Asia
Europe
Latin America
ASIA
Maldives: Democracy further sets
back after arrest of opposition leaders
Event
Opposition leader and former President Mr Nasheed has been jailed for 13 years as he is accused of having
misused the military to arrest the Chief of justice in 2012. In capital Malé, two other major opposition leaders
were also arrested for allegedly trying to oust current President Yameen, and the same happened for a
couple of hundred protesters demanding Nasheed’s release. The international community, including the UN,
has condemned ‘arbitrary arrests’ and threaten to take sanctions against rulers. Impact on country risk
Those arrests are another decisive step in Yameen’s crackdown on opposition aimed to consolidate his
power. With the support from the police and justice while enjoying a majority in parliament, Yameen’s position
looks solid and his democratic track record continues to gradually erode. As a matter of fact, political
opposition is not the only victim of Yameen’s strategy since the civil society and media are increasingly
intimidated and violently repressed. Given Nasheed’s popularity, further protests from his supporters are
expected in the future and foreign sanctions targeting leaders of the ruling PPM party’s international assets
are looming. However, as long as Yameen is supported by the army and police, his grip on power will not be
threatened. Maldives’ political and democratic outlook looks gloomier when considering the simultaneous
rising Islamisation across politics and society in a country where the number of jihadists fighting for the
‘Islamic State’ is proportionally among the highest. Although the dominant tourism sector remains vibrant and
unaffected so far, it could eventually be harmed by a deteriorating political situation and foreign image,
notably via sanctions.
Country risk analyst
Raphaël Cecchi | T +32 2 788 87 45 | E r.cecchi@credendogroup.com
Mongolia : Long-expected deal on
Oyu Tolgoi mine expansion improves
the economic outlook
Event
An agreement on the Oyu Tolgoi mine expansion project has finally been reached between Rio Tinto – which
owns a 66% share in the mine via its Turquoise Hill subsidiary – and PM Saikhanbileg’s government. The
second development phase of this giant gold and copper mine estimated at USD 5.4 bn for underground
operations will resume after having been frozen for two years due to a dispute around financing and tax
payments. Moreover, there is hope that the Parliament soon gives its green light to develop the other big
mining project, i.e. the USD 4bn Tavan Tolgoi coal mine.
Africa
Impact on country risk
With political obstacles being progressively lifted in the mining project saga, Mongolia’s investment framework
could appear friendlier and thus raise investor confidence. A more attractive investment climate should
reverse the sharp downward trend in FDI that has resulted from rising suspicion about the government’s
business stance. Mongolia would largely benefit from it as it much relies on FDI to drive GDP growth
(expected to tumble to 4.4% this year from an 11% average rate in 2010-2014) and to finance a wide current
account deficit forecast at 11% of GDP this year. This positive evolution with regard to exploiting Mongolia’s
largest mines are of particular importance in a gloomier context combining much lower commodity prices and
slower Chinese demand, namely two crucial factors for Mongolia’s economic performances. It remains to be
seen whether this long-awaited mining deal is a clear sign of enduring political commitment towards investors
that will survive future governments, the next test being the 2016 Parliamentary elections. Meanwhile, until
Mongolia bears fruit from further exploitation of its giant mines, country risk will remain vulnerable to external
shocks, pressures on foreign exchange reserves and local currency. Therefore, Credendo Group’s downgrade
of Mongolia’s short-term political risk rating from 3/7 to 5/7 in 2014 is not going to be reversed soon.
Country risk analyst
Raphaël Cecchi | T +32 2 788 87 45 | E r.cecchi@credendogroup.com
EUROPE
Macedonia: May was marked by
political tensions
Event
The month of May was marked by two events, being the death of 8 Macedonian policemen and 10 Albanian
militants during a battle in the northern town of Kumanovo (9 May) and protests against the government and
Prime Minister Nikola Gruevski (17 May) that followed wire-tap revelations. PM Gruevski –who has been in
power since 2006 and has been increasingly perceived as authoritarian - leads a multi-ethnic coalition elected
in April 2014. Opposition Social Democrat leader Zoran Zaev accused the PM of mass surveillance of allies
and opponents. Allegation denied by Nikola Gruevski. In the context of annoying wire-tap revelations, it is not
clear whether the raid against Albanian militants in Kumanovo was aimed to divert public opinion from this
political scandal. However, the raid highlights that ethnic division could be exploited by politicians. This is
dangerous as it could result in heightened tensions.
