OA Prospects - OU Alumni

Transcription

An Oxford Analytica Briefing Book
Global prospects
Specially curated for:
Oxford Alumni Weekend – September 17, 2016
Oxford Analytica Daily Brief
®
Global Prospects
CONTENTS
Prospects for US foreign policy to end-2016 ..................................................................................................... 3
June 13, 2016
US-Mexico wall will divide, whether it is built or not ...........................................................................
September 6, 2016
Prospects for Turkey to end-2016 ..................................................................................................................................
June 17, 2016
Global discourse on terrorism needs revision ..........................................................................................
August 16, 2016
Prospects for Russian politics to end-2016 .....................................................................................................
June 30, 2016
7
8
12
13
External shocks accentuate Central Asian weaknesses .............................................................. 16
July 21, 2016
Prospects for Africa's economies to end-2016 ...........................................................................................
June 6, 2016
17
EU and African xenophobia may hurt remittance flows ............................................................. 21
August 25, 2016
Prospects for India to end-2016 ..................................................................................................................................... 22
June 9, 2016
China reaches political crossroads as economy matures .......................................................
June 23, 2016
26
Prospects for Venezuela to end-2016 .................................................................................................................... 27
June 16, 2016
India's energy demand set to soar by 2040 ................................................................................................. 30
June 16, 2016
Low investment restricts Latin American infrastructure ..........................................................
September 8, 2016
31
Prospects for emerging economies to end-2016 .................................................................................... 32
June 15, 2016
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Global Prospects
Prospects for US foreign policy to end-2016
Monday, June 13 2016
An Oxford Analytica Prospect
The June 12 mass shooting in Orlando will sharpen US partisan divisions ahead of
November's elections, making it more challenging for President Barack Obama to focus on
international developments in his final months in office. Before his successor is
inaugurated in January 2017, Obama will seek to build political support in Washington for
his distinctive view of the United States' global role, convey steady stewardship of US
national security ahead of the election, preserve the foreign policy achievements of his
presidency and manage any regional challenges.
What next
Legacy issues will loom large before Obama departs the White House in January 2017.
Given the progress made thus far, preserving the Iran nuclear deal and the Paris climate
pact are likelier candidates for success than other presidential initiatives. Those with less
chance of success include establishing clear global and domestic rules for the use of
armed unmanned aerial vehicles (UAVs) and bolstering international nuclear governance.
Analysis
While Republican control of Congress will check most of the White House's domestic
agenda, Obama will pursue a number of goals on the world stage, with an eye to leaving
his successor a strong international position -- and to lock in some of his individual
accomplishments.
This is motivated in part by Obama's desire to reduce the financial, military and political
cost to the United States of its overseas commitments. However, battles with Congress
over the use of the Overseas Contingency Operation (OCO) 'war fund' for regular defence
expenditure illustrate the political difficulty of reducing the Pentagon's budget.
Overseas Contingency Operation (OCO) funding
Other
Proposed funding
(OCO proposed
funding only
available for 2017)
800
600
400
200
0
2001
2005
2010
2015
2020
US defence spending, 2001-21 (billion dollars)
Source: Office of the US Under Secretary of Defense (Comptroller)
A US 82nd Airborne Division soldier
passes by a Poland's 6th Airborne
Brigade soldier during the NATO allies'
Anakonda 16 exercise near Torun,
Poland (Reuters/Kacper Pempel)
Strategic summary
• Economic incentives are
likely to trump ideological
opposition to closer ties
with Cuba and Vietnam.
• Aversion to ground
intervention abroad will
persist as a factor in US
domestic politics.
• Leaving the EU would
diminish the United
Kingdom's clout in
Washington.
• US support for Indian
membership in the Nuclear
Suppliers Group will sway
some Western sceptics,
but not China.
• US protectionist opposition
will check progress on the
TPP and TTIP trade pacts,
frustrating a key goal of the
Obama administration.
• The COP22 climate
summit in Marrakesh will
probably be used by the
Obama administration as a
forum for garnering
domestic political
legitimacy for the Paris
Agreement.
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Global Prospects
Middle East
Having inherited the Iraq conflict from his predecessor and facing a January leadership
transition of his own, Obama will seek to inculcate caution when it comes to military
intervention in the region and shape the domestic debate on Middle East policy, a debate
which is likely to become more raucous and incoherent during election season (see
UNITED STATES: Politics will check retrenchment abroad - March 21, 2016).
Politically, Obama will attempt to demonstrate that the United States need not have as
active a presence in pursuit of long-standing regional interests, such as:
• guaranteeing Israel's security;
• countering the proliferation of weapons of mass destruction;
• preventing the spread and entrenchment of jihadist groups; and
• maintaining steady shipments of hydrocarbons from the Gulf.
To this end, the White House will support selective application of low-intensity military
action, such as special forces raids, drone strikes and supporting local proxies, but avoid
difficult-to-reverse commitments to the unique agendas of regional partners.
Frustrated allies
Frustrated US allies are likely to wait out Obama's 'lame duck' period, and seek to refresh
their relationship with the United States once he is out of office:
Israel
Prime Minister Binyamin Netanyahu's famously poor relationship with Obama and hardliner
policy stance on the Palestinians will preclude any diplomatic breakthroughs until the next
administration (see ISRAEL: Harsher security policy may strain military - May 26, 2016).
Turkey
Washington's support for Kurdish fighters will deteriorate ties with Ankara, as will Turkish
President Recep Tayyip Erdogan's increasingly autocratic domestic rule(see TURKEY/US:
Relationship will become more transactional - April 19, 2016).
Gulf states
The tone of US diplomatic ties with the Gulf states -- particularly with Saudi Arabia -should improve under the next president; however, the substance of the relationship is
highly unlikely to return to the pre-Obama status quo.
Obama will attempt to block congressional pressure on Saudi Arabia over Riyadh's ties to
extremist groups for the sake of basic cooperation on core issues.
'Destabilising' actions taken by allies -- such as backing extremist groups, domestic
repression or military adventurism abroad -- will be viewed dimly by the White House.
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Global Prospects
Islamic State group (ISG)
The White House will continue to support military action against Islamic State group's core
territory in Iraq and Syria, but will let regional military partners take the lead as ISG comes
under internal and external pressures (see MIDDLE EAST: Jihadist states will struggle to
survive - May 19, 2016).
Syrian civil war
The Obama administration, while not hostile to the idea of an international settlement to
the Syrian civil war, is probably anticipating some form of 'soft partition' to be managed by
the next US president. Thus, in its final months, it will primarily focus on avoiding a
destabilising spill-over of hostilities from the current status quo (see SYRIA: Civil war will
lead to soft partition - May 17, 2016).
Iran
As a key 'legacy' concern, the Obama administration will devote significant political capital
to preserving the integrity of the Iran nuclear deal by thwarting domestic efforts to
undermine sanctions relief.
Missile testing, proxy conflict, the hesitation of Western companies to invest in Iran due to
US unilateral sanctions, and detention of Iranian dual nations are significant points of
contention.
However, the political leaderships of both countries have significant incentives to maintain
the nuclear deal, even in the face of substantial domestic opposition.
Asia-Pacific
Despite domestic pressures,
the core commitments of the
Iran nuclear deal are likely to
survive Obama's departure
Obama's refocusing of US foreign policy on Asia will be continued by his successor,
whether Democrat or Republican, though closer trade and defence ties will have
complicating knock-on effects for the region.
China
Election-year uncertainties portend a further deterioration of China-US relations through
end-2016, especially if the UNCLOS tribunal rules contrary to Beijing's maritime interests
in the South China Sea (see PROSPECTS H2 2016: China - June 7, 2016).
Washington wants to avoid any military clash and would closely manage any crisis, but
deaths from an accident at sea or in the air could lead to a dangerous escalation of
hostilities, particularly if Beijing perceives a potential loss of domestic legitimacy (see
CHINA: Risk of conflict to rise in the South China Sea - November 3, 2015).
Vietnam
Hanoi's desire for a diversified set of foreign policy partners and Washington's criticism on
human rights issues will preclude the development of formal US-Vietnam defence ties,
which would prompt a significant reaction from China, albeit primarily directed at US
'destabilisation' of the region.
However, the lifting of the US arms embargo and more robust economic links will provide
ample opportunity for Obama's successor to build up the relationship.
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Global Prospects
Afghanistan
Obama -- having already been thwarted in his desire to end the US mission in Afghanistan
before leaving office -- may not be able to advance the planned reduction of troop levels to
5,500 in early 2017 from 9,800 now.
An escalation in attacks linked to the Taliban's leadership succession would probably
prompt the Obama administration to rethink its current departure timetable.
North Korea
5,500
Planned January 2017 US
troop levels in Afghanistan
Pyongyang's nuclear weapons activities will encourage the United States to pursue greater
integration of Japan and South Korea into its missile defence network and ignore protests
from Beijing, which will also be supportive of sanctions against Pyongyang (see EAST
ASIA: Missile defence plans raise conflict risk - April 5, 2016).
