July, where there effect of COVID-19 has been less pronounced, even the president and his inner circle of officials have quarantined on several occasions as precautionary measures.  We’ll have a look at the things the country has done right to make it one of the most promising investment destinations on the continent as well as some of the challenges that lie ahead as Botswana attempts to diversify the economy away from diamonds and tourism in the face of low mineral revenues and a slowdown in global travel.

The crisis in Hong Kong dominates our coverage of Asia this month as we focus on the implications of China’s new security law for the Special Administrative Region which came into effect on June 30 criminalizing various acts of secession, subversion, terrorism, and collusion with foreign powers. Our report looks into how this new law will fare in practice, and what effect it will have on Hong Kong’s social stability in view of the violent protests this once low-risk domain has experienced lately. We also look at what it means for China’s foreign relations given the initial reactions of western powers, notably including the US as well as the UK which has expressed its disdain in the belief that this maneuver transgresses the terms of the 1997 Handover and has offered all British Hong Kong citizens UK residency status should they wish to emigrate. We also look at how this will all impact on the legislative elections scheduled for September and how Hong Kong is coping with the coronavirus crisis as we assess in detail the macroeconomic outlook for 2020-2021 underpinning investment decisions.

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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