Impact on country risk
Tensions between political parties are frequent in Macedonia as shown by past opposition’s parliamentary
boycotts and protests. In this context, a solution to the current political crisis would reduce the threat of
political instability. It is important for Macedonia to be perceived as a stable country by foreign investors.
Indeed, over the past years the government has successfully attracted foreign direct investments by building
infrastructure, granting tax breaks, streamlining red tape and ensuring direct access to high-level decisionmakers to help address potential problems. If the country loses investors’ confidence, it could have important
consequences in terms of FDI prospects. Credendo Group’s MLT political risk category – currently in 5 - is
unlikely to be revised as it already takes into account the frequent political tensions.
Country risk analyst
Pascaline della Faille | T +32 2 788 86 75 | E p.dellafaille@credendogroup.com
Turkey: Legislative elections to take
place on 7 June
Event
Parliamentary elections will take place on 7 June. While the ruling Justice and Development Party (AKP) is
likely to be re-elected as President Erdogan and his ‘former’ AKP are credited for bringing Turkey
unprecedented political stability and for improving the living standards of the working and lower middle
classes, the main question concerns the number of seats to be won by the AKP.
Impact on country risk
The presidential function is highly representative in Turkey. Indeed, until now, Mr Erdogan’s attempts to
change the constitution in order to transfer executive power from the Prime Ministry to the Presidency have
failed as his party lacks the needed two-third majority and therefore has to reach a compromise with the
opposition parties. However, the opposition has so far refused to change the constitution out of fear that the
authoritarian tendencies of President Erdogan would increase. This could change if the AKP wins a two-third
majority at the forthcoming legislative elections.
On the economic side, one of the main tasks of the new government would be to restore policy credibility
which is currently under pressure due, in part, to political interference with the central bank’s monetary policy.
Even if Turkey’s current account deficit has decreased recently thanks to lower oil prices, its large reliance on
short-term capital flows remains its Achilles’ heel. This leaves the currency highly vulnerable to changing
investors’ confidence (cf. graph). Credendo Group’s political risk classifications are expected to remain stable
as they already take into account the large reliance on volatile short-term capital flows and the risk of spill-over
effects from the war in Syria and Iraq and the fragile ongoing peace process with the Kurds. On the positive
side, Turkey’s economic fundamentals are strong: exports are well diversified, public finances are solid and
the external debt burden is moderate. The banking sector is well regulated and capitalised although heavily
reliant on short-term funding.
Country risk analyst
Pascaline della Faille | T +32 2 788 86 75 | E p.dellafaille@credendogroup.com
Poland: Presidential mandate shifts
to the right
Event
The run-off of the presidential race which took place last 24 May unexpectedly brought to power the
opposition conservative and nationalist Law and Justice (PiS) party-backed candidate, Andrzej Duda. The
latter defeated incumbent Bronisław Komorowski, who was supported by the centre-right ruling Civic platform
(PO) and had served five years as president. It seems that the corruption scandals that have tarnished the
image of his party and uneven perceived gains of growth have got the better of the incumbent, in spite of the
robust growth period corresponding to his mandate and political stability sentiment.
Impact on country risk
The shift to the right of the presidential mandate will have several implications on the domestic side and the
foreign policy–making process. The most immediate consequence is that it signals a possible change of
majority in view of the next October parliamentary election. An alignment of the executive with the presidential
line would make it easier to implement Duda’s electoral programme. This one includes protectionist policies
such as new taxes on foreign-owned banks and supermarkets and the willingness to put the banking sector
under Polish control again. Other ’Hungarian-style’ policies such as a conversion of Swiss franc-denominated
households’ loans at a historical rate, which is detrimental to the banking sector, have also been mentioned.
Besides, Duda has announced his will to reverse the increase of the retirement age voted by the PO
government, potentially damaging the ongoing fiscal consolidation effort. On the external side, nationalist and
Eurosceptic views should cause the country to distance itself from EU institutions, although its high reliance
on EU funds makes very strong clashes unlikely. At the same time, the new President could instil a still more
adverse line towards Russia, PiS being a strong detractor of relations with that country since the airplane
crash that killed Kaczynski in 2010.