Europe and Russia
At the July NATO summit in Warsaw, the United States will be caught between two goals - encouraging greater European commitments to their own defence, and underlining the
credibility of the US security guarantee to the alliance's northern and eastern member
states in the face of Russian military activity (see NATO: Russian A2/AD systems will
undermine credibility - May 3, 2016).
Washington is loath to upgrade its presence in the Baltics at the expense of other
priorities, but its allies will take a dim view of scant military assets being deployed
alongside lofty US verbal commitments.
Washington will have to bolster
its credibility at the July NATO
Summit
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Global Prospects
September 6, 2016
US-Mexico wall will divide, whether it is built or not
As emotions run high, rhetoric about the border wall suggests that
good fences do not necessarily make good neighbours
Mexico to US
2,940
US to Mexico
Illegal aliens from Mexico apprehended by US Border Patrol
(thousands by fiscal year: October 1 through September 30)
1,500
1,000
1,370 1,390
870
670
1995-2000
2005-2010
1,000
2009-2014
500
0
FY2000
FY 2002
FY 2004
FY 2006
FY 2008
FY 2010
FY 2012
FY 2014
Geographical obstacles and legal challenges would see costs spiral well beyond materials and labour
Key obstacles facing the proposed wall
Rio Grande / flood plain protected
by bilateral treaties
Comparing proposals for the border wall
with the Berlin Wall
Berlin Wall
Trump’s proposals
United States
155km
Mountains increase expense /
Length
3,200km
20m
Mexico
Nature reserves will draw ire of
environmental campaigners
Height
9m
Construction
cost per metre
$6,250
3.6m
Private land will create legal issues
over compulsory purchase
$1,290
Allowing for
inflation
$4,688
-
Estimated
US Republican presidential candidate Donald Trump’s proposal
to build a wall along the US-Mexico border and have Mexico
pay for it is both ambitious and inflammatory.
_ Criticism of Pena Nieto will rise in light of US
Democrat candidate Hillary Clinton’s rejection of his
invitation to Mexico.
Much of the border cuts through remote territory, raising
_ Should Trump win the US election, he will struggle
to live up to his promise to build the wall.
the concept will provoke strong emotions at personal and
national levels until the US election on November 8, and
possibly beyond.
President Enrique Pena Nieto will be criticised for the
remainder of his term for his failure to stand up to Trump,
whom he hosted in Mexico on August 31. This could damage
the chances of his Institutional Revolutionary Party (PRI) in
Mexico’s 2018 presidential elections.
_
too, resulting in legal challenges.
_
See also: US-Mexico border links set to strengthen -- May 19, 2016
7
Sources: United States Border Patrol , Pew Research Pew Research Center, Media reports
Estimated total Mexican migration
to the United States (thousands)
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Global Prospects
Prospects for Turkey to end-2016
Friday, June 17 2016
The interaction between four dynamics may increase political and social fragility:
introducing an executive presidency; escalating conflict with Kurdistan Workers' Party
(PKK) militants; prosecutions of the pro-Kurdish, left-leaning Peoples' Democratic Party
(HDP); and efforts to defeat Islamic State group (ISG). Meanwhile, in the face of largely
adverse external conditions and weak investor confidence, consumer spending has
underpinned economic growth.
What next
Short of some unforeseen development, President Recep Tayyip Erdogan will set the
stage for a strengthened presidency. If ISG suffers further defeats in Syria and Iraq, it may
increase the frequency and severity of terrorist attacks on Turkish soil. GDP growth is
likely to remain at 3.0-3.5% in 2016, unemployment at around 10%, inflation at 7% or
more, and the current account deficit at 4.5-5.0% of GDP.
Analysis
The replacement of Ahmet Davutoglu as Justice and Development Party (AKP) chief and
prime minister with Binali Yildirim is important for two reasons (see TURKEY: Davutoglu
departure may unravel EU deal - May 9, 2016):
• While the constitution stipulates that the president should be non-partisan, Erdogan is
acting in a decidedly partisan manner, determined that it be he and not the nominal
head who leads the AKP.
• The appointment of Yildirim, who has the reputation of a 'yes man' under Erdogan's
tutelage, suggests the president will interfere even more directly in the executive.
Constitutional change
Erdogan has succeeded in either marginalising or isolating competitors and challengers,
ranging from the Gulen movement to HDP, and established himself as the unquestionable
centre of political authority. He faces no significant obstacle to his ultimate goal: changing
the constitution to acquire executive powers and control over and oversight of the judiciary.
By playing the nationalism card -- the government's heavy-handed approach to Kurdish
militants in both rural and urban areas of the Kurdish-dominated south-east -- Erdogan has
marginalised both HDP and the main opposition People's Republican Party. The president
has also silenced any opposition within AKP.
He will push for constitutional change through one of two means, namely:
A riot policeman at the scene after a
car bomb attack on a police station in
Midyat in southeastern Turkey
(Reuters/Sertac Kayar)
Strategic summary
• The tension between
Erdogan's push for a
presidential system and
opponents to it will drive
politics in the coming six
months.
• Bombings of urban and
civilian targets may
increase, and clashes with
the PKK will probably
escalate, subsiding in rural
areas with the coming of
winter.
• The pace of global liquidity
tightening remains the key
independent variable in the
short term.
• An acceleration of GDP
growth also depends on
political stability, favourable
external demand and longterm structural changes.
Erdogan appears to be holding
most of the cards for achieving
constitutional change that will
greatly enhance his official
powers
• a referendum which would most likely grant him his wish; or
• early elections which, as things stand, will most likely award AKP an overwhelming
parliamentary majority.
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Global Prospects
No Kurdish 'peace process'
The so-called peace process with PKK is unlikely to recover soon.
PKK's attempts to take the fight to urban areas met a very harsh response from the
Turkish military and failed to instigate a popular rising among Kurds. The situation is a
stalemate of some sort, with both Turkey and PKK refusing to de-escalate, but unable to
accomplish their objectives.
The increased frequency and severity of PKK bombings in urban areas is leading to civilian
casualties, which then fuel nationalistic and anti-PKK sentiments, weakening the
prospects for peace in the near future but also, paradoxically, strengthening AKP's hand in
the short term.
HDP's fate
Riding on nationalistic and anti-PKK sentiments, AKP has initiated a process whereby
members of parliament (MPs) with charges against them may be tried. While removing
parliamentary immunity affects all parties in theory, in practice HDP will be affected much
more, for two reasons:
• Almost all HDP's 59 MPs have charges against them.
• An overwhelming majority of these charges relate to the alleged association between
HDP and PKK, suggesting that HDP MPs could face serious punishment and loss of
their seats.
If enough lose their seats, up to 5% of the total, early elections might be called;
alternatively, HDP might walk out of parliament in protest.
The former outcome might instigate widespread protests and even uprisings among the
Kurds.
ISG question
The multinational coalition against ISG has been gaining ground. The group's reaction to
loss of territory has been terrorist attacks on soft targets in other countries, including
Turkey.
Jeopardising HDP's presence in
parliament would increase
political instability and
tensions between the state and
the Kurds
Considering Turkey's proximity and vulnerability (which has been amplified by the Syrian
refugee crisis), ISG attacks may be expected to increase in both frequency and severity in
the second half of 2016. If Turkey plays a greater role in efforts to defeat ISG, such attacks
will also be even more frequent and severe.
Economic situation
Investments are flat and credit growth subdued amid concerns about the global economic
outlook, company and household finances, bank profitability and potential oversupply in the
housing market, besides political uncertainties, tensions and violence.
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Global Prospects
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5
4
3
2
1
0
Q1
Q2
Q3
Q4
Q1
2013
Q2
Q3
2014
Q4
Q1
Q2
Q3
Q4
2015
Q1
2016
Turkey: GDP growth (% change, year-on-year)
Source: Turkish Statistical Institute (Turkstat)
Export demand has been weak -- not least thanks to Russian sanctions, regional tensions
and the problems of oil-producing countries. The prospect of shrinking global liquidity due
to US interest rate hikes continues to constrain capital inflows, making it more difficult to
roll over the mainly private-sector foreign debt, finance a large structural current account
deficit, keep the exchange rate steady, hold down inflation and finance domestic credit
growth.
Economic policy
The new government will seek to inspire confidence and support the private sector (see
TURKEY: Economic reform will falter with new cabinet - November 30, 2015). Additional
incentives may be announced for investment, production and employment, with a focus on
technology usage, import substitution and regional development.
Public investments will also be pursued vigorously. The budget deficit, which was 1.2% of
GDP last year, may be allowed to exceed the 1.3% target.
The Central Bank -- under new governorship since April -- may continue to cut rates,
bringing the average actual cost of its lending to the banks down to 8.0% or below,
compared to 8.5-9.0% in the early months of the year (see TURKEY: New TCMB governor
may loosen monetary policy - April 22, 2016).
