Q4 2010 Global Market Brief & Labor Risk Index

Think ouTside.

Global Market Brief & Labor Risk Index

2010 4meThodology sample reporT only

www.kellyocg.com

www.eurasiagroup.net

Global Market Brief & Labor Risk Index

2010

This is meThodology sample reporT only.

To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief

4

www.kellyocg.com/marketbrief

conTenTs

This material was produced by Eurasia Group in collaboration with KellyOCG. This is intended as general background research and is not intended to constitute advice on any particular commercial investment, trade matter, or issue, and should not be relied upon for such purposes. Eurasia Group is a private research and consulting firm. © 2010 KellyOCG and Eurasia Group.

3 preface: rolf kleiner, senior Vice-president, kelly ocg & ian Bremmer, president, eurasia group

4 methodology

72 about sponsors

The Americas6 overview

7 risk index

8 argentina

9 Brazil

10 canada

11 chile

12 costa rica

13 ecuador

14 mexico

15 united states

Asia Pacific17 overview

18 risk index

19 australia

20 china

21 hong kong

22 india

23 indonesia

24 Japan

25 malaysia

26 new Zealand

27 pakistan

28 philippines

29 singapore

30 south korea

31 Thailand

32 Vietnam

Europe and Eurasia34 overview

35 risk index

36 Baltics

37 Belgium

38 czech republic

39 denmark

40 France

41 germany

42 hungary

43 ireland

44 italy

45 luxembourg

46 netherlands

47 norway

48 poland

49 portugal

50 romania

51 russia

52 serbia

53 spain

54 sweden

55 switzerland

56 Turkey

57 ukraine

58 united kingdom

Middle East and Africa60 overview

61 risk index

62 algeria

63 egypt

64 ghana

65 israel

66 kuwait

67 morocco

68 Qatar

69 saudi arabia

70 south africa

71 united arab emirates

cover: sunflower field © 2008 Tobias Helbig

4 | gloBal markeT BrieF & laBor risk index Q4 2010

Preface

rolf kleiner,senior Vice-president, kellyocg

ian Bremmer,president, eurasia group

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

middle easT and aFrica

aBouT sponsors

have caused social unrest, and on

29 September, tens of thousands

of people participated in a

coordinated strike across

12 European countries.

Economic growth is also weak in

the US, but there, the government

is not turning to austerity measures.

In fact, no policy changes are

likely this quarter, as policymakers

are focused on the November

congressional election. Persistent

high unemployment and weak

growth in the US are also damaging

economies that depend on US

demand, such as those of Mexico

and Canada. Other regional

economies appear to have

decoupled from the US, however,

and are growing strongly, most

notably those of Brazil, Chile, and

Argentina.

Led by China, the Asia-Pacific

economies also continue to

grow robustly. This growth

continues to cause concerns

about rising inflation, however,

and about dependence on the

Chinese economy, which could

lose momentum. Inflation is

particularly problematic in the

context of recent efforts by

several governments to stem

currency appreciation.

Economies throughout the Middle

East and Africa are posting

growth, particularly oil exporters,

including Gulf Cooperation Council

members. Still, governments

throughout the region continue to

struggle to address high rates of

youth unemployment, particularly

in Saudi Arabia, South Africa, and

Algeria. This is a chronic problem in

these societies that poses a threat

to long-term stability.

■ ■ ■

➔ Throughout 2010,

developed markets have

rebounded more slowly than

emerging markets, lagging behind

them in economic growth and

employment. In Europe, all eyes

will be watching as governments

implement austerity budgets

for 2011 in order to rein in their

debt, while the outlook is weak

for growth. Widespread spending

cuts and tax increases in the face of

sluggish economic growth


Methodology

In addition to assessing the current risk environment, this report also takes into consideration the trajectory of risk trends.

Arrows alongside risk scores explain where risks are likely to show a very positive trend (X X), positive trend (X),

negative trend (Y), very negative trend (Y Y), or remain unchanged (blank) over the 3-month period of the report.

