Security on the seas has improved in recent years but 2019 is not a year for complacency, as established pirate groups seize upon vessel vulnerabilities and...
Security on the seas has improved in recent years but 2019 is not a year for complacency, as established pirate groups seize upon vessel vulnerabilities and new threats emerge. The Gulf of Guinea will continue to be the world’s foremost piracy hotspot, with no let-up in the scourge of robbery and offshore kidnaps that trouble the region. Hijacking attacks in the Gulf of Guinea will continue to be a threat to mariners, vessels and cargo in 2019.
Off the Horn of Africa and Arabian Peninsula, Somali piracy will largely be kept under control. However, any easing of commercial shipping safeguards will motivate attackers. Meanwhile the ongoing conflict in Yemen poses a completely different threat in the region. The outcome of that conflict will be critical to the safety of navigation in the Red Sea; Should Houthi militants lose strategic interests, such as the port of Hodeidah, they will pose a more unpredictable threat to shipping.
Similarly, the continued fight between state forces and militants on land in the Philippines will be critical in keeping the Sulu and Celebes seas safe for mariners, but the threat of offshore kidnapping will remain in 2019.
In Latin America, operators off Mexico’s eastern coast need to consider hardening their assets as piracy emerges as a serious threat to operations. Meanwhile, growing destabilisation in Venezuela may push piracy trends toward more complex and organised offshore attacks in the coming year.
2019 brings divided government back to the US. After two polarising years under President Donald Trump, Americans voted decisively for...
2019 brings divided government back to the US. After two polarising years under President Donald Trump, Americans voted decisively for checks and balances. For Trump, the opposition-controlled House of Representatives will be a fierce but useful political adversary as he prepares to run for re-election in 2020. Trump and his administration will face invasive scrutiny: hearings, investigations, and subpoenas that consume the attention and capacity of the White House. Democrats risk overplaying their hand and playing into Trump’s, and need to wrangle a diverse caucus of progressives, populists, and pragmatists.
A divided Congress means budget battles, policy paralysis, and limited legislation. Relevant political action will shift up and down: up to foreign policy, where Trump has a relatively free hand to pursue trade wars, and down to the states, where Democrats also made sweeping electoral gains in 2018. Expect to see these laboratories of democracy tinkering with healthcare, energy, environment, and labour regulation.
For business, divided government is a mixed bag. On one hand, it precludes major legislative initiatives and cements favoured policies, such as the 2017 tax reform. On the other, it is likely to significantly slow Trump’s deregulatory agenda, stymie infrastructure spending, and increase the likelihood of damaging budget stalemates.
Upon assuming office in December of 2018, Andres Manuel López Obrador holds more power than any other Mexican president since 1994. His leftist...
Upon assuming office in December of 2018, Andres Manuel López Obrador holds more power than any other Mexican president since 1994. His leftist National Regeneration Movement (Morena party) has a majority in both houses of Congress. International investors will remain wary of López Obrador’s policies, particularly those related to the energy sector. His administration will make moves to overhaul the Mexican state-owned oil company, PEMEX, even if it means ceasing the implementation of the historic energy reform program of 2013 that opened the sector to foreign investment.
Mexico will remain vulnerable to external shocks during 2019, particularly the increasingly frosty relations with the US, increased protectionism worldwide, and financial shocks that could undermine Mexican macroeconomic stability. However, despite these challenges, Mexico will remain one of the most attractive investment destinations globally. The incoming administration’s plans to increase wages will lead to higher levels of consumer spending, and the country will remain the most cost-competitive economy for advanced manufacturing companies seeking to enter the North American market.
The greatest challenge for President López Obrador in the year ahead will be improving public security; 2018 was Mexico’s most violent year on record. Doing so will entail comprehensive police reform and the quick implementation of the National Anticorruption System (SNA) in order to combat corruption within the security forces.
Venezuela’s politics, its economy and society are in decline as oil production—the country’s lifeblood—is also in free fall. The country with the...
Venezuela’s politics, its economy and society are in decline as oil production—the country’s lifeblood—is also in free fall. The country with the largest oil reserves in the world had, by September of 2018, erased nearly 1.3 million barrels of oil per day in less than five years. For 2019, oil output in Venezuela will fall below 800,000 barrels per day and will reach the lowest levels in its history, shy of the 640,000 barrels per day seen during a three-month-long oil strike in early 2003. Venezuela’s oil decline in the coming year will be remembered as one of history’s most pronounced examples of wealth destruction by an oil-rich nation.