Privatisation will resume, including a fresh effort to sell off the national lottery in August.
Growth prospects
A postponement of US rate rises could give the government some breathing space over the
next few months. However, external demand will remain subdued. Russian sanctions and
concerns about terrorism and Turkey's poor international image are set to reduce tourism
revenues by perhaps 1% of GDP this year.
Any cuts in Central Bank interest rates could deter capital inflows further and may not be
reflected in market interest rates. Accordingly, GDP growth rates will probably edge
downwards
Weak external demand,
financial constraints and a
poor tourism season will keep
GDP growth in check
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Global Prospects
External balances and lira
Thanks mainly to low international oil prices, the perennial current account deficit fell to
4.5% of GDP in 2015 from 5.4% in 2014. Despite further narrowing since January, the
relatively weak lira and moderate domestic demand growth, the deficit is unlikely to fall
further, particularly given the tourism crisis.
Even assuming that capital inflows are sufficient to cover the deficit, there will be bouts of
lira weakness if and when US rate rises come closer, the Central Bank overdoes its rate
cuts or political and social tensions mount. Currently trading at about 2.90 against the
dollar, the lira could end the year at 3.10 or thereabouts.
12
10
8
6
4
Dec
Jan
Feb Mar
Apr May
Jun
2014
Jul Aug
Sep
Oct Nov
2015
Dec
Jan
Feb Mar
Apr May
2016
Turkey: Consumer price inflation (% change, year-on-year)
Source: Turkish Statistical Institute (Turkstat)
Inflation
Annual consumer price inflation fell to 6.6% at end-April, well inside the relatively
unambitious official end-year target of 7.5%. In the absence of a sustained increase in oil
prices or a sharp slide in the lira, the target should be achieved.
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Global Prospects
August 16, 2016
Global discourse on terrorism needs revision
Source: Global Terrorism Database
Fatalities from terrorist attacks, 2011-15
UKRAINE
2,163
SYRIA
9,814
IRAQ
33,498
YEMEN
5,862
NIGERIA
17,089 CAMEROON
1,727
AFGHANISTAN
20,359
PAKISTAN
11,330
INDIA
2,092
SOMALIA
4,736
30,000
20,000
10,000
The majority of terrorist attacks occur in conflict areas,
or countries where state-sponsored political violence is
widespread.
The post-Arab-uprisings environment fostered the rise of
themselves with well-known terrorist networks, such as Islamic
cause. This is what Libya’s and Egypt’s Islamic State branches
did, though groups further afield, such as Nigeria’s Boko Haram
and Somalia’s al-Shabaab, have done the same.
_
main form of attacks in the West in the medium term.
_ More than 80% of deaths in the West are attributed
to right-wing extremist, supremacist, nationalist and
other motivations.
_ These types of incident will continue to exceed
Islamist-inspired terrorism in the West.
_
vastly and will require diverse solutions.
Despite media attention, transnational terrorism in the West is a
low-frequency event. Excluding 9/11, only 0.5% of all fatalities in
the years since 2000 have occurred in the West.
See also: Right-wing terrorism could rise in the West -- March 7, 2016
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Global Prospects
Prospects for Russian politics to end-2016
Thursday, June 30 2016
Elections to Russia's State Duma in September provide a focus for public criticism of the
governing party, United Russia, but its victory is assured. In foreign policy, the emerging
rapprochement with Turkey after months of animosity shows that President Vladimir Putin
is prepared to adopt a more conciliatory tone in some areas in an attempt to reduce
Russia's isolation.
What next
To counter the risk of growing social unrest stemming from the recession, Moscow will
clamp down on opposition activity in the run-up to the election. Russia will aim to exploit
growing pressure within the EU -- itself diminished by the UK vote to leave -- to relax or lift
sanctions in January 2017, and will continue to build trading ties with Asian powers.
Analysis
Elections remain an important source of legitimacy and the United Russia party will seek
to capitalise on the nationalism that has boosted Putin's popular support (see RUSSIA:
Nationalism will be core message in election - June 3, 2016).
While the leadership will play on nationalist feeling and anti-Western sentiment at home,
the government's desire to end isolation will require it to seek better relations with
European states.
The tension between these domestic and foreign policy objectives will become more
apparent as the elections approach, but this dissonance will not cause serious political
problems for the authorities this year.
Domestic tensions
President Vladimir Putin delivers a
speech during a meeting with United
Russia party members in Moscow
(Reuters/Ivan Sekretarev/Pool)
Strategic summary
• State control over the
political and media spheres
will tighten in the run-up to
the September elections.
• Support for United Russia
is likely to fall, but the
party will maintain its
majority in the Duma.
• Moscow will seek to take
advantage of growing
European divisions on the
renewal of sanctions.
• Relations with China and
other Asian powers will be
strengthened through new
trade deals.
Economic problems are likely to increase the level of popular dissatisfaction with the
performance of the government and regional authorities, and these tensions will be
apparent as the September elections approach.
Public discontent with the government -- although not with Putin -- is evident from the
falling approval ratings of Prime Minister Dmitry Medvedev and his cabinet. Indicators of
support for regional authorities are falling, too, even in such prosperous regions as Moscow
and Tatarstan.
United Russia's popularity is declining. Over the first six months of this year, support for
the party returned to levels last seen in 2011. A recent poll by the Levada Centre put the
party's support at 35%.
Increasing repression
Concern about possible political mobilisation around the elections will result in a
clampdown on political opposition as the elections approach. Fearing the protests against
electoral fraud that followed the 2011 Duma elections, the authorities appear less willing to
rely on election-day manipulation to achieve the desired result (see RUSSIA: Over-reaction
to protests is a stability risk - May 25, 2016).
The authorities plan to head off
the kind of demonstrations that
followed the last election
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Global Prospects
Consequently, efforts are being taken to prevent unrest well in advance of polling day.
The National Guard will be called in to crush street demonstrations (see RUSSIA: New
National Guard reflects stability worries - April 8, 2016). New counter-terrorism legislation
could be used against opponents of United Russia, as offences are so loosely defined.
The arrest of Kirov region governor Nikita Belykh, one of the few serving politicians with a
liberal profile, shows how highly publicised prosecutions can be used to address
grassroots concerns about corruption without tarnishing United Russia or senior officials in
general (see RUSSIA: Leaders will try to limit Panama leak damage - April 20, 2016).
Election forecast
United Russia is unlikely to secure an absolute majority of the vote nationally, but will
maintain its dominant position by winning seats in single-mandate constituencies. The
party will benefit from the support of the All-Russian Popular Front, a broad movement
backed by Moscow, and up to a point, from Putin's personal backing (see RUSSIA: Putin
will stand back from Duma polls - March 22, 2016).
Polls indicate that the three other parties in the current Duma -- the Communist Party, the
Liberal Democratic Party and Just Russia -- should surpass the 5% threshold they need to
win seats.
The pro-democracy liberal parties -- Yabloko and Parnas -- face large obstacles to
overcoming the barrier, and their candidates are likely to be disqualified if they stand a
chance of winning (see RUSSIA: Opposition will not forge winning coalition - February 26,
2016).
New intake
United Russia has used primaries this year to select new candidates for regional and
federal elections, which offer the leadership an opportunity to rejuvenate the political class.
This should mitigate tensions at the regional level, which are partly fuelled by intra-elite
conflicts; socio-economic protests are likely to subside after the ballot. This will strengthen
the regime as it prepares for the 2018 presidential election.
Foreign policy
Moscow will seek sympathy and alliances in Europe as well as Asia.
The United Kingdom's decision to leave the EU will prompt Russia to probe further member
states' resolve on sanctions, in hopes of the measures being relaxed or lifted by January
2017. Over the next six months, pressure to end sanctions is likely to grow within the EU.
No end in sight for Ukraine
The dilution or removal of EU sanctions will open up a divide if the incoming US president
maintains a tougher line. US sanctions targeting prominent figures close to Putin are up
for review in March 2017.
Moscow will be happy if UK
departure weakens EU resolve
on sanctions
The EU has linked sanctions to progress on the 2015 Minsk 2.0 peace plan for eastern
Ukraine, where little has been achieved except a fragile, often-breached ceasefire. The
local elections that form part of the agreement remain a distant prospect. Russia will
exploit the inertia by accusing Kyiv of reneging on the agreement as part of its argument
for ending sanctions (see UKRAINE: Conflict risks will rise as peace talks stall - March 9,
2016).
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Global Prospects
Calculated moves in Syria
Russia will engage more or fewer forces in Syria as it judges necessary, applying air power
to back government ground troops and striking Islamic State group, but without giving
President Bashar al-Assad the unconditional support he needs to win outright.
The wider agenda is about restoring Russia's position as a global power that Washington
must take seriously. Moscow will push this through military attacks and diplomatic moves
designed to contrast its strength with US weakness and indecision. Russian rhetorical and
on-the-ground responses to NATO in eastern Europe will be even more robust (see
RUSSIA/NATO: West will meet threats with deterrence - March 21, 2016).