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


aBouT sponsors

➔ The Global Market Brief &

Labor Risk Index is based on detailed

analysis of hard metrics of 30 unique

labor market, socio-economic, and

political factors, layered with localized

expertise of in-country consultants.

The analysis aggregates the

individual factors into 9 core risk

variables: 5 macro variables and 4

labor variables that are each assigned

a score on a 10-point scale projecting

the degree of risk over the next

90 days. Each risk variable is also

assessed as to whether it is trending

negative or positive.

macroeconomic environment

This indicator captures the current

health of the macroeconomic

environment through an assessment

of the stability of monetary and

fiscal policy, the stability of trade

and capital flows, and the quality of

economic performance, controlling

for historic macroeconomic stability

and the quality of official statistics.

policy environment for

foreign investment

This indicator measures how

hospitable the policy and regulatory

environment is for foreign investment

by assessing the extent to which

there are barriers to economic

activity and the degree to which

the economy is a destination for

foreign investment.

laBor risk

labor market flexibility

This indicator captures labor market

flexibility, assessing the regulatory

environment that employers face

in managing human resources,

the ability of labor to influence

policymaking, and the near-term

potential for changes in the labor

regulatory environment.

labor availability

The labor availability indicator

incorporates migration, urban

population, the size of the labor

force, the extent to which women

participate in the labor force,

and unemployment.

labor quality

The quality of labor is measured

by the education and skill level of a

labor force, the general health of the

population, and labor productivity.

labor contentment

This indicator assesses the likelihood

of labor discontent by combining the

existence or potential of near-term

labor unrest with the misery index,

which incorporates unemployment

and inflation rates.

■ ■ ■

For all variables, scores range

from 1 to 10, where 1 is ‘high risk’

and 10 is ‘low risk’.

macro-poliTical/

counTry risk

political environment

This indicator estimates the

predictability of the political

environment by measuring

regime and government stability,

government and opposition

effectiveness, and how well the

government functions.

social environment

This indicator captures the presence

and intensity of social conflict

among ethnic and other minorities,

controlling for the mitigating effects

of the socioeconomic wellbeing of

the population and the equality of

wealth distribution.

security environment

This indicator captures the issues

of personal security by incorporating

both the risk of armed conflict

(either domestic or foreign) and

criminal activity.


Overview: The Americas

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

Inflation, however, remains

problematic in Argentina, and the

government seems unwilling to

make any policy adjustments that

could slow growth. By contrast,

the Chilean central bank has

been raising rates to prevent

the economy from overheating.

Unemployment has also decreased

in most countries, particularly in

Brazil. Labor reforms in Ecuador

and Mexico are likely to be blocked

by strong union opposition, while

labor activism continues to increase

in Argentina.

In other countries, the recovery

has been inhibited by structural

problems or by close economic

relations with the US, where the

strength of recovery is very much

➔ Most countries are still

experiencing a robust recovery

from the 2008–2009 economic

downturn. Argentina, Brazil, and

Chile continue to beat growth

expectations, boosting their

governments’ popularity. In Brazil,

for example, Dilma Rousseff of the

governing Workers’ Party remains

heavily favored to win a 31 October

second-round runoff. Popular

support for Cristina Fernandez de

Kirchner in Argentina and Sebastian

Pinera in Chile has also increased.

in doubt. While Canada has

outperformed other industrialized

nations, a slowdown in the US, a

slumping domestic housing sector,

and the end of the government

stimulus program is leading to a

slowdown as well. Dependence

on the US market has dampened

Mexico’s recovery, although there

are signs that internal demand

is picking up. The recovery

has also been limited in Costa

Rica and Ecuador, where the

governments lack policy flexibility

and are struggling to pass

necessary structural reforms. In

late September, efforts to reduce

spending led to major political

instability in Ecuador.

