This month’s coverage in the Americas will include an update on Cuba, where Raúl Castro is beginning what he has confirmed will be the final year of his presidency. PRS will highlight the latest developments in the Communist government’s ongoing economic liberalization drive, and assess the state of the economy as the handoff of power to a younger leader brings an end to the Castro dynasty. The report will also discuss the implications of Donald Trump’s ascent to the US presidency for the continuation or reversal of the significant thaw in relations between Havana and Washington over the last two years, which has opened up numerous opportunities for trade and investment.
Looking at the Middle East and North Africa, PRS will issue a fully revised report on Iran, where the political leadership in Tehran is scrambling to revise its diplomatic strategy following the unexpected victory of Donald Trump in the US presidential election held in early November, even as President Hassan Rouhani faces a re-election battle of his own in May. The report will focus on what the change of administration in Washington means for Iran’s near-term political and economic prospects, in particular, the outcome of the presidential election and the risk of armed conflict with the US and/or Israel. The report will also assess the risk of a reversal of the easing of sanctions that has occurred since the signing of the nuclear deal the P5+1 in late 2014, and what that will mean for investment opportunities in Iran.
Coverage of Sub-Saharan Africa features a new report on the Democratic Republic of Congo, where the death of veteran opposition leader Etienne Tshisekedi has brought renewed risk of a deepening political crisis. Tshisekedi was one of the signatories to the December 31 power-sharing agreement between the government and major opposition parties, under which President Joseph Kabila agreed to step down after elections to be held by the end of 2017. Kabila’s second and last term in office formally expired on December 19, and the opposition accuses him of deliberately delaying the election to cling on to power.
Tshisekedi’s death has triggered a power struggle in his Union for Democracy and Social Progress, and left the opposition without a popular champion capable of mobilizing large anti-government protests. Under these circumstances, the elections are likely to be postponed into 2018, leaving in place a presidency that large segments of the Congolese electorate consider illegitimate. The standoff raises a serious risk of mass urban unrest, and Kabila showed on several occasions last year that he will not hesitate to authorize the use of deadly force against demonstrators.
PRS will also examine recent developments in Zambia this month, analyzing the fallout from last year’s elections which saw Edgar Lungu controversially re-elected as President, and his Patriotic Front gain an overall majority in the National Assembly for the first time. We look at how the country is coping with the after-effects of the commodity price crunch, and whether the recent upsurge in copper prices it relies on for foreign exchange earnings will prove to be a sustained upturn, or a false dawn following three years of decline. Of particular focus, we delve into the government’s current fiscal predicament, characterized by a rise in payment arrears to contractors and suppliers, and seek to explore whether Lungu’s team will accept the terms of a prospective IMF loan agreement that would open up other sources of aid and external financing, improving creditworthiness, but would also curtail public spending, risking instability against the backdrop of a crackdown on independent media reporting and anti-government protesting.
Turning to Western Europe, the interminable debt crisis in Greece will be in focus as we seek to unravel the latest round of problems causing a spike in asset class risk. Our report looks at the delicate political standoff between the troika of official creditors—on one side, the ECB and EU representing the interests of European taxpayers, insisting that Greece repays its debts, and on the other, the IMF, urging debt relief before low-cost lending expires in 2030 causing another upsurge in debt repayments. We assess the probability of another face-saving agreement to avoid the alternative of a sovereign default and exit from the euro zone, which will only push the ticking time-bomb further down the road. We examine what it will enforce on Greece in terms of new measures required to structurally improve the fiscal metrics, and what it will mean for the lackluster privatization process encountering political obstacles. Furthermore, we assess how it will who is vowing no more austerity as his Coalition of the Radical Left (Syriza) plummets in the opinion polls and whether this will lead to another domestic political crisis. These and other possible implications are analyzed against current prospects for the Greek economy, which had been showing some improvement before GDP contracted in the fourth quarter.
Our coverage of Asia this month looks at what the year has in store for Japan, where signs of life in the economy, propelled by a depreciating yen/dollar exchange rate, have enlivened interest among investors who had been hitherto displaying more caution given the weak economy, the bare fact deflation is proving difficult to eradicate and the country is still nursing an enormous debt burden. Our report evaluates the political scandals tainting Prime Minister Shinzo Abe’s government, including one where Abe and his wife are denying knowledge of a land purchase deal involving an educational institution with links to Nippon Kaigi, the nationalist movement closely linked to him and his cabinet colleagues. We assess whether the negative publicity will begin to undermine Abe’s popularity, which improved following a successful first meeting with Donald Trump, and whether it could create a bigger problem down the road with the opposition Democratic Party keen to vocalize the government’s failings, especially if trade and security relations with the US sour. Our report looks at the prospect of political reform advancing, and rounds out with an assessment of macroeconomic variables in 2017–2018, ascertaining the relative strengths of economic growth indicators and the likely path for the yen and monetary policy, among other key asset class drivers.