Fixing relations with Turkey
President Recep Tayyip Erdogan's apology for the Turkish air force's downing of a Russian
jet in November 2015 is leading to a rapprochement that will reduce the chance of direct
confrontation over Syria, although Moscow and Ankara will continue to take different views
on Assad, the Kurds and other matters (see today's TURKEY/RUSSIA: Policy on Syria
may still diverge).
It will also restore a trading relationship important to both countries.
Russia's 'Asian pivot'
Greater engagement with China is partly through necessity, to make up for investment and
trade lost to Western sanctions, but is also a tactic to mitigate and manage the growing
Chinese economic dominance in Central Asia, a region where Moscow will seek to retain
primacy at least in political and security affairs (see RUSSIA: Moscow's need for China will
not be reciprocal - June 24, 2016).
Privatisations should help cement ties with China and India. The planned sale of shares in
the oil major Rosneft could be the basis for closer trading and diplomatic relations.
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Global Prospects
July 21, 2016
External shocks accentuate Central Asian weaknesses
Governments muddled along through stagnation, but have been confounded
by low oil prices and a malfunctioning Russia
Stability risks in Central Asia
MIGRANTS RETURN FROM RUSSIA
UZBEKISTAN
Powerful security forces deter
and quell protests.
Uncertainty about the
president’s longevity.
Troubled relations with all
neighbouring states.
GDP growth challenged by
large and growing population.
Uzbekistan, Tajikistan and Kyrgyzstan face
risk of unrest as unemployment swells due
to returning labour migrants.
KAZAKHSTAN
Prudent policies may mitigate
oil-price and Russian recession
impacts.
President’s silence on succession
question will create uncertainty.
Russia’s intentions towards
Kazakhstan remain uncertain.
Socieconomic unrest is not a threat,
but an excessive government
response would be.
Russia
Kazakhstan
TURKMENISTAN
Lack of challengers to
the leadership.
Failure to let substantial gas
revenues trickle down to
the population.
Uzbekistan
Iran
Kyrgyzstan
Tajikistan
After regime change in 2005 and
2010, governance has settled down.
Chronic economic problems are
potential source of unrest.
Lack of positive impacts from
Eurasian Economic Union accession.
China
Afghanistan
TAJIKISTAN
Russian military presence
bolsters weak army.
Centralisation of political power
strengthens regionally-based
opposition.
KYRGYZSTAN
Turkmenistan
ISLAMIC EXTREMISM
Domestic armed groups pose a threat in
Tajikistan and to a lesser extent
Kazakhstan and Kyrgyzstan. Militants in
northern Afghanistan are a threat to border
areas of Tajikistan and Turkmenistan.
The five Central Asian states were ill-prepared to deal with
the impact of falling global commodity prices and the multiple
KEY
Stabilising factor
Destabilising factor
_ Elites in Kazakhstan and Uzbekistan will prepare to
sideline rivals when the moment for succession comes.
_ Governments should contain Islamist violence and
Afghan border trouble, but will feel embattled and
respond
with repressive measures.
Net oil and gas importers Kyrgyzstan and Tajikistan have been
migrant remittances and exchange rates.
hit hardest. One state, Kyrgyzstan, has a semi-functioning
democracy, while the rest have ossified structures centred on
leadership cults. In Kazakhstan and Uzbekistan, unanswered
questions about the presidential succession create scope for
contested transitions.
Governments are corrupt, poor at social provision and liable
to respond to protests with excessive force. Lack of political
opposition has created space for Islamic movements, both
peaceful and violent.
_ Russia will be Central Asia’s security guarantor of last
resort.
_ Chinese investment and regional transport projects
will foster stability although country indebtedness to
Beijing will become a concern.
_ Cross-border water disputes will sour Uzbekistan’s
relations with Kyrgyzstan and Tajikistan.
See also: Near-zero growth is expected in Kazakhstan in 2016 -- July 7, 2016
16
®
Global Prospects
Prospects for Africa's economies to end-2016
Monday, June 6 2016
The IMF's most recent forecast of 3% GDP growth for sub-Saharan Africa (SSA) in 2016
represents a significant cut from the 4.25% it expected in October 2015. This is a
consequence of sharp slowdowns in the region's two largest economies, Nigeria and
South Africa, droughts in previously buoyant economies (notably in eastern and southern
Africa), a variety of idiosyncratic shocks and a prolonged commodity price downturn.
Nigerian President Muhammadu Buhari,
IMF Managing Director Christine
Lagarde and Governor of Central Bank
of the Nigeria Godwin Emefiele attend
a meeting in Abuja (Reuters/Stephen
Jaffe)
What next
Commodity exporters, particularly of oil, will struggle to implement their economic
development plans as depressed growth prospects, reduced government revenues, and
rising debt and borrowing costs curb investment. The outlook for states that have already
made improvements to their infrastructure and business conditions (such as Kenya and
Rwanda) is broadly positive.
Analysis
Droughts have had dramatic effects in some SSA economies: Ethiopia's growth is
expected to slow to 4.5% this year from 10.2% in 2015, while several states require
emergency food aid. In others, revelations of poor governance (Mozambique) or financial
sector weakness (Kenya) are cause for concern.
6
Sub-Saharan Africa
Oil exporting countries
Oil importing countries
5
Strategic summary
• In many oil importers, low
global prices will dampen
inflation, allowing central
banks to cut interest rates.
• Nigeria could face a
recession this year given
low oil output, currency
restrictions and severe
fiscal shortfalls.
• South Africa will likely see
a sell-off of financial assets
if its credit rating is
downgraded to junk status.
4
3
2
1
0
2011
2012
2013
2014
2015
2016
2017
Sub-Saharan Africa: GDP growth, 2011-17 (%; 2016-17 are projections)
Source: IMF
Promising prospects
The slowdown masks significant heterogeneity. Two-fifths of the region's economies expect
to expand more rapidly this year, with some growing at 6% or faster (Kenya, Ivory Coast
and Senegal) due to strong investment activity (see IVORY COAST: Non-French firms to
lead investment boom - February 9, 2016).
17
®
Global Prospects
A further one-fifth are expected to maintain broadly similar growth rates to 2015 (Togo,
Benin, Lesotho and Guinea Bissau). These countries benefit from a virtuous economic
cycle in which lower oil prices dampen inflation, allowing authorities to loosen monetary
policy, boosting borrowing and consumption.
Infrastructure investments and improvements in the business environment are also bearing
fruit, particularly in Kenya where transportation and electricity upgrades have raised
industrial productivity.
Oil's toil
In contrast, low global hydrocarbon prices mean net energy exporters will be the worstperforming group in SSA with output slowing to 2.2% from 2.6% in 2015. In some cases,
unorthodox policies -- notably Nigeria's and Angola's currency restrictions -- are
compounding the situation:
• Planned exchange rate liberalisation in Nigeria could release pent-up foreign
investment. However, speculative attacks on the currency could pose short-term risk,
possibly requiring large interest rate hikes to prevent a collapse of the naira.
• Angola's kwanza could face a harder landing given the wider spread between the official
and parallel markets. The forthcoming IMF programme could help smooth the
transition.
In both the major oil producers, the slowdown could be worse than the IMF predicts, with a
full recession in Nigeria a distinct possibility.
Debt dilemmas
Elsewhere, risks of debt distress have risen partly due to the sharp accumulation of nonconcessional sovereign debt over the last five years. As about 70% of the region's external
debt is dollar-denominated, while currency depreciations have pushed up debt burdens
across the board.
100
Sub-Saharan Africa
Nigeria
2011
2011
South Africa
Ethiopia
80
60
40
20
0
100
2017
Ghana
2017
Ivory Coast
2011
Kenya
2017 2011
2017
Angola
80
60
40
20
0
2011
2017
2011
2017
2011
2017 2011
2017
Sub-Saharan Africa: Government debt (% of GDP)
Source: IMF
18
®
Global Prospects
10
Sub-Saharan Africa
Nigeria
South Africa
Ethiopia
5
0
2011
2017
2011
2017
2011
2017
2011
2017
-5
-10
10
Ghana
Ivory Coast
Kenya
Angola
5
0
-5
-10
Sub-Saharan Africa: Fiscal balance, 2011-17 (% GDP; 2016-17 are projections)
Source: IMF
At end-2015, the IMF classed 20 SSA states as "moderately debt-distressed", compared
with ten in 2010 (and 14 in 2013).
There are twelve countries at high risk of debt distress (including Djibouti, Mozambique,
Cameroon and Ghana). So far, only countries that have experienced an abrupt increase in
their debt burdens since the global commodity price collapse (Angola and Zambia) are
expected to begin fresh IMF bailout talks.
Others may follow, particularly if a default by Mozambique prompts a wider re-evaluation of
the region's creditworthiness. This could widen the region's sovereign spreads, which
currently stand at 350 basis points above the emerging market average (see AFRICA:
Debt, revenue woes to push states to seek help - February 5, 2016).