■ ■ ■


conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality contentment

Argentina 6 Y 7 8 4 X 5 5 4 7 4 Y

Brazil 7 X 6 6 7 5 Y 4 6 Y 5 6 Y

Canada 8 8 10 5 Y 7 Y 8 7 8 5 Y

Chile 7 6 9 7 X 7 7 5 8 6 Y

Costa Rica 7 Y 7 8 6 7 6 4 5 6 Y

Ecuador 4 3 7 3 X 3 3 4 4 2 Y

Mexico 6 6 5 Y 6 X 7 Y 4 4 5 6 Y

United States 7 Y 7 Y 9 7 9 8 9 9 7 Y Y

very positive trend

positive trend

negative trend

very negative trend

For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.

The americas – risk index summary TaBle – Q4 2010


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

The battle between the government and the media has been intensifying ever since the government suspended the license of one of the country’s main internet providers, Fibertel, on 19 August. Fibertel is owned by Grupo Clarin. The government partially blames Clarin for its defeat in last year’s midterm elections and its loss of popularity, and it hopes to increase control over the media as a way to strengthen its political position ahead of the 2011 presidential elections.

Argentina

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Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality Contentment

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conTenTs

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The americas

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

remain in place over the near term

as the government will be reluctant

to make any changes that could

slow growth. Officials continue to

underreport inflation, and although

the opposition has approved a bill to

increase the transparency of official

statics in the senate, it is unlikely to

move forward in the lower house or

be implemented in the near term.

The government has continued to

spend at increasingly rapid levels,

financing these expenditures with

growing revenues, public savings,

and central bank reserves because

it has not been able to tap

global markets.

Labor tensions intensified

substantially during August, when

➔ Argentina’s economy

continues to experience a robust

recovery. Economic activity

increased 11% year-on-year in

June, and most expectations are

that growth will exceed 7% in 2010.

Favorable external conditions,

together with expansionary fiscal

and monetary policies, have

helped drive this recovery. Inflation,

however, remains as high as ever,

because some of the same forces

behind the recovery—such as high

wage increases and an increasingly

loose currency controls—also

create inflation. These measures will

the truck drivers’ union blocked the

plants of Argentina’s largest steel

producer, Siderar. Inflation will likely

exacerbate these tensions as unions

will probably demand greater wage

increases. Moreover, as President

Cristina Fernandez de Kirchner

(or her husband, former president

Nestor Kirchner) prepares for the

2011 presidential election, she

will need labor support, especially

from Hugo Moyano, leader of the

country’s main labor association,

and from the powerful truck drivers’

union. She will therefore be more

receptive to union demands,

especially for wage increases.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

By August, Canada had recouped all the jobs lost during the 2008–2009 recession, but employment growth is expected to stall in the latter half of 2010. The recovery in jobs masks underlying problems in the labor market: manufacturing jobs remain at a 34-year low; one-third of people working part-time are doing so involuntarily; and hours worked remain well below prerecession levels. The Harper government is unlikely to move toward stimulus, however, and will continue instead to focus on deficit reduction.

Canada

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The americas

overview

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argentina

Brazil

canada

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costa rica

ecuador

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united states

asia paciFic

europe and eurasia


aBouT sponsors

outlook is far from rosy: CIBC World

Markets forecasts growth slowing

to 1.6% and 1.5% in the third and

fourth quarters, respectively. This

slowdown signals a significant shift

from more favorable projections

earlier in the year and elevates

political and economic uncertainty

going forward.

The sharpest reversal is in the

residential construction sector. New

home building rebounded from

the recession and grew 1.2% in the

second quarter, but CIBC forecasts

10% and 13.7% drops in residential

construction in the third and fourth

quarters. The construction industry

➔ Canada has enjoyed solid

economic and employment growth

since the end of the 2008–2009

recession, fueled by strengthening

resource sectors and a hot housing

market. But economists are

forecasting a dramatic slowdown

as a result of weak US demand for

Canadian exports, a reversal in the

housing market, and restraint in the

public sector. Canada’s annualized

growth rate slowed to 2% in the

second quarter, from 5.8% in the

first quarter. And the near-term

faces significant headwinds over

the next several quarters, among

them the wind down in government

stimulus spending on infrastructure,

which put employment in the sector

at risk. That said, the downturn in

Canadian construction has not

been as sharp as that in the US.

