Coming Soon for March 2023

PRS’ coverage of the Americas this month includes reports on Canada, El Salvador, Mexico, Trinidad & Tobago, and the United States, where the rival Republican and Democratic parties are still feeling their way following the transfer of leadership of the lower house of the Congress to the opposition following last year’s mid-term elections. The report will examine what divided control in Washington means for President Joe Biden’s policy agenda and the various risks stemming from the brinkmanship and dysfunction that have come to characterized periods of divided government in the 21st century. PRS will also discuss the potential for the deepening legal troubles of former President Donald Trump to reinforce partisan mistrust in state institutions, a prospect that has implications for both the security threat posed by militant far-right groups and commitment to the rule of law more generally.

Our look at Western Europe features a report on Spain, where Prime Minister Pedro Sánchez’s center-left coalition government is swimming against the political tide as the country gears up for a general election that falls due later this year. With economic conditions set to worsen in the coming year, the center-right PP is poised to make a comeback after five years in opposition, although the party’s return to power likely hinges on PP leader Alberto Núñez Feijóo’s willingness to team up with the far-right Vox, which remains a matter of uncertainty.

In addition to examining the Sanchez administration’s policy agenda for what is probably its final year in office, the report will discuss the policy changes that can be expected under a center-right government that includes an influential role for Vox. Key elements of the risk analysis will include a discussion of the potential for a renewed crisis over the status of Catalonia and how Vox’s inclusion in the national government could affect Spain’s relations with the EU.

In Eastern Europe, the spotlight is on Czech Republic, where the victory of a pro-western liberal democrat, Petr Pavel, in the presidential election held in January figures to facilitate the maintenance of positive relations with the EU and greatly reduces the risk that the limited powers of the presidency might be used to obstruct Prime Minister Petr Fiala’s already struggling center-right coalition government. Support for the governing parties has eroded amid high inflation that has eroded the spending power of households and necessitated aggressive monetary tightening that pushed the economy into recession in the second half of 2022.

Fiala’s SPOLU bloc and its partners in the Pirates and Mayors alliance have time to repair the damage to their popular standing before an election falls due in October 2025, and the continued rise of support for Andrej Babiš’ populist ANO will create an incentive for the governing parties to avoid an internal crisis that might trigger an early return to the polls. PRS’ analysis will include a discussion of the implications of the government’s policy strategy on the generally quite favorable climate for investment, and an assessment of the near-term prospects for the economy.

Additionally, we feature a report on Belarus, as we seek to decipher its future role in the Russia-Ukraine conflict and how this is impacting on the domestic political scene, bearing in mind the substantial undercurrent of opposition to Alexander Lukashenko’s regime following the rigged presidential elections in 2020. Our report analyses the orchestrated campaign of opposition to the official pro-Moscow line, including sporadic acts of sabotage on its cyber-infrastructure, transport system and military targets – the most recent example being a drone attack on a Russian military plane stationed at an airfield near Minsk. We also assess recent foreign policy moves aimed at shoring up relations with supportive and generally likeminded autocratic foreign powers, including China, the United Arab Emirates and Zimbabwe, to strengthen both military and trade links, and ultimately circumvent western sanctions following the loss of the Ukrainian and Polish markets along with Baltic ports, which supplemented exports earnings that are concentrated on the volume of trade conducted across the border with Russia. Our report goes on to assess economic prospects for the new normal of east-west relations, characterized by energy security, suspicion and tightening sanctions, with forecasts for the country’s growth, inflation, and fiscal and external balances, as the war and its immediate effects continue.

Turing to the Middle East and North Africa, PRS will report on Oman, United Arab Emirates, and Saudi Arabia, in each case taking a close look at how political leaders are using the fiscal windfall generated by higher prices for oil and gas and friendly overtures from economic powers looking to reduce their dependence on Russian energy supplies to their advantage. The analysis will include an examination of the impact on internal political stability, the progress on economic diversification, and the foreign policy priorities of the Gulf kingdoms, including relations within the regional GCC.

Our analyses of Asia this month features a report on Hong Kong, where a government crackdown on democracy undertaken on orders from Beijing has continued under the leadership of John Lee Ka-chiu, who replaced Carrie Lam as the SAR’s chief executive last year. The analysis will discuss the implications of the mainland government’s tightening control for the local business climate, including an assessment of what an evident softening of Beijing’s diplomatic tone following confirmation of President Xi Jinping’s re-election to a third term in October could mean for foreign investors.

We also include a short update on the political unrest, and economic and investor outlook in Mongolia, after the country succumbed to protests last year over the cost of living, a corruption scandal in the coal industry, and a lengthy sentence handed down to the human rights activist Munkhbayar Chuluundorj for criticizing the country’s close relations with China. The government is meanwhile intent on engaging in a crackdown on social media. A new law was hurriedly passed through parliament in January, which would allow strict government controls over free speech, including internet shutdowns if necessary. It was vetoed by the ruling party’s affiliated national president, Uknaagiin Khürelsükh, highlighting internal party differences, but the bill can return to parliament and pass into law if more votes can be secured.

Our report goes on to evaluate prospects for the Oyu Tolgoi copper-gold mine, one of the largest worldwide, as Rio Tinto seeks to consolidate its relationship with the authorities to move the project forward, as well as for other investors looking to capitalize on the country’s rich resource endowment. We also delve into the country’s macro-fiscal dynamics to evaluate prospects for economic growth and foreign exchange liquidity, noting how recent government bond issuance and refinancing moves, coupled with the challenges of high inflation and exchange rate depreciation are affecting the sovereign borrower’s repayment profile.

Finally, this month’s look at  sub-Saharan Africa includes two separate updates on Mali and Somalia, both of which are generally considered high-risk investments. Our report on Somalia investigates the ambitious plans of Hassan Sheikh Mohamud, who was returned to the presidency last year, after previously serving in the role from 2012-2017, and whose government led by prime minister Hamza Abdi Barre has its work cut out to ensure stability. The country’s difficulties are underscored by an ongoing humanitarian crisis caused by civil conflict and drought, and regional power struggles arising from deep-seated political and clan-based territorial and governance rivalries, topped-off by the presence of al-Shabaab, one of the largest and deadliest al-Qaeda affiliated Islamist networks exercising its reign of terror over local communities. Our report considers the implications of recent efforts to quell those rivalries and secure the support of US military assistance cooperating with African Union forces on the ground to combat the extremist threats. We also investigate the country’s economic prospects considering this conflict and the global inflation problem, noting not only how it is affecting personal politics, but also the government’s administrative, tax and legal reforms, notably concerning the extractive industry regime.