Americas: Brazil’s election campaign to continue to heat up

Sectors: all
Key Risks: policy continuity; political instability; civil unrest

In Brazil, the election campaign ahead of the 7 October general election is expected to continue to heat up. The leftist Workers’ Party (PT) has until 11 September to name imprisoned former president Luiz Inacio Lula da Silva’s replacement as the party’s presidential candidate. Lula was declared ineligible to run by the Supreme Electoral Tribunal (TSE) in the early hours of 1 September. The PT has stated it would not name a replacement until all appeal processes are exhausted. Fernando Haddad, currently running as Lula’s vice-president, will likely replace him. Lula was the frontrunner with around 39 per cent of support, although it is not clear if Haddad would get his levels of support. Corruption charges have been brought to two other presidential candidates, while far right and now frontrunner Jair Bolsonaro was recently stabbed. Uncertainty around Brazil’s future will persist.

Asia-Pacific: Cambodian opposition leader Kem Sokha released on bail

Sectors: all
Key Risks: political stability

The leader of Cambodia’s only credible opposition group Kem Sokha was released from prison on bail on 10 September. Sokha was charged with treason in September 2017 after being accused of colluding with the US. The opposition Cambodian National People’s Party (CNRP) was dissolved shortly after, allowing the ruling Cambodian People’s Party (CPP) to win all parliamentary seats in the July 2018 general election, making Cambodia a de facto one-party state. Prime Minister Hun Sen has since slowed down his campaign against political opponents and fourteen opposition supporters were released in August. Sokha is required to remain within a small area around his home and is not allowed to communicate with opposition colleagues or the media. His release is therefore unlikely to see a reawakening of the opposition and Hun Sen’s regime will likely remain unchallenged for the foreseeable future.

Eurasia: Ruble and tenge at 30-month low  amid sanctions and EM jitters

Sectors: energy, banking, government debt
Key Risks: currency volatility, credit risk, sanctions

On 10 September, Russia’s ruble fell to a two-and-a-half-year low against the US dollar, falling below the psychologically significant 70 ruble-to-the dollar range. The ruble nadir came five days after the Kazakh tenge also felt to a two-and-a-half-year-low as concerns over emerging markets’ currencies emanating from volatility in the Turkish lira and Argentine peso, though planned hearings in the US Congress on additional sanctions are also adding pressure. Energy producers stand to benefit in an environment of high-oil prices and a falling ruble/tenge, given their revenues are in dollars, whereas importers will suffer. A further decline in the ruble and tenge could also add stress to the countries’ banking sectors, which have performed abysmally in recent years, with the exception of Russia’s state-backed VTB and Sberbank. Those two banks will likely remain largely healthy, although this could quickly change if US sanctions legislation banning US persons from holding Russian debt come to pass.

Europe: UK government’s internal feuds escalate, while EU prepares to give Barnier final mandate

Sectors: all
Key Risks: political instability, trade disruption

On 10 September, Britain’s ex-Brexit Undersecretary for Steve Baker warned that up to 80 Conservative MPs were ready to reject Prime Minister Theresa May’s Chequers plan for negotiating a deal with the European Union. Baker quit May’s government along with then-boss David Davis and then-foreign secretary Boris Johnson over the deal Johnson the previous day had compared May’s negotiating strategy amounted to the UK wearing a suicide vest. However, also on 10 July the Financial Times reported Brussels would give the chief EU Brexit negotiator a new mandate to finalise a deal. May is due to meet EU leaders in Salzburg, Austria, on 19-20 September in what could prove a key meeting as 10 days later is the annual conference of May’s Conservative Party, which will see tensions between her government and the hardline Eurosceptic wing led by Johnson, Davis, Baker and Jacob Rees-Mogg, among others, come to a head.

MENA: Spain halts major missile sale to Saudi Arabia over Yemen concerns

Sectors: defence
Key Risks: contract frustration

Spain’s Defence Ministry launched a process to cancel a 2015 contract between Spain and Saudi Arabia for the delivery of 400 laser-guided munitions, intending to repay US$10m already paid for the weapons. The Spanish government is halting this sale over concerns about Riyadh’s use of missiles against civilians in the war in Yemen. This sets an important precedent, as Spain is the fourth largest supplier of military equipment and weapons to Saudi Arabia after the US, UK and France. Saudi Arabia accounts for 9 per cent of Spanish arms sales. Germany has regularly halted the delivery of arms to Saudi, most recently in January 2018, and to countries whom it deems to be committing human rights abuses, yet it seems unlikely in the short term that France, the UK and the US will follow suit.

Sub-Saharan Africa: Zimbabwe’s Mnangagwa cabinet could herald economic renewal, but risk of instability remains

Risk: economic reform; political stability
Sectors: all

On 7 September President Emmerson Mnangagwa unveiled Zimbabwe’s new government following his controversial victory in July’s first post-Mugabe elections. The cabinet list held a few surprises, notably Mthuli Ncube’s nomination as finance minister. Ncube is a former vice president of the African Development Bank and has already caused ripples by suggesting Zimbabwe scrap its bond note parallel currency. The appointment of several experienced technocrats rather than party cadres to key portfolios clearly is to be seen as a signal to potential investors and international institutions that the government is serious about economic reform. Meanwhile, former president Robert Mugabe said he accepts Mnangagwa’s election victory after previously denouncing his government as unconstitutional in a move that is likely to ease tensions between the two rival factions within the ruling ZANU-PF. That is not to say that the rifts within the ruling ZANU-PF caused by the November 2017 coup have dissipated, however. Vice president and former army chief Constantino Chiwenga was stripped of the defence portfolio, potentially exacerbating tensions between his camp and Mnangagawa’s that have simmered ever since Mugabe’s ouster.