12
Number of states at high risk of
debt distress
Humbled hegemons
The slowdown in Nigeria and South Africa could spill into neighbouring countries. The effect
of this will be sharpest in southern Africa, where remittances from South Africa are
important, though Nigeria's close trade links with the rest of West Africa means states
such as Benin could also suffer.
Nigeria
The economy contracted by 0.36% year-on-year in the first quarter of 2016, compared with
growth of 2.11% in the previous quarter.
This was due to steep output declines in manufacturing and construction, which have been
hurt by foreign exchange restrictions and militant attacks on the Nigerian Petroleum
Development Company's Forcados oil pipeline in February, which halved the country's
already poor electricity supply.
Such attacks have increased in recent months, pushing oil output down to around 1.4
million barrels per day from 2.2 million in January. The federal budget, which was adopted
in May, assumes January production levels, making major fiscal shortfalls highly likely.
The outlook for both private and public sector consumption has worsened.
Unemployment grew to 12.1% in the first quarter of 2016 from 10.4% in the previous
quarter. Largely, this was a consequence of an increase in the labour force rather than job
losses. On balance, the economy appears to have created 80,000 new jobs (see NIGERIA:
Hefty budget will not dispel investor unease - April 5, 2016).
19
®
Global Prospects
However, this masks shifts from formal full-time employment (which shed 528,148 jobs) to
informal low-paying underemployment (which added 607,613 jobs). The trend will
undermine Abuja's goal of sharply increasing tax revenues this year since many informal
workers lie outside the tax net.
South Africa
0.36%
Size of Nigeria's economic
contraction in the first half of
2016
Pretoria is bracing for a possible cut in the country's sovereign rating to junk status by end
-2016. If it materialises, the downgrade will likely come from Standard and Poor's rather
than Fitch. Both rate the country BBB-, but the former takes a dimmer view on South
Africa's political stability.
This would trigger a sizable sell-off of South African financial assets by institutional
investors, many of which cannot hold speculative-grade debt in their portfolios. These
assets could soon be purchased by bargain-hungry investors eager to capitalise on the
country's strong medium-term prospects.
Its status as an investment gateway for the rest of SSA is an added pull factor.
Nevertheless, the shock could spell an economic contraction: GDP will barely expand this
year (the IMF expects 0.6%) and unemployment (26.7%) is at its highest point since the
2008-09 recession (see SOUTH AFRICA: Cabinet chaos raises junk status risk December 14, 2015).
Credit rating agencies opting to maintain South Africa's investment-grade status will likely
cite the government's firm grip on public debt (which is only expected to increase by
around one percentage point to 51.4% in 2016 despite the lower growth outlook) and signs
of a revival in private sector activity.
Promising policies?
SSA could receive a modest boost from reform efforts at the regional level. The tripartite
free trade agreement covering eastern and southern Africa could facilitate expanded intraregional trade. Depressed SSA currencies have already made exports from within the
region relatively competitive.
Intra-regional trade could also spur the development of regional value chains, particularly in
countries that have a strong manufacturing base such as South Africa, Mauritius and
Kenya.
Meanwhile, the African Development Bank's 2016-25 Strategy for the New Deal on Energy
for Africa, adopted in May, will provide financing relief for countries still at the early stages
of implementing infrastructure development plans, potentially spurring economic
development.
20
®
Global Prospects
August 25, 2016
EU and African xenophobia may hurt remittance flows
European curbs on migration are not the only risks facing
remittance-dependent economies
Spain
France
United
Kingdom
457
Spain
30
210
Major sources of
remittances, 2014
(million dollars)
Italy
296
Senegal
10.3%
50
Gambia
21.2%
135 France
Mali
7.4%
184
Gambia
Ivory
Coast
15
68
Portugal
26
Ghana
103
Senegal
10
87,494
Ivory Coast
Ghana
Lesotho
Liberia
350,611
France
75,408
41
Togo
8.8%
39
Guinea-Bissau
6.2%
South Africa
United States
Ghana
Cape Verde
57,636
Ivory Coast
222,377
Portugal
United
States
343
356,019
France
Cape Verde
10.5%
29
Remittances as a
share of national
GDP, 2014
342
Togo
Mali
Y
Country
X%
Nigeria 122
Netherlands
Portugal
Y
Main destinations for migrants from
remittance-dependant states, 2015
Madagascar
4.0%
Ivory Coast
Liberia
24.6%
107
131 Ghana
5.2%
92
105
Senegal
Botswana
Germany
Italy
362
27,517
Guinea Bissau
United
Kingdom
258
Nigeria
Nigeria
117,870
4
414
Gambia
16,954
Lesotho
17.4%
France
South Africa
Spain
Ivory Coast
Growing anti-immigrant sentiment across much of Europe in
the wake of record inflows of refugees and asylum seekers is
restrictions on ‘sending’ countries. In sub-Saharan states where
households rely on cash remittances to support their incomes,
such curbs would hurt consumption, deepening the region’s
economic downturn.
Yet focussing on flows originating outside the continent
misrepresents the risks facing many remittance-dependent
economies. In some European destinations, eg Portugal, moderate
attitudes towards migration portend no major policy shifts.
Meanwhile, xenophobic sentiment in other sub-Saharan states -several of which are themselves important sources of remittances
-- could drive anti-immigrant policies, hurting intra-African flows.
_ Zimbabwe’s plans to ‘export’ skilled workers and
appropriate a portion of their incomes will fail
due to administrative complexity.
_ Increased mechanisation at South African mines
will reduce demand for migrant workers from
neighbouring countries.
_ In East Africa, the rapid growth of mobile banking
and improving network coverage will facilitate
transmission of remittance funds.
_ Ivory Coast’s strong economic growth will attract
rising numbers of migrants from Francophone
West Africa.
See also: African migration will exacerbate skill shortages -- April 30, 2015
21
Sources: World Bank, UN Population Division, Oxford Analytica
African countries heavily reliant on remittances -- and key sources of those remittances
®
Global Prospects
Prospects for India to end-2016
Policymakers are counting on improved agrarian performance, cheaper credit and
economic diplomacy to drive growth in coming months. On the political front, after a
modest triumph in the last round of regional elections, Prime Minister Narendra Modi and
his Bharatiya Janata Party (BJP) are emboldened but still politically encumbered.
What next
The second half of 2016 is unlikely to see any shift from the currently estimated 7.6%
growth in 2016-17, regardless of the monsoon. The Uttar Pradesh election campaign will
gather momentum, risking communal violence but without guaranteeing a BJP victory.
Modi's key forthcoming foreign visits to China and Pakistan are unlikely to alter these
relationships' status quo.
Analysis
The southwest monsoon, due this month, is forecast to be normal or better after three bad
seasons. This could lift economic performance in multiple ways:
Bumper crop
The agriculture ministry is expecting a record 270.1 million tonnes (mt) of foodgrains
production in the July 2016-June 2017 crop year. The increase from 253.2 mt in 2015-16
could alleviate the distress of indebted and drought-affected farmers.
Farmers in a rice field on the outskirts
of Srinagar (Reuters/Danish Ismail)
Strategic summary
• Spectacular growth figures
betray India's deeper
industrial slump, which an
export-driven manufacturing
strategy is unlikely to
reverse.
• Good monsoons could help
ease pressure on food
inflation and purchasing
power, creating scope for
monetary easing.
• China will veto India's
inclusion into the Nuclear
Suppliers Group.
On the other hand, it would also boost demand and sentiment as lower food prices
increase the purchasing power of the net purchasers of food.
Industrial offset
It is also expected to offset the low month-on-month industrial growth figures.
Manufacturing growth was negative in four of the five months ending in March 2016.
Government spending and austerity
The absence of inflation fears could enable the government to increase spending. However,
here the government's approach is likely to be mixed.
In 2016-17, the government intends to implement the Seventh Pay Commission (SPC)
award to central government employees. The significant increase in public sector salaries
could lift GDP growth by 0.25-0.75 percentage points.
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®
Global Prospects
Fiscal deficit
The government realised its fiscal deficit target of 3.9% of GDP in 2015-16. In 2016-17, the
target is 3.5% and to cut corporate taxes, while absorbing the cost of the SPC award.
Indeed, the 2016-17 budget projects the total expenditure to GDP ratio to fall marginally to
13.1% from 13.2% in 2015-16. This may necessitate cuts in other areas.
Monetary policy
This will increase pressure for a monetary policy stimulus. The government will pressure
the Reserve Bank of India (RBI) to cut rates but there is no guarantee the RBI will comply,
and that reduced interest rates will raise investment directly.
Nonetheless, a good monsoon would improve sentiment and could encourage debtfinanced private spending.
Opportune moment
If both a good monsoon and cheaper credit materialise, the government would be using an
excellent opportunity provided by two factors:
• relatively low inflation, initially aided by low oil prices and the end of the commodity
boom, and then by domestic slowdown; and
• a favourable balance-of-payments situation; the trade deficit fell to 48.9 billion dollars in
2015-16 from 61.1 billion in 2014-15.
