Ones to Watch, 5 February 2018

 

Americas: US considering sanctioning Venezuelan oil to increase pressure on Maduro

Sectors: all, particularly oil and gas
Key Risks: sanctions; default; economic collapse

US Secretary of State Rex Tillerson stated that the US is considering imposing sanctions on Venezuelan oil to increase pressure on President Nicolas Maduro to ‘return to the constitution’ and stop the government’s ‘authoritarian drift’. The comments were made at a joint press conference with his Argentine counterpart during a Latin America and Caribbean tour in which Venezuela is one of the most pressing topics. The US has already imposed individual and financial sanctions, including a ban on buying new Venezuelan debt. Expanding the sanctions regime to the import of Venezuelan oil and the export of refined products to the Andean country would certainly cripple the struggling Venezuelan economy. Tillerson stated the US was assessing the impact of such measures on US business interests. Potential sanctions on Venezuela’s energy sector cannot be ruled out.

Asia-Pacific: Sri Lanka’s local elections to gauge mood on Chinese investment

Sectors: all
Key Risks: political stability; investment

On 10 February Sri Lankans will choose their local representatives in the first electoral contests since the current coalition government came to power in 2015. While local issues will be important, the election will have implications for foreign investment, particularly that from China. The elections will be a three-way contest between coalition partners President Maithripala Sirisena’s Sri Lanka Freedom Party, Prime Minister Ranil Wickremesinghe’s United National Party, and the opposition led by ex-President Mahinda Rajapaksa. Rajapaksa’s administration encouraged substantial Chinese infrastructure investment while in power, and lost in 2015 largely due to popular concerns over China’s perceived creeping influence in the country. Conversely, since losing office, Rajapaksa has turned the same criticism against Sirisena. The election will reveal the extent of anti-Chinese sentiment in the country. However, while China is an easy target for the opposition, no party is likely to take meaningful steps against Chinese investment.

Eurasia: Uzbekistan’s ‘grey cardinal’ sacked after 23 years; Azerbaijan to hold snap election

Sectors: all
Key Risks:  political stability

On 5 February, Azerbaijan’s President Ilham Aliyev ordered a snap presidential election be held 11 April. Aliyev was most recently elected in October 2013, to his third five-year term. A constitutional referendum held in September 2016 extending presidential terms to seven years, as well as creating the post of vice president to which Aliyev subsequently named his wife Mehriban, easily passed. Since the return to power of Aliyev’s father, Heydar Aliyev, in 1993, there have been no elections viewed as fair or genuinely competitive and it is all but guaranteed that Aliyev will again secure re-election. In Uzbekistan the 31 January removal of Rustam Inoyatov as head of the extremely powerful National Security Service (SNB), after 23 years in the post, is set to enable President Shavkat Mirziyoyev to ramp-up his already ambitious series of economic reforms aimed at attracting foreign investment. However, Mirziyoyev is unlikely to seek political liberalisation and rather will instead likely continue to concentrate power amongst his allies.

Europe: Brexit imbroglio bumbles on

Sectors: all
Key Risks: trade disruption; political stability

Michel Barnier, the European Union’s lead Brexit negotiator, is due to arrive in London on 6 February. The meeting will come only two days after a late night message was put out by the United Kingdom’s Prime Minister’s office categorically declaring it plans to leave the Customs Union, after infighting amongst the ruling Conservatives returned to the fore in recent days. However, a number of government ministers stated Britain could remain in some form of a customs ‘arrangement’. UK government officials also stated they intended to retain border-free trade with Ireland, which would, at the least, require Northern Ireland remain in the Customs Union. There have been increasingly public calls for British Prime Minister Theresa May to resign and disputes among her own Conservative party have grown more publicly acrimonious. Cabinet meetings on the subject, however, are expected only after Barnier’s visit and there will be doubts they can result in agreement on united, let alone coherent, policy proposals.

MENA: Abraaj Capital under pressure as KMPG hired to audit healthcare fund

Sectors: banking; finance; investment
Key Risks: delayed payment; non-payment; default; reputational risk

Abraaj Capital confirmed it has hired auditor KPMG to investigate the finances of its US$1bln Abraaj Growth Markets Health Fund which invested in medical facilities across South Asia and Sub-Saharan Africa over at least 18 months. The investigation was prompted by media reports claiming investors including the World Bank’s International Finance Corporation had concerns their capital remained uninvested, and had instructed their own auditor to investigate the fund. Abraaj released a statement saying although not all the capital was used as originally planned due to unanticipated political and regulatory changes, all unused capital was returned to all Fund investors by the end of December 2017. Abraaj manages US$13.6bln in sectors across emerging and frontier markets. Reputational damage to the Dubai private equity firm could grow over the coming week. The audits will take several weeks at least.

Sub-Saharan Africa: Pressure mounts on Zuma ahead of no confidence vote

Sectors: all
Key Risks: political uncertainty; instability

Pressure on South Africa’s President Jacob Zuma to step down before the expiration of his mandate continues to mount ahead of a vote of no confidence later this month. Zuma, who survived numerous no confidence motions in 2017, reportedly refused to terminate his presidency early during a meeting with senior African National Congress (ANC) officials on 4 February. The embattled president faces 783 counts of corruption related to an arms deal in the 1990s and saw his Deputy President Cyril Ramaphosa elected as head of the ANC recently on an anti-corruption platform amid growing dissatisfaction with Zuma’s rule. He is expected to deliver his State of the Nation address later this week, however ANC party leaders are holding an emergency meeting today to determine a way forward. Political uncertainty is likely to continue, although it is appears increasingly likely that Zuma will not make it to the end of his term.