Americas: Leftist AMLO to take office in Mexico on 1 December

Sectors: all
Key Risks: policy continuity; political instability; currency volatility

In Mexico, leftist president-elect Andres Manuel Lopez Obrador (AMLO) will take office on 1 December amid persistent uncertainty over his future policies. AMLO’s security strategy includes creating a 50,000-strong National Guard as part of plans to demilitarise the fight against organised crime, although he also stated that he would continue to resort to the military for internal security due to lack of options. On 8 November the IMF warned about domestic risks over energy and other reforms, a week after Fitch Ratings revised Mexico’s BBB+ credit rating outlook from stable to negative. AMLO seems determined to hold referendums on key projects, as the 29 October consultation on the partially-built US$13bln Mexico City airport and the two-day national referendum on 10 projects and policy proposals held on 24-25 November. Concern over potential regulatory changes and contract reviews will remain.

Asia-Pacific: Taiwan’s ruling DPP party suffers major defeat in local polls

Sectors: all
Key Risks: political instability; policy continuity; relations with China

On 24 November Taiwan’s ruling Democratic Progressive Party (DPP), which leans towards independence for Taiwan, suffered a major defeat in local elections to the Beijing-friendly opposition Kuomintang (KMT). The DPP, which held 13 of Taiwan’s 22 mayoral seats, now has six seats while the KMT won 15. The DPP also lost its traditional stronghold over Kaohsiung city for the for the time in 201 years and was defeated in the second-largest city of Taichung. Independent candidate Ko Wen-je was re-elected as Taipei mayor. President Tsai Ing-wen resigned as party chief but retained her role as head of state. The DPP’s loss came amid intensifying criticism from Beijing over Tsai’s refusal to accept the ‘one China’ policy. The election will boost the KMT’s chances at retaking the presidency in 2020.

Eurasia: Russia-Ukraine conflict at greatest risk of escalation in years  

Sectors: all
Key Risks: war

On 25 November Ukrainian President Petro Poroshenko announced he would seek approval from the legislature for martial law after Russian forces fired on Ukrainian Navy boats near the Strait of Kerch linking the Azov Sea to the Black Sea earlier that day. Russia seized 23 Ukrainian sailors, 6 of whom were wounded in the incident. All cross-Strait travel has been blockaded. Russia controls the strait through its occupation of Crimea, seized from Ukraine in 2014 but as this is largely unrecognised, the status of territorial waters is disputed. Escalation could come at short notice. If Ukraine approves martial law, it could result in a delay to its planned March 2019 elections. Tensions are also building elsewhere in Ukraine over the schism between the Russian and Ukrainian tensions.

Europe: EU signs off on Brexit deal

Sectors: all
Key Risks: political instability; trade frustration

Leaders of the 27 EU member states approved the UK’s deal to leave the bloc, although further political turmoil emerged and British Foreign Secretary Jeremy Hunt himself acknowledged there was no current majority for the deal in Parliament. Meanwhile the leader of the Democratic Unionist Party on which the minority Conservative government in Westminster relies said it would end its confidence-and-supply agreement if the Brexit deal were to pass as written, essentially a poison pill for Prime Minister Theresa May. Spain did ultimately sign off on the deal but only after securing an agreement of future trade talks on the territory, which it has demanded Britain return for centuries, separate from those between the UK and EU, opening the door for it to remain in the Single Market.

MENA: Saudi Aramco spending spree confirmed

Sectors: defense; oil & gas
Key Risks: contract frustration; business disruption

Saudi Arabia’s Aramco CEO Amin Nasser confirmed that the kingdom’s oil giant has earmarked US$500bln to invest over the next 10 years. The projects include a US$160bln for natural gas developments and US$100bln for chemicals projects, which would come in addition to Aramco’s planned acquisition of a majority stake in SABIC, the largest chemical business in the Middle East. The deal would value SABIC at about US$70bln and will enable the oil giant to diversify away from production capabilities into downstream capacity to balance the economy’s vulnerability to oil price shocks. Nasser also confirmed that Aramco expects to conclude negotiations with Saudi’s Public Investment Fund soon and that ‘all financial instruments are on the table for funding’ the acquisition. Aramco is still aiming for a partial IPO which is touted to occur by the end of 2021.

Sub-Saharan Africa: Finalisation of South Africa’s Eskom turnaround strategy postponed

Sectors: all
Key Risks: non-payment; policy continuity

In South Africa ailing state-owned utility Eskom announced on 22 November that its turnaround strategy, originally due to be presented in September 2018, would not be finalised before February 2019. Eskom ran a US$170m loss in 2018, largely as a result of mismanagement, corruption and weak electricity demand, and has some US$28bln in mostly government-backed debt. The plan is expected to assess different restructuring models, including a breakup into four separate entities, to ensure the company’s survival. Nonetheless, the company has successfully secured its financing requirements for the 2018/19 financial year since a management board reshuffle in January. However, the delay risks undermining investor confidence over the coming months, threatening Eskom’s near-term financing goals.