The decline will prompt the regime of Nicolás Maduro to strike new deals with national oil companies from nations that retain friendly ties with it, such as Russia and China, in a desperate bid stop the fall. Meanwhile, Western companies operating in Venezuela will struggle to manage the reputational and security risks that come with continuing to do business on the brink, especially as the US and the EU tighten sanctions.
After a sweeping victory in a highly polarised election, far-right leader Jair Bolsonaro will take the helm of Latin America's biggest economy in...
After a sweeping victory in a highly polarised election, far-right leader Jair Bolsonaro will take the helm of Latin America's biggest economy in 2019. Although the new president is globally notorious for his extremely controversial rhetoric, Bolsonaro’s liberal economic policies have won him the tactical support of the local business community. Investors will be watching closely to see whether his government will be able to use his political capital to push forward his agenda of privatisation, deregulation and reduced public spending.
His Social Liberal Party (PSL) performed well in the legislative elections but will still require the support of other political forces to approve constitutional amendments in Congress, such as a pension reform, meaning that the firebrand president will have to compose himself at the negotiation table in order to deliver on his campaign promises.
The Brazilian economy is expected to improve in 2019, but things could derail quickly if the next government is perceived to be lenient on the fiscal front. Furthermore, Bolsonaro’s confrontational style will continue to alienate a significant portion of Brazilian society, resulting in frequent nonviolent public protests.
Buhari’s second term
With his newly consolidated power-base, President Buhari is likely to retain a focus on the key priorities of his first term, including boosting non-oil revenue, and a renewed drive on anti-corruption and security efforts. The government’s policy agenda is also likely to face fewer stumbling blocks in parliament, given the success of the APC in both houses of the National Assembly after a slew of pre-election defections saw the APC loose its majority in the Senate (upper house). The pace of deliberation on key reforms could quicken, including a much delayed overhaul of the Nigerian National Petroleum Corporation (NNPC). However, President Buhari’s health is likely to remain a concern as he will likely continue to periodically seek medical treatment abroad. While Buhari’s incapacitation in office poses the most significant risk to national stability in his second term, Vice President Yemi Osinbajo is likely to take office as his successor if Buhari is unable to complete his term.
The administration will view Buhari’s re-election as an affirmation of its key campaign promise of combating graft. Anti-corruption efforts will continue to focus on oil, gas and power contracts signed under former president Goodluck Jonathan (2010-15), often demanding renegotiation and imposing fines. The selective enforcement of anti-corruption and tax reforms will have an adverse effect on the business environment.
Buhari has promised to revamp the counter-insurgency campaign in the north-east by replacing his armed forces service chiefs and to boost the morale of an increasingly over-stretched military. Ahead of the polls, the Niger Delta Avengers (NDA), promised to re-launch attacks in the oil producing states if Buhari was re-elected. We view these threats as credible. However, the determination of the NDA to relaunch attacks will largely depend on the willingness of the Buhari administration to channel amnesty payments to the new faction.
The government will likely continue its military campaign in the north-east in coordination with neighbouring countries. However, the Islamist militant group Boko Haram’s capability to stage complex attacks is likely to increase as its Islamic State West Africa Province (ISWAP) faction escalates attacks near the Niger and Chad borders. Overall, Islamist extremists will likely continue to pose a threat in the north-east, chiefly to military and “soft” civilian targets. Changes to the top brass of the armed forces will likely yield only limited security gains, given the intractable nature of the underlying drivers of insecurity in the north-east and Niger Delta.
Nigeria’s economic recovery in 2017 and 2018 will continue to progress at a slow pace, largely driven by improving oil prices. Buhari’s infrastructure drive will result in a moderate economic boost. The government is likely to commissions some of the road building, power generation and other infrastructure projects it promised during its campaign, even if meaningful improvements in infrastructure will take many years. The government is also likely to maintain currency controls at the expense of Nigeria’s external reserves, heightening sovereign risks.
Political and regulatory risks are also likely to increase for businesses as the government looks to diversify away from its dependence on oil. The administration is likely to intensify efforts to boost non-oil revenue, particularly through widening the tax net and introducing new tax incentives programmes. For example, the government introduced an executive order in January enabling private companies to build federal roads in exchange for tax credits on costs incurred. Further tax credit, amnesty and enforcement programmes will also be introduced as the government seeks to increase revenues to plug a large fiscal deficit.-
Ethiopia has previously been known for its tightly controlled political and economic system, but new Prime Minister Abiy Ahmed, who was appointed...