But the export sector is suffering

from an elevated Canadian dollar

and weak growth in the US, which

accounts for 80% of Canada’s

foreign sales. CIBC forecasts

exports will drop by 2.5% in the

third quarter and a further 1% in the

final quarter of 2010.

■ ■ ■


Overview: Asia Pacific

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

directing policies toward fixed-

asset investments in infrastructure

to sustain growth in the near term;

most notable among these are

India and the Philippines.

Solid growth has also reduced the

pressure on Malaysia to adopt

more substantial structural reforms,

whereas for Vietnam it remains

fairly urgent to address budgetary

imbalances. Some countries with

smaller economies, such as Hong

Kong and Singapore, are facing

demands for wage hikes, which are

fueled by inflation and, in Hong

Kong, potential new legislation.

One notable trend, in countries

ranging from Australia to South

Korea, has been growth driven

by Chinese demand. Even

though China’s economy is

➔ Growth prospects remain

strong for much of the Asia-Pacific

region, particularly among the

major economic powers, such

as China, Australia, India, and

Indonesia. But problems associated

with robust growth, especially

inflation, are looming. Many

governments across the region

will have to carefully balance

growth objectives with the need

to keep inflation in check. Even

as some governments begin

tackling inflation, they are also

expected to slow down modestly

this year, it has clearly lifted

other economies in the region.

At the same time, however,

Asian countries concerned about

their competitiveness in the

export market—especially given

China’s slow appreciation of its

currency—are increasingly mindful

of their currency values. Japan, for

instance, intervened in the yen to

limit appreciation against the US

dollar. Thailand is also keeping a

close eye on the value of its baht

and on Chinese demand. Still, a

competitive devaluation like the

one that occurred in the late 1990s

remains unlikely at this point,

particularly if China continues on

its current trajectory of gradual but

sustainable appreciation.

■ ■ ■





Australia 6 8 10 8 Y 9 7 7 8 7

China 7 Y 6 7 7 Y 6 4 6 5 5

Hong Kong 8 7 10 7 9 Y 7 6 8 7

India 6 4 7 6 XX 5 X 5 4 1 4

Indonesia 6 6 7 6 X 5 X 3 5 3 4

Japan 7 9 9 Y 6 7 5 Y 6 8 8

Malaysia 6 4 8 7 6 X 7 4 5 5

New Zealand 7 8 10 6 Y 9 7 6 7 6

Pakistan 2 Y 2 Y 3 2 4 3 3 1 3

Philippines 6 4 7 4 X 4 5 5 4 7

Singapore 8 7 8 8 X 10 6 5 Y 7 7

South Korea 8 Y 9 7 8 7 3 5 7 6

Thailand 5 4 6 5 7 7 5 Y 4 7

Vietnam 7 5 8 4 X 5 6 5 Y 5 X 7

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q4 2010


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Rising property prices have prompted regulators to consider renewing subsidized housing schemes. Although that would allay public discontent over housing affordability, it would fall short of addressing the 47% increase in home prices since the beginning of 2009. The property sector has played a central role in the recent boom, so policymakers are unwilling to counter the two factors contributing to the bubble: the influx of mainland investors and low US interest rates. The government has little choice but to tolerate rising prices.

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preFace

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The americas

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overview

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australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

Hong Kong dampened optimism about the

island’s export-focused industries.

Seasonally adjusted unemployment

dropped to 4.2% in the three

months ending in August, a

20-month low and a dip from

4.6% in the March to May period.

Strong domestic consumption has

bolstered the labor market, and

economists expect employment to

remain robust. A September poll

showed that 19% of businesses

intended to hire more staff in

the fourth quarter, while 79%

intended to maintain current

employment levels. Only 2%

expected to cut workers.