Country risk analyst
Florence Thiéry | T +32 2 788 89 91 | E f.thiery@credendogroup.com
LATIN AMERICA
Guatemala : Corruption scandals
deal blow to ruling party ahead of
general election
Event
Since April, multiple cases of graft involving high-level public officials have been unearthed by Guatemalan
prosecutors and the UN-backed International Commission Against Impunity in Guatemala (CICIG). Major
indictments include those against senior members of the tax authority and those of the entire board of the
social security institute, among whom the president of the Guatemalan central bank. Unsurprisingly, the
scandals have had significant political fallout. Vice-president Roxana Baldetti resigned earlier this month
(her private secretary having been named a key suspect) and so did the Minister of Mining and Energy (the
opposition accusing him of irregularities in the awarding of contracts). Also, dozens have been arrested,
including the central bank chief and the head of the national tax authority. Meanwhile, tens of thousands
have taken to the streets to express their outrage and demand the resignation of President Otto Pérez
Molina. Impact on country risk
While Pérez Molina is highly unlikely to be forced to step down over the corruption scandals (he denies any
involvement and has nearly completed his presidential term), his ruling Patriot Party (PP) stands to suffer
the political consequences in the general election that will be held in September. Indeed, PP approval
ratings have recently dropped and the opposition is set for an election victory. On the economic front, the
scandals will clearly harm Guatemala. Most obviously, involved companies may see their state contracts
revised (or cancelled altogether) and their access to credit confined. This may in turn force them to cut back
operations, hence impairing economic activity. Another and more important issue concerns reputational
damage. For one thing, the scandals may weigh on capital inflows by reinforcing foreign investors’
perception of Guatemala as a high-risk environment. Moreover, the misconduct exposed at the national tax
authority will further increase distrust of this institution and thus undermine recent efforts to boost
Guatemala’s notoriously low tax take. Note that with 2014 government revenues amounting to merely
11.2% of GDP, Guatemala ranks poorly, even by modest regional standards.
Country risk analyst
Sebastian Vanderlinden | T +32 2 788 85 13 | E s.vanderlinden@credendogroup.com
AFRICA
Guinea: Build-up to elections will
be marked by violence
Event
President Alpha Conde stated on 22 May that local elections – originally scheduled for March 2014 – will not
be held before the presidential elections planned in October 2015. The opposition claims that the
postponement of local elections is a manoeuvre by president Conde to use the local authorities, currently all
political appointees, to bring in votes on his behalf during this year’s presidential elections.
Impact on country risk
As a result of Conde’s statement, political unrest is set to increase the following months to force
concessions before October, yet the ruling ‘Rassemblement du Peuple Guinéen’ (RPG) is unlikely to
concede. Political parties in Guinea are ethnically based, which forms a persistent threat to security and
political stability. President Conde’s RPG mainly represents the Malinké community, less than one third of
the population. Consequently, the ruling RPG realises it is very likely to lose elections as the main opposition
represents ethnic-Peul (comprising 40% of the population) and another opposition party ethnic-Soussou
(20% of the population). Since 2011, Guinea has been plagued by recurrent conflict between supporters of
rival political parties and security forces. Heaps of often violent street protests were held, demanding
democratic progress which has been evolving very arduously since the end of half a century of dictatorship
in 2010. Today, Guinea is at another turning point, though it is likely to be accompanied by arsons, fighting
and disorder once again. Through president Conde’s security forces reshuffles and the appointment of
loyalists, he has managed to mitigate coup risks. Nevertheless, should presidential elections be held without
conceding to opposition demands and should these eventually be found to be rigged, violence could further
escalate and increase the risk of civil war. Besides political gridlock, the slow response to the Ebola
outbreak and weak economic development are expected to cause a GDP contraction of 0.3% in 2015;
knowing that before Ebola Guinea was projected to be one of the fastest growers in the world thanks to the
coming on stream of huge iron ore endowments.
Country risk analyst
Louise Van Cauwenbergh | T +32 2 788 86 62 | E l.vancauwenbergh@credendogroup.com
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