Ones to Watch: 14 August 2017

Americas: Former Pemex director allegedly involved in Odebrecht corruption scandal

Sectors: oil and gas; construction
Key Risks: corruption fallout; reputational risks 

In Mexico, the Attorney General stated on 13 August that the alleged involvement of former Pemex director Emilio Lozoya in the Odebrecht corruption scandal would be investigated to its final consequences. Lozoya denied Brazilian media reports that he had allegedly received US$10m in bribes in exchange for a US$115m bid for works on a refinery in Tula. Lozoya was president at Mexico’s state-owned oil company between 2012 and 2016. The payments allegedly began in 2012. The Attorney General’s Office also stated that the investigation already had the statements of ten public servants and nine Pemex former-officials ‘who intervened in the award of three public works contracts assigned to the Brazilian conglomerate (Odebrecht)’. Further investigations are expected and Pemex could be exposed to corruption fallout over the coming months.

Asia-Pacific: South China Sea anger may return after supposed Vietnamese capitulation

Sectors: oil and gas
Key Risks: external conflict

With Chinese troops currently facing off against Indian soldiers in the Himalayas and US President Donald Trump exchanging trash talk with North Korean despot Kim Jong-un as if potential nuclear conflict carried the same levity as a wrestling show, the South China Sea has garnered less attention than usual recently. This may well change. Rumours circulated on 14 August that a drilling ship that the Vietnamese government had approved to search for oil in its Exclusive Economic Zone had been spotted in a Malaysian port, suggesting that Vietnam had given in to Chinese demands that the drilling cease. China claims the waters fall within its spurious ‘nine-dash line’. If the rumours are true, the move may well spark public protests in Vietnam, where anti-Chinese sentiment remains high. In exchange for conflict with China, the Vietnamese government may face the wrath of its public.

Eurasia: Concerns over reports North Korea received engines from Russia or Ukraine

Sectors: aerospace, defence
Key Risks: sanctions

The International Institute for Strategic Studies reported that the rockets used in North Korea’srecent missile tests appeared to be a Soviet-era model, most likely produced by Ukraine’s state-owned Yuzhmash. Ukraine claims Russia may have similar engines in storage and denied any responsibility. Russian state missile complex Energomash may also have played a role. North Korea was caught stealing Yuzhmash’s missile secrets in 2011. Yuzhmash denied reports earlier this year it sold sensitive technology to China. The report may open new investigations into North Korea sanctions violations, potentially with repercussions for Kiev and Moscow. Ukrainian defence and aeronautics firms that also operate out of the Yuzmash complex that produce rocket components, engines and other transportation engineering, including for Western clients, could also be affected.

Europe:  European Commission to announce new measures screening foreign takeovers

Sectorsall
Key Risks: barriers to entry, frustration of process, protectionism 

European Commission President Jean-Claude Juncker will announce measures to screen takeovers of European companies more thoroughly. The move addresses concerns over an increase in Chinese investment by state owned companies in high-tech and strategic sectors. In July, Germany announced a series of similar measures to increase its oversight of foreign takeovers; that move was also seen as aimed at China. The proposed measures could include better coordination of existing national screening systems, and potentially EU-level investment screening for some takeovers. There are likely to be disputes between EU countries over creating a formal European mechanism to restrict foreign takeovers, and most measures will require support from the European parliament and from member states.

MENA: Turkish government expanding SME credit lines

Sectors: banking, industrial, retail
Key Risks: easing of credit conditions

The Ministry of Economy in Turkey announced on 9 August the state-owned Exim bank will provide an additional US$706m (TL2.5bln) in credit to small and medium-sized businesses, in an expansion of an existing significant government policy of supporting SMEs. President Erdogan repeated a regular refrain against the ‘interest rate lobby’, calling on prominent privately-owned Turkish banks to lower interest rates as state-owned banks seek to do the same. In early January 2017, the government launched a series of concerted policy initiatives, including job-creation programmes, providing export guarantees, refunding VAT to certain industries and guaranteeing loans to SMEs. This has a net positive effect on the economy although the government will remain under pressure to continue such active policy making to further support growth. Additional government initiatives for business are likely in the near future.

Sub-Saharan Africa: Burkina Faso shootings highlight terrorism threat across the Sahel

Sectors: all
Key Risks: terrorism

Around 21:00 on 13 August, suspected jihadists opened fire at customers at the Aziz Istanbul restaurant, popular with foreigners, in the busy Kwame Nkrumah Avenue of central Ouagadougou, Burkina Faso. The death toll currently stands at 20. Security forces launched a counter assault at 22:15, and the incident ended around 05:00 on 14 August with both assailants being killed and security forces releasing those that had been trapped in the building. The attack mirrors those that took place in January 2016 at the Splendid Hotel and the Cappuccino restaurant, only 200m from the scene of the latest attack. One of the many jihadist groups that operate across the Sahel’s porous borders are likely responsible for the attack. The risk of similar incidents in major cities across the region, including Mali, Burkina Faso, Cote d’Ivoire and Ghana, particularly in places frequented by foreigners, remains high. Personnel are advised to take necessary security precautions and to avoid spending too long in such places.