In late August, a government

➔ Hong Kong’s economy is

expected to maintain strong growth

in the coming months. Robust

expansion in mainland China

boosted Hong Kong’s exports

by 20.1% year-on-year in the

second quarter, which contributed

to 6.5% growth in GDP during

the same period. As a result, the

government has raised its economic

growth forecast for 2010 by one

percentage point, from 4%–5%

to 5%–6%. Despite the positive

outlook, a large property bubble is

an increasing concern, and rising

labor costs on the mainland have

commission decided that the

recently established minimum

hourly wage should be 28–29 Hong

Kong dollars ($3.61–$3.74), a range

that splits the difference between

the demands of labor and industry.

Industry groups have protested

the decision, predicting that the

pay increase could eventually cost

tens of thousands of jobs and

will create burdensome reporting

requirements for small businesses.

Still, this wage is expected to be

approved and should take effect

in early 2011. About 10% of the

territory’s workforce, or more than

300,000 people, will be affected.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

The government’s long-term plans to eliminate state subsidies for energy by the end of 2014 will likely mean significant rises in the price of electricity for companies. Industrial and commercial users will likely face disproportionately higher price increases as the government seeks to limit the impact on residential consumers. Policymakers will probably try to raise electricity prices by an average of 15% in 2011, and electricity subsidies will be cut by more than 25% (to about 43.5 trillion rupiahs, or $4.88 billion), although popular opposition could derail this plan.

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preFace

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The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

Indonesia 15-month high that exceeded

the government’s target rate for

2010 (4%–6%). Nevertheless,

the government is expected to

boost infrastructure spending

by 28% in 2011, and President

Susilo Bambang Yudhoyono wants

public and private investment in

infrastructure to reach 1,250 trillion

rupiahs ($140 billion) over his

second term. These investments will

be used to build 14 new airports,

construct a few new railways, and

improve approximately 2,600

kilometers of roads. A strong

infrastructure is essential to

Indonesia’s long-term growth, its

ability to compete with regional

manufacturing competitors such

as Thailand and Vietnam, and its

➔ Indonesia’s stronger-than-

expected growth in 2010 will

provide the government more

resources to invest in infrastructure

and development. Among Jakarta’s

goals is to raise the country’s

longer-term growth trajectory and

diversify its economy. Growth in

2010 is expected to exceed 6%,

and the government is aiming

for 7% annual growth by 2014.

But resurgent inflation could

hurt domestic consumption,

which has been the main engine

propelling the economy. Inflation

reached 6.22% in July 2010, a

ability to tap its natural resources.

A critical element of the

government’s strategy will be efforts

to make the investment process

smoother and quicker. Before the

end of 2010, policymakers also

plan to push through a significant

bill to reform land acquisition,

which will allow the government to

quickly purchase land it needs it for

public sector projects. Historically,

the absence of a clear legislative

framework or mechanism for such

a process has caused bottlenecks.

The government is also likely

to move decision making for

infrastructure projects to regional

and local governments.

■ ■ ■


Overview:Europe and Eurasia

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

Spain, Ireland, Greece, and Italy.

Reduced government spending and

higher taxes will constrain demand

and economic growth across

the region overall. All the while,

most European countries still face

elevated unemployment. Although

protests and strikes are occurring

across the region in response to

public expenditure cuts, these

are unlikely to significantly derail

the austerity consensus in the

near term. Delayed government

formation and the presence of

far-right parties in Belgium, the

Netherlands, and Sweden present

uncertainty for policy trends

through 2011.

In contrast to many countries in

the region, Russia and Turkey

continue to post growth. While

➔ The story for EU members

continues to be about austerity.

Governments are drafting 2011

budgets this fall with an eye toward

reining in elevated public deficits

and reassuring EU authorities as

well as international investors.

Spending will be cut across

ministries; taxes will be raised or

exemptions will be cut for both

households and businesses.

Domestic demand will suffer and

may be particularly constrained in

countries where measures have

been the most severe: Portugal,

unemployment is falling, both

face the threat of rising inflation.

Policymakers in Russia may soon

implement price controls and

slow the growth of government-

regulated tariffs while increasing

social spending to limit a decline

in consumer purchasing power. In

Turkey, the lira’s exposure to market

sentiment and the attendant effects

on external financing are raising

concerns for 2011, as the economy

depends on portfolio investment

and short-term borrowing. But

Turkish authorities are not expected

to undertake any major policy

initiatives before the 2011 general

election.

