Ones to Watch, 15 October 2018

Americas: Court rulings affecting mining projects in Chile

Sectors: mining
Key Risks: frustration of process; contract scrutiny  

In Chile, court rulings have recently affected several mining-related projects. On 11 October the Constitutional Court suspended a deal allowing China’s Tianqi Lithium to buy a 24 per cent stake in Chile’s SQM after agreeing to hear arguments in a lawsuit filed by SQM’s controlling shareholders. SQM stated that the deal should further limit Tianqi’s access to its corporate secrets. On 10 October the Supreme Court upheld an environmental order for Kinross’s gold mine Maricunga to keep its water pumping wells closed. The environmental court ordered Barrick Gold to definitely close the Pascua Lama project mine on 12 October. The government is expected to continue to support the sector, as demonstrated by the state-owned Codelco’s announcement on 9 October to raise up to US$1bln in 2019 to finance the overhaul of its mines. Further scrutiny of mining-related projects is expected.

Asia-Pacific: Japanese companies exit UK amid Brexit concerns

Sectors: all
Key Risks: business; companies’ reaction to Brexit

On 11 October, Daiwa became the latest Japanese firm to announce that it will be moving its headquarters from London due to the uncertainty caused by Brexit. Daiwa’s move follows fellow Japanese companies Nomura and Panasonic, who have also moved their European headquarters from London to Frankfurt and Amsterdam respectively. Japanese domestic tax regulations is one of the reasons why Japanese companies are considering exiting the UK. Currently, Britain’s corporate tax rate is less than 20 per cent and is predicted to drop even further by 2020 to attract more business post-Brexit. It is possible that Japanese companies could incur heavy liabilities at home as Britain’s decreasing corporate tax rate could come to be seen as a tax haven under Japan’s anti-tax-haven rules. Japan is a major investor in the UK, with more than 800 companies employing more than 100,000 employees.

Eurasia: Protests continue for third week in Russia’s Ingushetia, Tajikistan launches GBAO operation

Sectors: mining; oil
Key Risks: civil unrest; protest violence; insurgency

Protests are ongoing for a third week in Ingushetia’s capital Magas, over a September land-swap agreement between the region and neighbouring North Caucasus republic Chechnya. Chechnya is dominated by strongman Ramzan Kadyrov, who is among President Vladimir Putin’s most dedicated supporters. Chechnya received substantially more land than Ingushetia under the previous land deal and its territory includes areas of interest for oil exploration. The current protests show no sign of abating and the Kremlin has not indicated any plans to handle them. The issue could receive more international coverage after an Amnesty International researcher told Reuters unknown men abducted him while he was researching the demonstrations on 15 October. 15 October was also the deadline for local warlords in Tajikistan’s Gorno-Badakhshan Autonomous Region (GBAO) to surrender their weapons. The government may launch a new crackdown, which would risk violent backlash.

Europe: Brexit tensions may boil over, Macedonia likely to move to snap election

Sectors: all
Key Risks: political instability; snap elections

No agreement was reached on 14 October over the terms of the UK’s exit from the EU – including customs questions posed by Northern Ireland, despite earlier reports that a deal was at hand. No further talks are expected before the EU leaders summit on 17 October. There is a risk that the confidence agreement between Prime Minister Theresa May’s Conservatives and the Democratic Unionist Party may collapse. Ex-Brexit Secretary David Davis called for Conservatives to rebel against May. Meanwhile, Macedonia will likely move to a snap election unless the government can find votes from opposition party VMRO-DPMNE for a constitutional change that would see the country re-named North Macedonia. VMRO-DPMNE has performed poorly in polls since losing power last year but could still retain enough seats to block the change, which would see the collapse of Skopje’s deal with Greece.

MENA: Turkey releases US pastor Andrew Brunson

Sectors: all
Key Risks: sanctions; lira depreciation

A Turkish court ordered the release of US pastor Andrew Brunson, who has been detained for almost two years on espionage charges. He returned to the US on 13 October. Brunson’s imprisonment led the Trump Administration to impose sanctions on two Turkish cabinet members and contributed to the collapse of the lira. The lira has recovered slightly since Brunson’s release, although Turkey’s structural problems remain and a sustained recovery is unlikely absent a major change in policy. Washington has yet to indicate whether it would lift sanctions. President Erdogan claimed that the decision was made by an independent judiciary, although the timing is suspicious. Bruson’s release may help mend bilateral ties and comes as Ankara is attempting to solicit US support in its confrontation with Saudi Arabia over the disappearance of journalist Jamal Khashoggi from the Saudi consulate in Istanbul.

Sub-Saharan Africa: South Africa appoints new Finance Minister

Sectors: all
Key Risks: recession; frustration of process; budget cuts

On 8 October South Africa’s finance minister Nhanhla Nene resigned after he admitted to having visited the private estate of the infamous Gupta brothers – key figures in the multi-billion dollar ‘state capture’ corruption scandal – on several occasions between 2009 and 2017, when he served as finance minister under former president Jacob Zuma. Although there is no evidence Nene accepted any bribes, the mere suspicion threatened to taint the graft-busting image of President Cyril Ramaphosa’s government. Any damage caused by Nene’s departure was contained by Ramaphosa’s swift appointment of the highly-regarded former central bank governor Tito Mboweni as Finance Minister. Mboweni will face his first major test in November, when the mid-term budget is due. Further fiscal tightening will likely be required, which could prove increasingly hard to reconcile with the government’s pledge to simultaneously boost social spending.