Coming Soon in Our September 2019 Political Risk Reports

PRS’ coverage of the Americas this month includes fully revised reports on Venezuela, Haiti, Honduras, and Paraguay, as well as a new report on Costa Rica, where President Carlos Alvarado continues to encounter obstacles to implementing a program of structural reforms.  Alvarado defied the odds late last year by securing approval of long-sought fiscal reforms in the fragmented National Assembly, and the legislative coalition that backed the reforms was cemented back in May, when the PLN and the PUSC backed the election of Carolina Hidalgo, a member of the governing PAC, as president of the National Assembly.  Likewise, the approval of changes to legislative procedures that reduce the ability of individual lawmakers to impede the progress of bills will facilitate the implementation of additional reforms.

That said, a marked deceleration of real GDP growth since mid-2018 figures to blunt the positive impact of the fiscal reforms, the effect of which will be further diminished as a result of concessions made to end a disruptive strike by public-sector health workers last month.  The report will assess Alvarado’s prospects for sustaining his legislative coalition as he presses forward with his agenda, taking into account the near-term political risks stemming from slowing growth and rising inequality, and considering as well the likelihood that the window of opportunity will close in the second half of his four-year term, owing to a constitutional ban on immediate re-election of the president.

Along with reports on Greece and Sweden this month our coverage of Western Europe looks at the prospect of recession in Germany mainly caused by rising protectionism, technological change and the prospect of a no-deal Brexit harming the global auto manufacturing chain.   Although our report invariably looks in detail at the ramifications for the German economy and wider euro-zone prosperity, as well as policymakers’ likely responses—notably whether fiscal stimulus will be contemplated—we also look at how it will shape the political climate in terms of the stability of the grand coalition and the popularity of the mainstream parties as euroskeptic and anti-immigrant voices grow louder.  With that in mind, we identify key takeaways from the latest round of regional elections in Brandenburg and Saxony in early September, while looking ahead to the vote in Thuringia in October, and what these signposts imply for future national voting patterns, Angela Merkel’s leadership, and the direction of her center-right Christian Democratic Union, which appears to be softening its resistance to cooperation with the populist right.

Looking at Eastern Europe, PRS will publish a revised report on Kazakhstan, where a political transition initiated early in the year with the transfer of presidential authority from Nursultan Nazarbayev to Kassym-Jomart Tokayev was cemented by Tokayev’s successful attainment of a personal mandate at an election held in July.  All indications are that the new president will steer a steady course under the watchful eye of his predecessor, who has continued to function as a de facto head of state, and retains his formal claim to the chairmanship of both the governing Nur-Otan party and the National Security Council.

The report will examine the new government’s agenda, which includes specific steps to improve the climate for foreign investment, as part of an ongoing effort to reduce the country’s economic 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 an update on Iran, where the domestic political climate is marked by rising tensions, the result of sanctions-related economic hardship and escalating provocations in the Strait of Hormuz that have increased the danger of direct military conflict that could, in a worst-case scenario, trigger a region-wide war.   The risks are compounded by the potential for the foreign policy calculations of leaders in Tehran to be influenced by domestic political considerations, a factor that will grow in importance with the approach of parliamentary elections in early 2020.

The analysis will include an assessment of how the interplay of domestic and external pressures will affect political risk for investors in both the near term and in the period after the incumbent reform-minded president, Hassan Rouhani, leaves office in 2021.   The update will also examine the impact of sanctions on Iran’s near-term economic performance, and discuss how the tensions in the gulf region could affect global economic risk in 2019–2020.

We also include risk reports on several sub-Saharan Africa countries, including a shorter update on Guinea-Bissau, and more extensive analyses of the operating risks for miners and other investors in Congo Republic, Guinea, and Zambia.  Concerning the latter, tensions in Lusaka remain heightened by an uncertain economic outlook and the urgency of austerity measures, including price controls and structural reforms, to address the fallout from the debt crisis.  We look into how this will affect prospective macro-fiscal dynamics, transparency, and social stability, as well as the electoral prospects of Edgar Lungu and the ruling Patriotic Front, by looking closely at inter-party tensions and any key challengers who are likely to emerge in the advent of the next elections due in 2021.  Our report also devotes particular attention to mining sector policies, including recent delays to proposed tax changes, and whether recent attempts to eject the London listed copper mining firm Vedanta Resources represents a genuine attempt to secure taxes and duties owed to the state, or serves as a warning to other prospectors.

Over in Asia, in addition to a report on Singapore this month we focus on Japan as we look into the implications of the recent upper house elections held in July which were won by the ruling coalition led by Prime Minister Shinzo Abe, but with the government failing to gain the super-majority required to amend the pacifist constitution Abe has earmarked as his primary goal.  We look at what the vote shares indicate in terms of support for Abe’s Liberal Democratic Party, his allies, and main opponents, and how it will impact on policy-making during the remainder of the parliamentary term through to 2021, assessing the prospects of social security reform and a planned hike in consumption tax in October.  We look at the key individuals tasked with handling the key ministries following a recent cabinet shuffle, and identify several outstanding foreign policy challenges, notably with China, both Koreas and Russia, as well as to secure a trade deal with the US.  On economic risk we look at how Japan is faring with global slowdown, by assessing which sectors and variables are affected, fiscal trends, and the central bank’s reaction function to inflation, evaluating implications for the yen and Japanese assets.

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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