Ones to Watch, 18 September 2017

Americas: President Temer faces new criminal charges – and is likely to survive them

Sectors: all
Key Risks: political instability; political uncertainty; delays to fiscal reform agenda; corruption fallout

On 14 September in Brazil, General Prosecutor Rodrigo Janot charged President Michel Temer with obstruction of justice and racketeering alongside eight other political allies. The Supreme Court needs to accept the charges before Congress votes on whether Temer should stand trial. In June the president was charged with corruption, but in August Congress rejected putting Temer on trial. The latest charges are also likely to be rejected. Nevertheless, they will add pressure on the president and likely delay the approval of the government’s fiscal reform agenda, namely pension reform. Political instability and uncertainty risks in Brazil will persist. However, as the October 2018 election approaches, these will be increasingly linked to who will be running Brazil from 1 January 2019 onwards and not so much on Temer’s capacity to see out his term.

Asia-Pacific: Singapore to remain wary of Chinese overtures on state visit

Sectors: rail
Key Risks: international relations; investment

On 19 September Singapore’s Prime Minister Lee Hsien Loong will begin a three-day official visit to China and will look to mend a relationship that has become unusually strained. While Singapore has long sought to maintain balance in its relations with China, the West and Southeast Asian nations, China’s seizure of Singaporean personnel carriers used in annual exercises with Taiwan in November last year caused a rift. With Singapore set to chair ASEAN next year, China will look to offer the city-state greater investment in return for support. The long-planned 350-km high-speed rail link between Singapore and Kuala Lumpur is set to be put out to tender by year-end, with China thought to be keen to secure the contract. Yet Singapore’s government has proved a canny negotiator, and will remain aware of the optics of being seen to embrace Beijing too closely.

Eurasia: Pressure on Baku continues as formerly-jailed blogger makes shocking claims

Sectors: all
Key Risks: sanctions; political stability

On 15 September Russian-Ukrainian-Israeli blogger Aleksandr Lapshin alleged he was violently beaten in a Azerbaijani jail five days earlier. Lapshin left Baku for Israel on 14 September, after being pardoned by President Ilham Aliyev on 11 September. Baku also dropped the charges against Mehman Aliyev, the director of Turan news, Baku’s sole independent news outlet, after US Senator Dick Durbin passed an amendment to the State Department appropriations bill that would have banned Azeri officials involved in his case from visiting the US. Lapshin’s case – Baku extradited him from Belarus in February for visiting Nagorno-Karabakh via Armenia five years prior – prompted widespread international criticism, including from Israel and Russia, which are Baku’s main arms suppliers. Azeri state media claimed Lapshin attempted suicide in prison. Lapshin alleged this was a cover-up and that the assault may have been arranged by rivals seeking to discredit President Aliyev.

Europe: Head of EPP calls for Nord Stream 2 Project to be cancelled

Sectors: energy
Key Risks: political stability; frustration of process

Manfred Weber, head of the European People’s Party (EPP) faction in the European Parliament, called for the Nord Stream 2 pipeline project to be cancelled. Russia’s state-owned gas giant Gazprom would own the pipeline and provide half the financing. Royal Dutch Shell, OMV, Engie, Uniper and Wintershall each agreed to provide EUR950m in financing in April after sanctions concerns hindered them from purchasing 10 per cent stakes each in the pipeline itself. However, some other EU members such as Poland and the Baltic countries, as well as Ukraine, vociferously oppose the pipeline. Weber is also a leader of the CSU, the Bavarian sister party of German Chancellor Angela Merkel’s CDU. Weber’s explicit call for cancellation is arguably the most significant recent political development around the pipeline in Germany and marks a shift in the position of the EPP, which is the largest party in the European parliament.

MENA: IMF advises Lebanon government to combat public debt

Sectors: banking and financial; public sector
Key Risks: delayed payments; non-payment; increased debt; political stability

The International Monetary Fund (IMF) emphasized the urgent need for the government in Lebanon to halt the rise in public debt, following a delegation visit led by Egypt mission head Chris Jarvis to Beirut between 7 and 13 September. The delegation lauded the country’s economic resilience in the face of the influx of Syrian refugees, but recommended front-loaded fiscal adjustment and reducing electricity transfers as measures to control sovereign debt. The delegation proposed the halting of Lebanon’s already high public debt volumes, currently at 146 per cent of GDP, to preserve investor confidence. The government is pursuing an ambitious economic reform programme. The IMF intimated structural reforms, especially measures to improve the business climate for investors, would encourage sustained growth. Real GDP growth is expected to remain suppressed in 2017 and public debt high.

Sub-Saharan Africa: Ethiopia to deploy federal troops to Oromia and Somali regions

Sectors: all
Key Risks: violent clashes; civil unrest; terrorism

On 17 September the Government of Ethiopia announced it will deploy troops to its Oromia and Somali regions amid escalating inter-ethnic clashes between the two regions. At least 50 people have been killed, including 30 in one incident in the town of Awaday, and tens of thousands more displaced over the past week. Violent clashes between Oromo militias and the Somali region’s Liyu police, which has long been accused of committing human rights abuses in Oromia, have become more frequent in recent months. The two regions accuse one another of being behind the escalation, while many Oromos also claim the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) is complicit in the violence given its role in training, arming and backing the Liyu police. Despite the deployment of federal troops, clashes are unlikely to subside in the near term and, taken alongside high levels of anti-government sentiment, increasingly pose a risk to Ethiopia’s ethnic federal model.