Consequently, a revival in demand would generate neither inflation nor balance-of-payments
difficulties.
NPAs
A key dampener is rising non-performing assets (NPAs).
Gross NPAs stood at an estimated 4 trillion rupees (60.3 billion dollars) in mid-December
2015, with much of it on public sector banks' balance-sheets. Unsurprisingly, total losses
of 23 public sector banks (after provisioning for NPAs) stood at 234 billion rupees during
the fourth quarter of 2015.
This stress will make banks reluctant to lend and many customers (both corporates and
households) ineligible to borrow. Consequently, expectations of a major revival in creditfinanced consumption or investment, particularly the latter, may prove far-fetched.
Export surge?
If this proves true, as is likely, an export surge would be seen as the only route to higher
growth. Here the prospects are mixed.
Exports are falling despite the
policy push
Decline
In 2015-16, India's merchandise exports fell 15.9% to 261.14 billion dollars, from 310.34
billion in 2014-15. Even services exports are losing dynamism. Services exports were down
to 37.9 billion dollars between October and December 2015, compared with 39.6 billion
during the year-before period.
23
®
Global Prospects
Dampeners
This is partly attributable to sluggish global demand (see PROSPECTS H2 2016: Global
economy - June 1, 2016), and China's slowdown, which has affected areas such as iron
ore exports.
However, domestic factors such as export duties on ore exports have also played a role.
Moreover, Indian business has yet to deliver on the expectation that deregulation and
liberalisation would result in a restructuring that gives India an edge in international
markets.
This explains why the government is seeking to improve India's overseas image and attract
investors who could export India out of its industrial slump. However, there is little evidence
that such a turn can happen in a marginal exporter such as India and quickly enough to
deliver near-term economic gain.
Political prospects
The next round of regional elections, due in 2017, will include Modi's own Gujarat.
However, the Uttar Pradesh polls will dominate electoral politics in coming months.
The largest state with a population of 200 million, Uttar Pradesh was crucial to Modi's
general election victory in 2014 and provided him with 71 of its 80 seats in parliament. Yet
its legislative assembly is in the hands of the rival Samajwadi Party, which has performed
well in recent by-elections.
Victory for the BJP here would not only lay foundations for the 2019 national elections but
also demonstrate the strength of support for Modi. However, election campaigning is likely
to be accompanied by communal violence, which may not necessarily benefit the BJP.
GST bill
Meanwhile, Modi will press his economic agenda in the monsoon session of parliament
(from July 21) -- especially, the Goods and Services Tax (GST) bill - but likely with patchy
results.
The GST bill may not secure
approval this year
The last regional polls will make little immediate difference to his position in the upper
house where his government lacks a majority. Nonetheless, he may be gaining some
traction.
At least 53 of the upper house's 245 current members retire this year. Their positions will
be re-filled by nominations from their regional state assemblies, where BJP-led or BJPfriendly governments have replaced Congress regimes in Karnataka, Andhra Pradesh and
Maharashtra since they were appointed. Modi could gain 13 seats -- taking the BJP's total
to 62 and its supporting National Democratic Alliance to 81.
Moreover, recently re-elected Tamil Nadu Chief Minister Jayalalithaa Jayaraman (whose
party has twelve seats in upper house) and West Bengal Chief Minister Mamata Banerjee
(also twelve) may support the government on case-by-case basis (see INDIA: State polls
modestly boost Modi's reform plan - May 20, 2016).
24
®
Global Prospects
Foreign policy
Since coming to power, the government has prioritised economic and geo-strategic
diplomacy to attract investment and tackle China's rise. This trend will continue.
G20
Notably, Modi will visit China for the G20 summit in September, during which bilateral
discussions will focus on reviving trade and investment:
• Between 2000 and September 2015, China invested only 1.2 billion dollars in India.
Delhi hopes this figure will rise to 5 billion-10 billion by 2018-19.
• India's trade deficit with China has ballooned to 44.5 billion dollars in 2015 from 36.6
billion in 2012.
No diplomatic breakthrough is expected partly due to China's geostrategic rivalry with
India. Despite the US push, China will veto India's entry into the Nuclear Suppliers Group
unless Pakistan's candidature is accepted. This is unacceptable to Washington (see
INTERNATIONAL: Politics will undermine NSG function - May 24, 2016).
SAARC
Modi is expected in Pakistan for the South Asian Association for Regional Cooperation
(SAARC) summit in early November. He may use the trip to ease border tensions, but his
own nationalist base and the Pakistan military's control over Pakistan's foreign policy will
prevent a resumption of the peace dialogue.
25
®
Global Prospects
June 23, 2016
China reaches political crossroads as economy matures
The balance China has traditionally struck between economic openness
and political repression may not hold much longer
China’s political and economic openness
Maoism
Deng’s
‘Reform and
opening up’
PostTiananmen
crackdown
Jiang
Zemin
Hu-Wen
second
term
Hu-Wen
first
term
Global Financial Crisis prompts
massive state intervention
Liberal
Xi
Jinping
Possible
outcomes
Regulatory assertiveness
and indigenisation under
Xi Jinping
2001: WTO entry
1989: Tiananmen
Square crackdown:
Conservatives
seize power
Repressive
Semi-democracy
(Singapore model)
Beijing Olympics, Tibet
and Xinjiang riots
Institutionalisation, public
consultation and intra-party
democracy under Hu Jintao
Political experimentation
under Hu Yaobang and
Zhao Ziyang
Arab Uprisings and
Jasmine Revolution
Consultative
authoritarianism
Reformer Zeng Qinghing
Political
openness
Economic
openness
1992: Deng
Xiaoping’s
Southern Tour
restarts reforms
Falun Gong
crackdown
Hard
authoritarianism
campaign begins
‘Organic’ spread of NGOs,
commercial media and the internet
1970
1975
1980
1985
1990
1995
2000
2005
2010
Neo-totalitarianism
(’North Korea Lite’)
2015
2017 onwards
Economic growth and political repression, the pillars of
Communist Party rule, are in tension. The Party strives for an
optimum balance that maximises economic openness without
weakening its political control. However, the terms of the
_ Innovation requires critical thinking and exchange
of information and ideas, which censorship,
propaganda and indoctrination will impede.
point where innovation becomes the primary driver of growth;
at this point, the cost of political repression in foregone
economic potential may rise.
sake of political control; the question is how far this
The leadership may then face a choice between political
liberalisation and economic stagnation, both risky: economic
stagnation would undermine the state’s ‘performance
legitimacy’ and erode its repressive capabilities, while
political liberalisation could get ‘out of control’ if it creates
space for more powerful oppositional forces than the Party is
willing to tolerate.
_
_
opening to steer back towards a more liberal course.
_ The early 2000s provide a precedent for a more
liberal politics; the late 1980s provide a warning
against loosening controls too much.
See also: Key anniversary raises hopes for China’s liberals -- December 11, 2015
26
Sources: Oxford Analytica; China’s Future, David Shambaugh, 2016
China has gone through cycles of liberalisation and retrenchment in both economy and politics
®
Global Prospects
Prospects for Venezuela to end-2016
Prospects for the second half remain grim, amid continued political and economic turmoil.
The political focus will stay on the contested recall referendum against President Nicolas
Maduro that the opposition Democratic Unity Movement (MUD) is seeking to convene
before January 2017. On the economic front, the government will be under intense
pressure to liberalise the economy amid worsening shortages and as the country and
state oil company PDVSA face onerous debt repayments.
What next
The government will focus on mobilising hemispheric support against the recent threat of
suspension from the Organization of American States (OAS), relying on its team of
experienced diplomats in Washington to lobby support of regional allies. After a period of
dominating the political discourse, the MUD will turn inward to confront deepening schisms
over the next steps in its campaign to remove Maduro from the presidency. Popular
sentiment will remain volatile, with the ongoing risk of spontaneous and violent protests
against shortages.
Analysis
Wrangling over the legitimacy and timing of a recall referendum will dominate the coming
months.
Recall referendum
The opposition MUD is seeking to mobilise the constitutional right to a recall referendum
against Maduro mid-way through his term (see VENEZUELA: Converging pressures risk
implosion - May 19, 2016). By May, it had collected the requisite number of signatures
required to petition the National Election Council (CNE) for a recall.
A protest over food shortage and
against Venezuela's government in
Caracas (Reuters/Marco Bello)
Strategic summary
• The military should resist
opposition calls for
intervention -- which would
in any case not necessarily
favour the opposition.
• The catastrophic economic
situation will not improve
this year, though default
may be staved off at a high
cost.
• External actors are likely
increasingly to seek
dialogue rather than
potentially destabilising
intervention.
If a larger share of the electorate vote against Maduro in a recall than backed him in the
April 2013 presidential election (7.6 million), there will be fresh presidential elections.