Ethiopia has previously been known for its tightly controlled political and economic system, but new Prime Minister Abiy Ahmed, who was appointed in April 2018, has brought rapid change to the country. After selecting an inclusive and technocratic cabinet, reshuffling the leadership of the security forces and signing peace agreements with former insurgent groups over the last year, 2019 will illustrate the strength and reach of Abiy’s reforms.
If local elections are held as scheduled in the coming year, those in Ethiopia's two chartered cities—the capital of Addis Ababa and eastern commercial centre of Dire Dawa— will provide a litmus test of Abiy’s popularity. As Abiy has also promised more openly contested polls, the elections should also reflect the strength of independent opposition parties.
The ability of Abiy to balance the competing interests of Ethiopia’s main ethnic groups and political elites while managing the high expectations of the large, young population will be critical to addressing internal security threats and to attracting foreign investment in the year ahead. In addition, Abiy’s diplomatic efforts with Djibouti and Eritrea—if proven successful—have the potential to unlock economic opportunities and reduce security threats in the wider Horn of Africa region.
Aftershocks from sweeping transformations to Turkey’s political system will continue to be felt throughout 2019. As the dust settles on the newly introduced...
Aftershocks from sweeping transformations to Turkey’s political system will continue to be felt throughout 2019. As the dust settles on the newly introduced presidential system, which places executive power in the presidency, key institutions are still struggling to work out their role within the new structure.
The coming year will see both the presidency and state institutions testing the limits of their power against one another. For the moment, the presidency has taken full control. But over the coming year, when faced with future crises, it may become useful to shift the blame.
With few checks remaining, the government is taking a politicised approach to policy-making. Challenges are increasingly seen through the narrow lens of tests of the government’s resolve. This has and will make it harder over the coming year for the government to react swiftly and effectively to economic difficulties and will have a destabilising effect on foreign policy.
Businesses will encounter a more erratic but also at times decisive policy and regulatory framework. In sectors where the government wants to drive growth, such as mining and energy, it will act without inhibition.
Whatever happens with or without a Brexit deal, 2019 will be a year of more uncertainty for businesses in the UK. The country’s future relationship with the EU will...
Whatever happens with or without a Brexit deal, 2019 will be a year of more uncertainty for businesses in the UK. The country’s future relationship with the EU will remain unclear, as will the operating framework for companies. The government is likely to try to make up for this with incentives to persuade investors to stay in the UK, such as tax cuts and promises of regulatory easing, but many businesses will continue moves to Brexit-proof themselves by shifting at least some of their operations elsewhere in the EU. Attempts to seek trade deals around the world will see limited progress.
Meanwhile, the Conservative government remains in a perilous position, with Jeremy Corbyn’s Labour party nipping at its heels in opinion polls, dissent on the back benches and the lack of a majority making parliamentary votes nail-biting. When the government finds time to consider issues other than Brexit, it will find voters clamouring for more public investment. Overall, 2019 will be a make or break year for Theresa May. Pull off Brexit relatively smoothly and she will have enough political capital to stay on and turn her attention to other projects. Fail to do so and her future looks murky.
The EU will continue to face challenges in 2019 – both internally and externally. Diverging opinions on major issues, such as migration and the desired level...
The EU will continue to face challenges in 2019 – both internally and externally. Diverging opinions on major issues, such as migration and the desired level of integration, as well as stand-offs with national governments in Poland, Hungary and Italy, will continue to shake the bloc’s unity. The continuing growth of populism, aided by increasing public dissatisfaction with the traditional political establishment, is likely to be reflected in the elections to the European Parliament in May. A shift in the parliamentary composition and/or majority would inevitably drive changes in the policy outlook for the EU as a whole.
As the EU28 shrinks to EU27 post-Brexit and the future trade relationship with the United Kingdom remains unclear, businesses trading across the English Channel will continue to face uncertainty around the operating environment after B-Day. Externally, trans-Atlantic tariffs will remain a thorn in the side of the EU’s trade relationship with the US, while new opportunities will arise with the likely implementation of trade deals with Asian countries, including Japan, Vietnam and Singapore.
In India, Prime Minister Narendra Modi of the ruling Bharatiya Janata Party (BJP) will face a crucial battle for re-election in 2019. The general...
