Coming Soon in Our October 2019 Political Risk Reports

PRS’ coverage of the Americas this month includes a fully revised report on Guatemala, where dark-horse candidate Alejandro Giammattei won an upset victory over Sandra Torres, the leader of the center-left National Unity of Hope (UNE). The president-elect’s right-wing Vamos party won just 16 seats in the 160 member Congress, and as there is little basis for cooperation between Vamos and the UNE, which will control 52 seats, securing the votes required to approve even ordinary legislation will require the backing of at least nine other congressional parties. Although Vamos might be able to count on floor-crossing by lawmakers to bulk up its numbers, there is a high probability that Giammattei will struggle to obtain the necessary backing for unpopular but necessary structural reforms throughout his presidential term.

When he takes office in January, Giammattei will face immediate pressure to strike a deal with the US to limit the northward flow of migrants. One part of that task entails reducing the scourge of gang-related crime that is fueling the exodus, an objective featured in Giammattei’s campaign platform. The report will assess the prospects for progress on combatting the crime problem, which is one of the key obstacles to attracting the higher levels of foreign investment required to create jobs and improve living standards. PRS will also examine how the incoming administration’s legislative weakness will affect efforts to root out corruption, another significant deterrent for investors, following the expulsion of the UN-sponsored anti-impunity commission earlier this year, and what that implies for both the business climate and medium-term economic performance.

Our coverage of Western Europe this month includes detailed reports on Finland and Italy, as well our take on how Brexit-related risks are likely to affect investors in the United Kingdom as new deadlines approach in October, including the all-important European Council meeting, and the British government’s self-imposed deadline to achieve the departure, seemingly deal or no-deal, by Halloween. Our report looks into whether a deal can be struck along the lines of newly hatched plans to resolve the Irish border problem devised by Prime Minister Boris Johnson’s Conservative Party strategists, how it would work in practice, and whether the EU could even agree to it. Invariably, we also look at the increasingly acerbic relationship between the executive and legislature testing the UK’s unwritten constitution, which is pushing the country closer to another delayed departure, and the prospect of a Brexit-shadowing snap election the like of which British voters have never seen. As well as teasing out the implications of the more dispersed pattern of voting intentions showing the Conservatives in the lead and Labour shrinking, with the Brexit Party and pro-Remain Liberal Democrats in the ascendancy, we seek to address the major pluses and minuses from the UK’s eventual withdrawal by concentrating on the various promises flowing from their respective party conferences while evaluating developments in key macro-fiscal variables and pound-sterling underlying prospective returns.

Looking at Eastern Europe, PRS will publish updates on Poland and Azerbaijan, where the government has of late focused on efforts to resolve a long-standing dispute with Armenia over the status of the enclave of Nagorno-Karabakh. President Ilham Aliyev has previously threatened to assert Azerbaijan’s claim to ownership of the region by armed force, although the volume of his saber-rattling typically rises and falls according to the perceived strength of his political position at home. Having successfully established the institutional framework required to extend the Aliyev dynasty and with higher oil prices helping to ease social tensions, he is currently in a comfortable position.

With political risks in abeyance, the update will focus on the government’s economic policy agenda, assessing the prospects for an improvement in the climate for foreign investment and any plans aimed at reducing the country’s dependence on the oil sector. In that vein, the analysis will focus on the prospects for any substantive moves to expand investment opportunities or otherwise improve the climate for business, and discuss the near-term outlook for the economy.

Coverage of the Middle East and North Africa includes a revised report on Sudan, and updates on Libya and Algeria, where domestic conditions have remained tumultuous enough to prevent the holding of a presidential election that was to have taken place in April and was rescheduled to July. The government is nominally under civilian leadership, headed by Interim President Abdelkader Bensalah, but the military continues to call the shots. Lt.-Gen. Ahmed Gaid Salah is committed to holding a presidential election before the end of the year. Salah and his military colleagues will do their best to limit the risk that an election held in the near term might add to uncertainty, rather than facilitating the restoration of order. Salah has clearly judged that the best way to achieve that objective is to ensure that the political process continues to operate within the current constitutional framework, but with a restoration of the influence of the military, which eroded over the course of Bouteflika’s long tenure in the presidency. Popular demands to convene a constituent assembly to overhaul the country’s political system pose a potentially significant obstacle to achieving that objective.

The update will identify some of the figures who could be put forward as the preferred choice of the military—and would be heavily favored to win—and how the military’s re-emergence as a central political player is likely to affect policy-making down the road. The analysis will highlight the challenges for a civilian government that will be tasked with improving the economic circumstances of the Algerian population while avoiding action that might provoke domestic unrest, focusing in particular on what that is likely to mean for the easing of restrictions on investment in key sectors.

Over in Sub-Saharan Africa we feature smaller updates on Burkina Faso and Malawi this month, alongside more extensive reports on Angola, Zambia, and South Africa, where our attentions once again turns to the political challenges facing the African National Congress (ANC) government led by President Cyril Ramaphosa after the parliamentary elections held in May resulted in a reduced, but nevertheless comfortable majority for the incumbency. As well as looking into recent court judgments concerning political party financing, an arms deal investigation with implications for former President Jacob Zuma’s impunity, stymied plans for a new surveillance law, and other new policies the government is formulating, we assess how recent xenophobic attacks may influence government policy and investor perceptions by casting a spotlight on the country’s longstanding, and largely unaddressed social problems fueling extreme poverty, unacceptable high unemployment, and violent crime. In the report, we also detail various economic problems besetting the newly re-elected administration, the battle against corruption, and how it intends to satisfy credit rating agencies it can resolve the county’s fiscal problems weighing on South Africa’s sovereign ratings and, in combination with monetary policy, the stability of the rand. With that in mind we look at the recent pattern of uneven economic GDP growth and the problems posed by Eskom, the heavily indebted state-owned utility responsible for providing the vast majority of the country’s electricity supply, as well as providing forecasts for key indicators including inflation, the budget and current-account balances, and government debt.

Along with reports on Indonesia and Taiwan, our Asia Pacific focus looks at the various challenges facing South Korean President Moon Jae-In, whose foreign policy difficulties, for one thing, extend beyond the problem of handling his belligerent and often unpredictable North Korean counterpart to try to keep the uneven peace process on track. In particular, we look at recent issues of diplomacy with the US and notably concerning Japan over historical wartime issues that are proving damaging to intelligence-sharing and trade relations at a time of great uncertainty caused by China’s economy slowing and the China-US tariff war creating problems along the tech manufacturing chain, and for the region’s economies. We look at how adverse economic indicators are shaping public opinion, while forcing President Moon into another reshuffle of ministerial officials in an attempt to re-energize the domestic policy agenda ahead of important legislative elections next April, with minds focused on how to boot-up the economy and respond to public demands for prosecution reform amid the controversy over a criminal scandal involving the family of newly appointed Justice Minister Cho Kuk. Our report also looks at prospective bills, including whether political reforms will see the light which could influence the elections, while we also gauge the prospects of the main parties, and how key economic risk indicators are likely to pan out in 2020.

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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