Tense constitutional arguments will prevail:
Timing
The government maintains that Maduro began his term in January 2013, when he stood in
for late President Hugo Chavez when the latter was receiving treatment for cancer in Cuba.
Under the government's reasoning, the opposition MUD has already missed the deadline
for a recall. The opposition, by contrast, will maintain that Maduro's term commenced with
the April 2013 presidential election in which he was elected to succeed Chavez.
In any case, if a recall vote is delayed beyond January 2017 and Maduro loses, VicePresident Aristobulo Isturiz will serve the remainder of Maduro's term through to 2019.
27
®
Global Prospects
Signature verification
The government will continue to challenge the veracity of the signatures collected and
submitted to the CNE. The CNE has said that some 600,000 of the 1.97 million signatures
it received 'did not meet requirements'. According to Maduro, over 20,000 signatures have
been falsified. The CNE has commenced the verification process, but a long delay in
approving signatures will exacerbate political tensions.
Referendum outlook
The government will continue to resist a referendum, but if one is convened before January,
the country will face a period of intense partisan agitation and mobilisation.
Prospects for Maduro in a recall vote are poor, with the president likely to face heavy
defeat amidst an acute economic crisis and diminished popular confidence in ambitions to
create a model of '21st Century Socialism'. Political violence cannot be discounted. Proand anti-government groups will continue to rally street demonstrations.
Any rise in violence might
increase pressure for military
intervention
The military will remain under pressure to intervene, most recently deflecting demands from
MUD leader and former presidential candidate Henrique Capriles to observe a
'constitutional duty' to remove Maduro. Attitudes within the armed forces remain difficult to
gauge, although it is expected that majority and senior level sentiment will remain loyal to
Maduro.
External influences
External actors will be important determinants of domestic political stability in the months
ahead. However, regional neighbours and the international community are divided over next
steps and the legitimacy of intervening in Venezuela.
The opposition MUD will continue to look to the OAS to isolate Maduro, including lobbying
for Venezuela to be suspended under the OAS Democratic Charter. However, recent
missteps by OAS Secretary-General Luis Almagro, including strongly critical statements
against Maduro that were not endorsed by the 34 OAS member states, have proved
counterproductive and led several countries to pronounce in favour of dialogue and
negotiation.
The MUD will also look to the United States as another important ally in its campaign to
remove Maduro. However, as with OAS member states, signals from the United States -including a meeting on June 14 between US Secretary of State John Kerry and
Venezuelan Foreign Minister Delcy Rodriguez at the OAS General Assembly in Santo
Domingo -- point to a US preference for a negotiated resolution to Venezuela's political
crisis.
While the Maduro administration will continue to be relatively receptive to dialogue, albeit
on its own terms, the MUD will need a significant inducement to engage in negotiations.
The opposition will maintain a hostile stance toward any mediation that is seen to
strengthen the position of a government that they maintain is illegitimate and discredited
(see VENEZUELA: Constitutional crisis is accelerating - April 15, 2016).
Economic outlook
The already parlous economic situation will deteriorate unless the government embraces
drastic policy reforms. However, there is no indication that Maduro's economic team is
preparing to reorient economic strategy in the months ahead (see VENEZUELA: Political
machinations will worsen crisis - February 19, 2016; and see VENEZUELA: Politics
deepen economic crisis - January 27, 2016).
28
®
Global Prospects
Although price and exchange controls are creating shortages, inflationary pressures and a
thriving black market, there will be profound reluctance to embrace any form of market
liberalisation in the remainder of the year, particularly at a time when the government is
facing the prospect of an election.
The scarcity index stands at 80%, and the IMF forecasts inflation of 720% and a GDP
contraction of 8% this year, following on from a 10% GDP decline in 2015. Recent
proposals to distribute food and medicines 'house by house' via community councils might
only compound problems given that the councils are inefficient and lack structures to
undertake such a programme.
8%/720%
GDP contraction/inflation rate
forecast by IMF for 2016
There are high market expectations that PDVSA will default on an onerous 5 billion dollars
in principal and interest payments that fall in October and November. Although the
government and PDVSA continue to emphasise their commitment to the repayment
schedule -- including 20 billion dollars in payments on maturing sovereign debt and interest
over the next 18 months -- this can only be maintained at a high social cost.
Meanwhile, a further deterioration in oil and energy output is to be anticipated due to power
outages and equipment failures (see VENEZUELA: No rapid oil sector upturn on the cards
- January 18, 2016):
• The Paraguana oil refining complex is now reported to be operating at 25% capacity,
driving an 11.9% reduction in national crude output to 2.53 million barrels per day (b/d)
in the first quarter of 2016 compared with the same period of 2014.
• According to OPEC, in May oil output fell by 5% month-on-month and nearly 11% yearon-year, to 2.37 million b/d.
A steep reduction in imports to address oil export revenue declines and a rapidly
deteriorating international reserve position has compounded problems of scarcity. The
greatest immediate challenge facing the government is controlling mounting popular anger
and rising incidents of spontaneous riots and disorder.
29
®
Global Prospects
June 16, 2016
India’s energy demand set to soar by 2040
India’s demand growth is likely to outpace that of Brazil, Russia,
China and South Africa by 2040
Total primary energy demand (billion tonnes of oil equivalent)
India
China
Brazil
Russia
India’s domestic energy targets are likely to prove
overoptimistic
2015
2020
2025
2030
2035
South Africa
Coal production (million tonnes)
4
3
477
2020 likely output:
996
2020 target: 1,500
2
Nuclear installed electric capacity (gigawatts)
1
5.7
0
2020
2040 2020
2040 2020
2040 2020
2040 2020
2040
The oil slump and deregulation have dramatically
cut India’s energy subsidy bill
Subsidies on petroleum products (billion dollars)
25
20
15
Domestic
LPG
Kerosene
5
100
61
2032 target
2025 likely output
2022 target
60
77
2025 likely output
Other renewables (excluding hydro & including bioenergy) (gigawatts)
Diesel
0
2012
2022 target
31
Wind installed electric capacity (gigawatts)
25.1
10
63
Solar installed electric capacity (gigawatts)
4.9
2035 likely output
2013
2014
2015*
51.6
2022 target
15
14
2025 likely output
* 9 months of fiscal year
Over the next two decades, India’s energy demand growth is expected to
outpace that of all other members of the BRICS grouping, with its energy
demand rising 87% between 2020 and 2040, compared with only 18% in China.
In line with the demands of the fast-growing economy, Prime Minister Narendra
Modi’s government has advanced ambitious targets for domestic production,
especially in the coal and renewables sectors by 2020. Although nearly all of
the targets will prove unrealistic, India is likely to see a dramatic rise in coal
production and electricity generation from renewables (particularly solar).
Given India’s weak domestic resource base on oil, and infrastructural and
price constraints in upstream gas development, it will continue to rely heavily
on imports. This will make India a crucial international market for oil and gas
exporters, and nuclear operators, while also increasing its impact on global
price movements.
_ The oil slump has helped India reduce
energy subsidies, but for political
reasons subsidies may need to rise
when oil prices pick up.
_ India’s coal reliance is unshakeable on
current trends.
_ The government will cite its
renewables achievements, especially
on solar, to appease climate activists.
_ As energy consumption rises, the
government will fail to cut air and
noise pollution to acceptable levels.
See also: India elevates energy ambitions as 2019 polls near -- May 23, 2016
30
Sources: Ministry of Power; Ministry of Coal-Government of India; IEA World Energy Outlook 2015 and Sylvie Cornot-Gandolphe 2016
India’s total primary energy demand will nearly
double by 2040
®
Global Prospects
September 8, 2016
Low investment restricts Latin American infrastructure
Transport and telecoms infrastructure shortfalls are two key factors
undermining Latin American competitiveness
Total public and private infrastructure investment, average 2008-13 (% of GDP)
6.02
5.08
5.06
Nicaragua Panama Honduras
4.78
Peru
4.50
4.34
Bolivia
3.79
Costa Rica Paraguay
3.28
Chile
3.11
2.98
Brazil
2.66
2.29
1.99
1.95
Colombia Guatemala Uruguay El Salvador Argentina
1.62
Mexico
… but only Bolivia consistently increased the percentage of GDP spent on infrastructure for every year of the period
Public and private infrastructure investment, 2013
(Billion dollars)
Public and private infrastructure investment, 2008-13
(% of GDP)
Nicaragua
Mexico
Honduras
Nicaragua
Panama
Guatemala
El Salvador
Costa Rica
XX
Transport
Total infrastructure
investment
(billion dollars)
Costa Rica
4
Brazil
2
0
Bolivia
Energy
Bolivia
6
Peru
Telecommunications
Honduras
8
Colombia
Waterrelated
Panama
Peru
Paraguay
Chile
2008
Uruguay
Argentina
2015
4
2
0
Goal 9 of the UN Sustainable Development Goals (SDG) calls for
building “quality, reliable, sustainable and resilient infrastructure …
to support economic development and human well-being”.