In India, Prime Minister Narendra Modi of the ruling Bharatiya Janata Party (BJP) will face a crucial battle for re-election in 2019. The general elections (due to be held by May) were widely assumed to be a cakewalk for the incumbent administration until recently; the result is becoming less certain thanks to a rejuvenated opposition, rural distress, rising fuel prices, and unemployment. Although Modi’s popularity rates remain high and an upset is unlikely, the BJP will probably lose parliamentary seats and its majority status, forcing it to scout for regional allies, and potentially marking a return to the coalition era.
On the reform agenda, cleaning up the mountain of banking sector debt will remain a priority, though this will not extend to relinquishing government control of state-owned banks. Piecemeal measures such as easing foreign investment limits and streamlining tax laws will be preferred as the government eschews politically-contentious labour and land acquisition reforms. Trade disputes with the US will force India to hedge its bets by maintaining high-level engagement with China and Russia, but relations with Washington will continue to be underpinned by robust defence cooperation amid their mutual wariness of China’s strategic intentions in the Indo-Pacific region.
Vietnam is where we see the most new investor interest in South East Asia. That interest pre-dates the Trump presidency and the US-China trade issues, and has...
Vietnam is where we see the most new investor interest in South East Asia. That interest pre-dates the Trump presidency and the US-China trade issues, and has not been affected by the post-Trump disruption to the Trans Pacific Partnership (TPP) regional trade pact.
In the coming year, Vietnam should continue to see that underlying interest and start to benefit from inbound manufacturing relocations from companies looking for trade war workarounds and several new big trade agreements, such as the rebranded US-less TPP (the CPTPP) and another with the EU. Watch out, however, for targeted non-tariff instruments from the Vietnamese side, and the US reaction to any significant change in the US-Vietnam balance of trade.
The political purges seen since mid-2016, including the jailing of a Politburo member, will ease in 2019. The recent death of the president and the now unassailable strength of Communist Party general secretary effectively removes the highest-level layer of political friction, and the related risks for business.
For most companies, risk in Vietnam will remain primarily operational, reflective of the particularly challenging compliance environment, difficulties in dealing with sections of government, as well as a lack of legal and judicial cover in the event of disputes with local entities.
Companies doing business in China and with China need to redefine their position and purpose in 2019. Beijing’s push to implement its development vision–spearheaded...
Companies doing business in China and with China need to redefine their position and purpose in 2019. Beijing’s push to implement its development vision–spearheaded by the Made in China 2025 plan to advance the country’s technology and manufacturing sectors–has triggered growing scrutiny and push-back from other economies. But beyond the continuing cacophony of trade war, 2019 will force even those businesses with enduring China footprints to re-examine how they compete in China, and how they align themselves with Beijing’s industrial, regulatory and political agendas.
Being local will become more important for success in China, as the government looks to see more strategic goods made by China, not just in China. Balancing such ‘localisation’ at a time when calls by China’s trading partners for ‘decoupling’ are increasing gives companies a difficult choice of whether to mitigate geopolitical risks by separating or integrating their China business vis-à-vis their Asia-Pacific and global strategies. Either approach will come at a cost.
Political risk in the coming year will at times merge with regulatory compliance risk, as China employs much-needed campaigns (such as improving environmental protections and cybersecurity) to help shape its industrial development.
In our RiskMap forecast for 2017 we said the election of US President Donald Trump increased the likelihood of both best- and worst-case scenarios for the...
In our RiskMap forecast for 2017 we said the election of US President Donald Trump increased the likelihood of both best- and worst-case scenarios for the Korean peninsula. Two years on, it could still go either way; 2019 will be decisive. US-North Korea ties went from an alarming low in 2017 to an historic high in 2018, at least in symbolic terms with the countries’ first ever bilateral summit. Yet for all the year’s dramatic developments, fundamentals are unchanged: the diplomatic flirtation will only continue if Trump gambles on a “denuclearisation” deal that leaves real denuclearisation a distant goal.
Such a deal could contain Pyongyang’s weapons development and reduce hostility, whereas seeking to force a highly improbable unilateral denuclearisation increases conflict risk. However, this approach effectively means settling for arms control rather than denuclearisation, and is opposed by most of Washington. Diplomacy remains extremely precarious and, even if an initial deal is reached, will have to survive implementation amid allegations of cheating and a persistent risk of breakdown. While ‘success’ would look underwhelming (a ‘fake denuclearization deal’), diplomatic breakdown would restart the escalatory trajectory of 2017, and make Korea the most severe global security threat of 2019.
