Coming Soon in Our May 2019 Political Risk Reports

This month’s coverage of the Americas includes a fully revised report on El Salvador, and an update on Guyana, which has been plunged into a constitutional crisis, at a time when an imminent oil-driven economic bonanza has significantly raised the stakes of the political competition between the country’s two dominant parties. The governing alliance of APNU and the AFC, which won a bare majority of 33 seats in the 65-member House of Assembly at elections held in 2015, lost its claim to a mandate when a lawmaker from the AFC voted against President David Granger’s administration in a confidence vote organized by the opposition PPP-C. The outcome triggered a constitutional requirement to hold early elections within 90 days (i.e., by mid-March), but the governing parties have raised several challenges to the validity of the confidence vote, while the elections commission has stated that a national vote must in any case be postponed until the voter rolls are updated, a process that could take months. A final ruling on both of those issues is due from the Caribbean Court of Justice (CCJ) later this month, and the PPP-C leadership has made clear that it will not accept a protracted delay in holding an election, regardless of what the CCJ decides. The PPP-C is already boycotting meetings of the elections commission and parliamentary sessions, and opposition leaders have suggested they will continue to do so pending the setting of a date for elections within a time-frame they deem reasonable.

The analysis will include an assessment of the potential for the recent political uncertainty to negatively affect the timetable for bringing oil production on line, and what the alternative outcomes of an election held in the coming months could portend for oil projects that are planned or already under way, as well as for the climate for investment and trade more generally. The update will also examine the risks associated with the political crisis in neighboring Venezuela, which has long claimed (with varying degrees of intensity) to be the legal sovereign of a significant area of Guyana’s territory, an issue that could become dangerously salient in the event of that country’s descent into civil war.

Turning to Western Europe, our coverage this month includes detailed reports on Ireland (focusing among other issues on Brexit implications), Norway (the politics of oil drilling), and Italy, where we seek to evaluate the risks underpinning the country’s adverse macro-fiscal dynamics and banking sector frailties. Our report makes a considered assessment of political stability as the populist coalition government comprising the anti-establishment Five-Star Movement and the anti-immigrant Lega approaches the end of its first year in office and the first real test of its popularity in the form of local and European elections scheduled for this month. Our report looks into the defining relationships among the key players in the current administration, and how relations with European partners, on the one hand, and joining China’s Belt and Road Initiative, on the other, are shaping Italy’s fiscal stability and future economic prosperity. We look at key policies on the government’s agenda, and round out by reviewing recent developments and prospects for major economic risk indicators, focusing on GDP growth and inflation in light of the global outlook, and weaknesses showing through in Europe, and of course the interminable question of Italian debt sustainability still lurking as the elephant in the room for the entire region.

The focus of our coverage of Eastern Europe is Azerbaijan, where President Ilham Aliyev has solidified the foundation of dynastic rule through a series of constitutional amendments that have enabled him to position First Lady Mehriban Aliyeva as his legal successor on a near-term basis, while grooming his 21-year-old son, Heydar, as his longer-term replacement. Rising oil prices have helped to reduce economic risks, providing the regime with some room to depend more heavily on carrots than sticks to maintain order on the home front, and an associated easing of political tensions has reduced the risk that the president might be tempted to stoke nationalist fires by promoting an escalation of armed conflict with Armenia over the disputed enclave of Nagorno-Karabakh.

Our assessment of the prospects for continued economic and political stability will take into account the outlook for the oil sector and the progress of the government’s economic diversification strategy, and will include an examination of the potential for a weakening of either the strength or unity of the governing YAP, or a reconsideration of Azerbaijan’s importance to the achievement of western foreign policy goals, an important factor in the Aliyev regime’s ability to rely on repressive tactics without jeopardizing the country’s relations with the US, the EU, and other democratic powers.

As usual, PRS has extensive coverage of emerging and frontier markets in sub-Saharan Africa, honing in this time on Gabon, Kenya and Mozambique, along with an update on developments in fellow commodity-producer Cameroon, six months on from a presidential election won by the octogenarian incumbent, Paul Biya. So far, the president’s seventh term has featured a major cabinet reshuffle, and intense pressure put on the opposition voicing its disapproval over an increasingly autocratic state facing a worsening security crisis, which is also alarming the international community. Our report delves into the political and social instability risks tied to the ethno-linguistic divide between the majority francophone and restive minority Anglophone regions testing government authority, and whether the separatist conflict will ultimately spill over into open warfare given there are already around half a million displaced peoples from the English-speaking northwest and southwest regions, and no effective resolution mechanism in place. We look at how this will unsettle the investor environment with plans proceeding to develop the cocoa-processing industry and maximize oil returns based on a new petroleum code that we also feature in detail all determining the economic and fiscal picture.

In addition to examinations of risk in Oman and Tunisia, this month’s coverage of the Middle East and North Africa includes a fully revised report on Libya, where the failure of civilian leaders to resolve a long-running political crisis that has effectively divided the country into two rival states has prompted an attempt by military leader Khalifa Haftar to accomplish that objective by force. The unleashing of his LNA forces against Tripoli is a high-stakes gamble for the renegade general, who is despised by the Islamist militias that are fiercely resisting the offensive on behalf of the UN-backed Government of National Accord. Haftar counts Saudi Arabia, the UAE, and Egypt among his international allies, and France, the US, and Russia have each, for their own reasons, acknowledged Haftar’s central role in a long-term resolution of the protracted political crisis. However, the LNA’s inability to score a quick and clean victory in the battle for Tripoli points to the potential for a protracted and bloody campaign of urban warfare that will further dim the prospects for uniting the country on a basis other than the restoration of Qaddafi-style authoritarian rule.

The analysis will focus on the most probable short- and medium-term outcomes of the ongoing conflict in terms of the prospects for restoring national unity and the composition of the government, and assess the risks for investors under each of those scenarios. PRS will also provide macroeconomic forecasts for both the current year and a five-year forecast horizon, including an assessment of the outlook for fiscal stability and debt metrics.

Our extensive coverage of Asia this month includes reports on Malaysia and Myanmar, as well as an assessment of the political and economic risk outlook in Thailand, following disputed national elections that were finally held in March, after repeated postponements. The victory for Palang Pracharath, a new party formed by allies of the military junta, promises policy continuity. Our report looks into the various political and social implications given other institutional changes endorsed by constitutional referendum limiting democracy and ensuring Burmese-style military influence over the domestic political scene by guaranteeing control over the upper house. Our report looks into who will lead the administration, and who will be other key figures overseeing the various departments. We also look into attempts to quiet opposition voices, including by clipping the wings of the fledgling Future Forward Party, which made a surprisingly strong showing at the March elections, and how this will likely play out over the coming months and years if democracy is routinely stifled. Our report moreover looks into the government’s attempts to attract higher levels of investment, and utilize fiscal stimulus to support an economy struggling as a result of a slump in tourist arrivals and falling exports, notably of automobiles, both of which are linked to slowing growth in China and the adverse impact of the US-China trade war.

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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