■ ■ ■


conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

europe and eurasia – risk index summary TaBle – Q4 2010

very positive trend

positive trend

negative trend

very negative trend





Baltics 6 6 7 4 Y 8 4 6 6 3

Belgium 5 6 8 6 Y 7 5 6 7 4

Czech Republic 7 8 8 7 X 6 7 6 7 4 YDenmark 7 9 8 7 Y 9 6 5 8 4

France 7 Y 8 7 6 9 4 6 8 3

Germany 6 Y 9 8 6 8 2 6 9 5

Hungary 6 7 Y 9 6 X 8 6 6 X 6 4

Ireland 6 Y 8 8 5 Y 9 6 7 8 3

Italy 5 Y 7 7 5 Y 6 4 6 8 4

Luxembourg 7 9 8 6 9 4 5 9 6 YNetherlands 5 Y 8 Y 8 6 7 3 5 7 5

Norway 7 9 8 7 8 3 5 X 8 7

Poland 8 X 7 X 9 5 7 Y 5 6 7 6

Portugal 6 Y 8 7 5 7 3 6 6 3 YRomania 5 Y 5 6 3 7 4 5 6 3 YRussia 7 Y 6 5 5 X 6 6 7 5 5

Serbia 6 Y 5 7 4 X 6 5 5 5 1 YSpain 5 Y 6 7 4 7 3 X 7 8 2

Sweden 6 Y 8 8 6 8 4 6 8 6

Switzerland 7 8 9 7 Y 8 X 6 5 8 8

Turkey 7 X 5 6 6 X 6 Y 5 5 4 4

Ukraine 6 Y 5 7 4 5 X 5 6 4 X 5

United Kingdom 8 8 Y 7 5 9 8 6 X 8 5 Y


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Elevated inflation (2.5% in July and 2.3% in August) triggered automatic wage indexation this summer. Unemployment benefits and other social security contributions, as well as public and private sector salaries, will consequently rise this quarter. While these measures may offer some near-term relief to households, their costs to the government could bring more tax hikes or other constraints in the 2011 budget. Elevated wage costs pose an additional burden to businesses, so labor policy trends should be closely monitored.

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preFace

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The americas

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europe and eurasia

overview

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Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

and francophone parties disagree

over a variety of issues—a familiar

situation that has caused coalition

negotiations to collapse in the past.

This time, however, the impasse

occurs as the European Commission

(EC) has mandated that Belgium

bring its public deficit below 3%

of GDP by 2012. The deficit stood

at 5.8% of GDP in 2009, and it

is expected to improve only to

5.1% in 2010. To meet the EC’s

requirement, the government must

raise more money in the markets

than it had previously planned,

but that will be difficult without a

credible fiscal consolidation strategy.

The jostling political parties may

➔ The Belgian economy has

been gradually recovering—the

IMF projects 1.15% GDP growth in

2010—but political instability, high

public debt, and a fragile financial

system threaten growth in the near

and medium term.

The nationalist center-right New

Flemish Alliance (N-VA) won a

majority in parliament this summer

but has yet to form a government.

A caretaker government is in place

but with limited authority over

policy. The problem is that Flemish

still be persuaded to put individual

interests on the backburner to

form a coalition government and

enact an austere financial plan. That

would calm markets and prevent

a significant deterioration of the

business environment.

Constrained economic growth

poses uncertainty for business

activity and employment figures.

The IMF projects a rise in the 2010

unemployment rate to 9.3% from

8% in 2009. An austere 2011 budget

would likely include tax hikes and

reduced government expenditures,

which would limit domestic demand.

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very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Norway’s unemployment rate remains enviable. And despite subdued growth, labor markets are improving, with the number of registered unemployed falling 5,000 (seasonally adjusted) in the second quarter. Still, though forecasters predict a rise in productivity over the coming months, firms may demand more from their current employees rather than hire new ones. This trend, combined with expected labor force growth, factor into official projections that unemployment will rise to 3.8% by 2012 but decrease thereafter.