In 2019 high levels of external debt will mark an increasingly vulnerable economic environment in Pakistan but relationships between the military and the political...
In 2019 high levels of external debt will mark an increasingly vulnerable economic environment in Pakistan but relationships between the military and the political establishment will stabilise. Prime Minister Imran Khan’s first year in office will be defined by his efforts to address the country’s fiscal woes. This will incentivise the government to raise foreign currency reserves by engaging allies in the Middle East and Asia and work with the International Monetary Fund (IMF) to address the country’s fiscal imbalances.
Despite its active foreign economic policy, Khan’s government will prioritise fiscal consolidation, thereby limiting opportunities for enhanced investment over the coming year. This will inevitably constrain domestic consumption and economic growth. Added to this, pressure from the IMF and the US may prompt the government to downsize investment projects within the China Pakistan Economic Corridor (CPEC), which could curb the flourishing—if not universally popular—Chinese involvement in Pakistan’s business landscape. The government’s more ambitious reforms to improve the business environment and increase foreign direct investment will likely have to wait until beyond 2019.
In 2019, Iraq’s longstanding challenges will mount. However, the new government can begin laying the groundwork for reform. The country’s elevated oil exports...
In 2019, Iraq’s longstanding challenges will mount. However, the new government can begin laying the groundwork for reform. The country’s elevated oil exports in comparison to previous years, large oil reserves, and international concerns over stability will support international investment and provide some means to address infrastructure development. However, the security and operational environment on the ground remains challenging and the government will struggle to provide law and order.
Islamic State will continue to pose a threat as it rebuilds capabilities and focuses on insurgency. The Popular Mobilisation Units (federal military forces that include Iran-backed units) and non-state actors will also continue to pose threats to security and stability and challenge government monopoly over key state prerogatives.
The new prime minister’s weak support base will constrain his ability to challenge entrenched political interests. Political parties will continue to prioritise their access to state resources over political and economic reform, preventing any meaningful solution to growing popular grievances over unemployment, corruption, electricity shortages, and worsening water quality. The latter is having knock-on effects on the economy and public health. The government will rely on repressive responses to counter unrest, though occasional disruptions to businesses will continue.
Iraq will attempt to balance US and Iranian interests amid rising regional tensions. However, aggressive US efforts to counter Iran in the region will inevitably lead to greater political challenges for Iraq and operational challenges for foreign companies in the coming year.
2019 could be a year of crisis between Iran and the United States. Washington will try even harder to escalate sanctions in order to contain Iran’s role...
2019 could be a year of crisis between Iran and the United States. Washington will try even harder to escalate sanctions in order to contain Iran’s role in the Middle East and its nuclear ambitions. The central question is whether Iran will be able to cope with the pressure. Iran will have two strategic options. The first is holding tight and striving to keep oil exports above a basic minimum of 1 million barrels per day, while also using proxy groups and cyber warfare to counter US influence in the Middle East. If that strategy fails, Iran will consider the second option: restarting the nuclear programme and risking a direct confrontation with the US.
The latter option is less likely until later in 2019. Iran is reluctant to provoke a geopolitical crisis while President Donald Trump is in office. There is no strong political figure in Iran willing to advocate leaving the agreement. But if popular unrest escalates to a point where the regime’s survival is potentially threatened, the calculations of the political establishment will change.
Saudi Arabia will face a challenging 2019. With oil prices back up, the kingdom should be riding high, but the reputation of Crown Prince Mohammed...
Saudi Arabia will face a challenging 2019. The reputation of Crown Prince Mohammed bin Salman (MbS) has been enduringly tarnished by the killing in Turkey of Saudi journalist Jamal Khashoggi. Although the resulting international outcry may have caught the crown prince off guard, don’t expect a significant shift in style: MbS will continue to surprise the world with his foreign policy. Relations with Trump will remain positive, but the kingdom is not likely to forget the criticism of its Western partners and will look to sign deals with China and Russia to demonstrate that it has alternatives.
Domestically, mega-projects and a growing role for the sovereign wealth fund will be the order of the day. Regulatory reforms and privatisation, however, will move ahead slowly. Although unemployment will remain high, any unrest is unlikely as the authorities continue to exercise firm control over public discourse.