_ Brazil’s proposed 198.4-billion-dollar transport
infrastructure plan, announced in 2015, has
made little progress.
However, Latin America continues to lag in attaining the SDGs, in
particular with respect to infrastructure. Despite being the world’s
most urbanised region, it is particularly deficient in transport and
communications infrastructure, limiting trade opportunities and
prompting protests over service quality. The fall in commodities
prices may further curtail infrastructure investment prospects.
_ Argentina’s newly announced 14.2-billion-dollar
plans for passenger rail could fare little better.
Brazil is a case in point. Public transport is a key source of citizen
anger and the so-called ‘Brazil cost’ linked in part to poor cargo
infrastructure reduces competitiveness and investment.
_ Water-related investment is also crucial to boost
the population’s access, and the region’s future as
a global food producer.
_ Despite more ‘business-friendly’ governments,
investors will be wary given the long-term
nature of infrastructure spending.
See also: Latin America’s patchy MDGs record could deteriorate -- October 21, 2015
31
Sources: UN Economic Commission for Latin America and the Caribbean,
Inter-American Development Bank, Latin American Development Bank
Mexico's investment levels lag, though Central America has performed better ...
®
Global Prospects
Prospects for emerging economies to end-2016
Wednesday, June 15 2016
Despite political risks causing bouts of volatility in countries such as Brazil and Turkey,
emerging market (EM) growth prospects have improved moderately and asset prices have
rebounded after the turbulence of early 2016. More stability in exchange rates has helped,
with the US Federal Reserve (Fed) holding off raising rates. The rebound in commodity
prices has been supportive, too, together with receding concerns about China's slowdown.
Some countries have also eased fiscal policy to reduce social tensions risks.
What next
The main risk for EMs in the second half of 2016 is currency vulnerability in the face of
possible renewed dollar strength caused by Fed rate raises. However, US rate hikes are
anticipated, and a repeat of the 2013 'taper tantrum' looks unlikely. On fundamentals,
growth could accelerate in mid-2016. In the medium term, it will be challenged by
scepticism concerning the sustainability of the commodity price rally, uncertainty over
China's outlook and fiscal pressures.
Analysis
The more favourable environment has allowed some EMs to increase fiscal spending (eg,
Nigeria) or ease monetary policy (India). The weaker dollar and lower inflation let EM
central banks worry less about exchange rates and instead align policy with economic
fundamentals.
Further easing is likely. Nearly two-thirds of EM central banks have eased policy in 2016
thus far or are expected to do so before year-end.
Hanjin shipping's container terminal is
seen at the Busan New Port in Busan,
South Korea (Reuters/Lee Jae)
Strategic summary
• If exchange rates remain
stable, India, Indonesia and
Hungary could ease
monetary policy further,
supporting growth.
• Poor governance and policy
credibility, along with rating
risks, cloud the outlooks
for Brazil, Turkey, South
Africa and Poland.
• EM corporate debt remains
vulnerable, but to a lesser
degree due to Chinese
corporates deleveraging.
China is stimulating its economy, including through easier fiscal policy. Additional
infrastructure and social spending to boost poorer regions will raise domestic welfare and
development although the impact on GDP will be modest.
For commodity producers, the rebound in commodity prices will alleviate pressure, but the
economic and financial situation remains difficult.
Unless oil and gas prices move sharply higher and quickly, which is unlikely, most energy
exporters will need to enforce both monetary and budget discipline despite negative effects
on growth.
For those facing budget overspends, the alternative is external financing, which could be
costly when lending standards are tightening and private investors may be reluctant to
increase their exposure to oil-related issuers.
32
®
Global Prospects
Emerging Asia
Despite efforts to shore up China's economy, the region is not recovering strongly. Trade
flows weakened in early 2016 after some recovery at end-2015. Prospects for a short-term
rebound remain limited.
Demand from advanced economies is slowing, and competition remains fierce. Policy
support is rising, but industrial activity remains sluggish amid high inventories and low
capacity utilisation.
The inventory overhang persists while supply disruptions in India have compounded the
industrial slowdown. Housing is the only sector showing improvement.
India's growth will slow to around 7.5% in 2016 due to supply disruption in the car sector
and broad-based decline in agriculture and industrial production. Nevertheless, India will
remain the fastest-growing Asian economy.
Emerging Europe
The region will remain unattractive for foreign investors, with outflows likely from Polish and
Romanian bond and equity funds (see EUROPE: Policy risks will dog emerging markets June 10, 2016).
Russia
In Russia, the commodity rebound will help the recession bottom out in 2016. A mild
recovery might emerge before year-end (see RUSSIA: Recovery is coming with rapid
growth unlikely - June 10, 2016).
Russia's recession should
bottom out this year
Domestic demand stabilisation will support the turnaround. The economy has adjusted to
lower global oil prices and the government may relax spending ahead of the September
election. Russia's external trade and investment will remain constrained by sanctions,
weighing on its key trading partners.
33
®
Global Prospects
Turkey
The deteriorating security situation and poor relations with Russia are affecting tourism,
which overall accounts for 13% of GDP. These, together with erratic changes in political
appointments, will discourage investors.
Inflation is high, yet the new Central Bank governor will be under pressure to loosen policy
to weaken the lira, potentially damaging corporates with dollar-denominated debt.
Poland
After a quarterly contraction in January-March, GDP growth could disappoint again. Rating
agencies, sceptical about economic policy, are contemplating downgrades.
Hungary
Hungary has returned to investment-grade with rating agency Fitch, thanks to:
• current account surpluses;
• high EU funding inflows;
• banks' external deleveraging;
• a self-financing public debt programme; and
• a foreign-exchange-mortgage conversion scheme.
With Moody's next review of Hungary's rating scheduled for July and S&P's for September,
the country could regain the investment-grade status it lost in 2011.
The OECD forecasts accelerating growth, to 3.1% in 2017, when the government will likely
loosen fiscal policy ahead of elections (see HUNGARY: Another ratings upgrade is likely
soon - May 23, 2016).
Middle East and North Africa
In the Middle East, growth should slow further in oil-exporting countries given low oil prices,
fiscal restraint and liquidity tightening. Oil importers such as Tunisia are benefiting from low
commodity prices.
Egypt
Egypt's Central Bank devalued the pound in March, followed by aggressive rate hikes, up
150 basis points year-to-date to 10.75%, aimed at boosting forex reserves. Large external
and fiscal imbalances require:
• further pound devaluation;
• fiscal reforms;
• external sovereign issuance; and
• external financial support to achieve this year's forex reserve target.
34
®
Global Prospects
Gulf States
Export revenue losses are forcing the Gulf States into fiscal restraint and accelerated
reforms. Delays or reversals could keep ratings under pressure, notably in Saudi Arabia.
Sub-Saharan Africa
Sub-Saharan Africa (SSA) will see slow growth after the slump in late 2015 as a
combination of these factors hits individual countries:
• severe drought;
• low commodity prices;
• interruptions in electricity supply; and
• tighter monetary and fiscal policy.
The region will see its weakest period since the early 1990s in 2015-16.
Risks of debt distress have risen, partly due to the accumulation of non-concessional
sovereign debt. About 70% of the region's external debt is dollar-denominated, thus
currency depreciations have increased debt burdens (see PROSPECTS H2 2016: Africa
economies - June 6, 2016).
2015-16 will be the weakest
period for SSA since the early
1990s
Many countries need tighter fiscal policy, unlikely to be implemented. The many
forthcoming elections will sustain social spending and subsidies.
Pressure for economic reform remains substantial, and rating agencies are watchful. South
Africa may lose its investment-grade status.
Currency markets have benefited from the recent dollar weakness, though dollar availability
remains a constraint in Nigeria, Angola and Zambia and is tight in other countries, except
South Africa.
Latin America
Latin America is adjusting to lower commodity prices and weak global manufacturing
activity. It is likely to slow further, with stagnant or slightly negative growth, dragged by
Brazil, Venezuela, Ecuador and possibly Argentina.
South America is predicted to see a 1.9% GDP contraction, with Mexico and Central
America set to expand by 3.9%, according to the UN Economic Commission for Latin
America and the Caribbean. The commodity prices rebound is insufficient to improve
macroeconomic prospects (see LATAM: Growth gloom persists - June 14, 2016).
However, it has helped reduce downside risks, especially given weak domestic demand.
Trade data could recover from their 2015 lows.
As commodity prices dropped by 35% in 2015, dollar-denominated merchandise exports
fell 15% in Brazil, 35% in Colombia, 17% in Argentina and Chile and 4% in Mexico. In
2016, the pace of annual contraction in exports has moderated.
In Brazil, year-on-year export growth turned positive, due to the weak exchange rate
boosting manufacturers' sales. It should improve further if commodity prices keep
recovering.
Nevertheless, commodity prices remain at half their 2011-13 average. Given fragile global
growth, a trade-led recovery looks unlikely.
35
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