Norway

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The americas

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overview

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Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

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aBouT sponsors

rate to 2%. Tighter monetary

policy contributed to an 8.5%

appreciation of the krone against

the euro over the past year, hurting

exporters. The central bank had

planned to raise its benchmark rate

to 2.5% by the end of the second

quarter in 2011, but because of

appreciation the government has

asked the central bank to postpone

further tightening. Norges Bank

will also continue selling krone

to prevent appreciation against

the euro. Central bank governor

Svein Gjedrem will retire in

December, and his likely successor,

Oeystein Olsen, favors holding the

benchmark rate steady until the end

of 2011.

➔ Norway’s economy

continues to grow slowly, but faster

growth is forecast for next year.

GDP is projected to increase by

1.7% in 2010 and by as much as

3.1% in 2011. Norway’s oil fund

gives the government a fiscal

surplus. Unemployment is low, at

about 3.3%, although inflation is

relatively high and should reach

2.5% by year’s end.

The central bank has raised interest

rates three times since October

2009, bringing the benchmark

Fiscal policy will stimulate the

economy by a projected 0.8% of

GDP this year. However, on

5 October, the government

released its 2011 budget, which

will phase out stimulus next year

while maintaining current tax levels.

Factors helping recovery include an

expected increase in oil investment

in 2011 and relatively strong

domestic demand, as retail sales

went up in July. Consumer spending

is projected to increase 3.3%

this year and 4% annually in the

coming years. On the other hand,

weak external demand for both

manufactured goods and oil may

slow recovery.

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Overview:Middle East and Africa

conTenTs

preFace

meThodology

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overview

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algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

Dubai picks up the pieces from

the Dubai World crisis, Abu Dhabi

is solidifying its role as the United

Arab Emirates’ power broker. In

Egypt, all eyes are on November

2010 parliamentary elections as the

country prepares to address the

question of presidential succession

in 2011. Israel continues to enjoy

growth and low unemployment,

albeit in the shadow of faltering

peace talks with the Palestinians

and a standoff with Iran over its

nuclear program.

In North Africa, Algeria and

Morocco are taking very different

approaches to the challenges of

encouraging growth and reducing

unemployment. Morocco is

looking to attract FDI by offering

➔ As 2011 approaches,

governments in the Middle East

and Africa are taking stock of their

economies as they come out of

the financial crisis and prepare to

address a variety of challenges.

Growth and diversification have

become priorities across the

Gulf Cooperation Council, with

governments taking advantage

of stable oil markets and budget

surpluses to maintain high spending

on long-term development. As

tax incentives to foreign firms

and investing in human capital;

Algeria is strengthening nationalist

economic policies and favoring

domestic firms. South of the

Sahara, Ghana’s outlook is uncertain

as it seeks to manage inflationary

pressure. In South Africa, the

labor market will remain an

important political risk, as chronic

unemployment and labor strikes

present the government with tough

policy choices. Governments in

both countries will have to balance

labor demands with fiscal concerns,

and how they do so will determine

the severity of labor unrest and its

economic impact.

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aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


middle easT and aFrica – risk index summary TaBle – Q4 2010




Algeria 3 Y 5 Y 4 4 3 Y 2 5 3 1

Egypt 6 Y 5 Y 8 5 5 4 4 2 2

Ghana 7 3 Y 8 5 XX 4 3 5 4 3 Y

Israel 7 6 Y 7 7 X 8 5 6 X 7 7

Kuwait 6 6 7 7 5 X 8 4 7 8

Morocco 6 5 7 5 X 5 3 4 2 4

Qatar 7 6 7 7 X 5 7 5 6 6

Saudi Arabia 6 Y 6 5 6 5 7 4 5 5

South Africa 6 Y 3 6 6 X 7 4 7 4 1 X

United Arab Emirates 7 6 7 Y 6 X 5 7 5 6 6


very positive trend

positive trend

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current quarter

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current quarter

prior quarter

low risk

high risk

Observers have recently speculated that there is competition between the president’s son Gamal Mubarak and Omar Suleiman, the president’s close adviser and security chief, over succession. But this reading of the situation is inaccurate. The two men have aligned interests, and in the event of President Mubarak’s death, businesses can expect his son and Suleiman to work together. Even if there were an elite-level conflict, the military-backed faction, which would support Suleiman or someone with a similar profile, would win easily, making destabilization unlikely.

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the Egyptian public, which has

not felt the trickle-down benefit

of economic reform that the

government had predicted and

promised, is skeptical. And while

it is unlikely that the authorities

will do anything overtly hostile

to foreign investors, they may

undertake small, short-term steps

to quell the population’s anger. The

number of labor strikes and protests

has been on the rise in Egypt. With

parliamentary elections scheduled

in a few weeks and presidential

elections scheduled for fall 2011,

market-friendly reforms will

probably be put on hold, but they

will not be reversed.

A certain level of violence may be

➔ Egyptian authorities

continue to believe that the

economic picture is improving, and

they expect growth to reach about

6% of GDP in the current fiscal

year. But this growth rate will not

be able to address the persistently

high unemployment rate, which

authorities claim hovers below

10% but is probably much higher.

Economists expect inflation to

reach about 12% in 2010.

Prime Minister Ahmad Nazif and

his cabinet remain committed to

a market-based economy, but

expected surrounding Egypt’s early

November parliamentary elections,

but a widespread boycott by the

opposition could present a more

serious problem for authorities. The

elections will reinstate a majority in

parliament for the ruling National

Democratic Party, but if there is a

boycott, the opposition will claim

that parliament is illegitimate. That

could pose problems for the regime

leading up to the 2011 presidential

election. One key factor, of course,

is President Hosni Mubarak: If he

does not run, or if he dies, the

transition to the new administration

could be messy and might disrupt

the business environment.

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very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Kuwaiti planners are beginning to recognize Iraq, which they have long viewed only as a security threat and an enemy, as an economic opportunity. Iraq lacks significant port capacity, but it needs to import massive quantities of equipment for its oil industry. Kuwait is expected to build a massive new port in the north that could supply an overland route into southern Iraq, where massive oil development by international companies is set to begin next year or sooner.

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Kuwait the government and parliament

meant that only 93% of the

budget was spent. Spending could

begin to rise toward the end of

the year, however, as large-scale

infrastructure projects—part of

a multiyear development plan—

begin. Inflation remains a concern

in Kuwait, as in the entire oil-rich

region, but at the moment it is

controlled, at 4%.

Politically, Kuwait has become

somewhat more stable, as the

parliament and government have

avoided the brinkmanship that has

characterized its politics in recent

years. While policymaking will

continue to be uneven, in 2010

➔ As one of the largest oil

producers in the world, Kuwait

remains financially secure. Kuwait

recorded a budget surplus of

more than 4.5 billion dinars ($16

billion) for the fiscal year ending 31

March, the eleventh consecutive

year that the emirate has posted

a surplus. The surplus comes even

though oil revenue was down

16% from last year, due to lower

prices. Expenditures fell as well,

in part because of accounting

differences, but also because

chronic disagreements between

the Kuwaiti parliament passed

important economic stimulus

measures for the real estate market

and other non-oil sectors and

approved a multiyear development

plan that will fund the construction

of a new city, seaport, and railroad.

A years-long legacy of dysfunctional

politics has kept foreign investors

away, however. Kuwait’s FDI is

among the lowest in the region;

the country attracted less than

$200 million in 2009.But as its

political system becomes more

functional and efforts are made to

lower taxes on foreign companies,

FDI could grow.

■ ■ ■


About this Report

The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,

Kelly Services and Eurasia Group, the global political risk consultancy. The report, a proprietary blend leveraging Kelly’s labor market knowledge with

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Q4 2010 Global Market Brief & Labor Risk Index

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Transcript of Q4 2010 Global Market Brief & Labor Risk Index