Americas: Shareholders approve privatisation of Brazil’s Eletrobras, process still at risk

Sectors: power; electricity

Key Risks: business risks; legal challenges; asset sale delays; policy uncertainty 

In Brazil, on 22 February the shareholders of state-owned power utility Eletrobras reportedly approved the terms for the firm’s privatisation, another key milestone for the long-delayed process. The news came a week after an audit court approved concession fees that Eletrobras would pay the government to continue operating its hydroelectric dams after the planned privatisation. President Jair Bolsonaro’s administration expects the process to go ahead by mid-2022 through a share offering on the country’s Bovespa stock market and in the US as American Depositary Receipts (ADRs). Former leftist president Luiz Inacio Lula da Silva, who is leading the presidential polls ahead of the upcoming 2 October general elections, stated that his Workers Party opposed plans to privatise state-owned firms and warned investors against buying Eletrobras. The process could suffer further delays and challenges amid increasing policy uncertainty ahead of the October vote.

Asia Pacific: Nepal’s Parliament ratifies MCC; Chinese banks restrict Russia-related financing

Sectors: all
Key Risks: business risks; civil unrest; political instability

In Nepal, Parliament approved the US$500m grant from Millennium Challenge Corporation amid a week-long protest against  ratification. The grant’s passage, with the Communist Party of Nepal and the Janata Smajbadi Party voting in favour, means that Prime Minister Sher Bahadur Deuba’s government managed to meet the 28 February deadline given by the US. It also prevented the break up of his coalition government that could have triggered a new wave of political instability. In China, several state-owned banks, including Bank of China and Industrial and Commercial Bank of China (ICBC), restricted financing for purchase of Russian commodities amid growing international pressure on Beijing. The restriction, however, does not equate to Chinese endorsement of Western sanctions against Russia, but rather attempts to safeguard its own financial institutions from the spillover effect of sanctions.

Eurasia: Kiev, Moscow hold talks amid ongoing Russia’s full-scale invasion; Zelensky urges immediate membership in EU

Sectors: all
Key risks: war on land; sanctions 

The Ukrainian delegation met with the Russian delegation at the Belarus border to discuss Russia’s full-scale invasion of Ukraine. According to the statement of the Office of President Volodymyr Zelensky, Kiev’s delegation, led by Defence Minister Oleksiy Reznikov, is seeking ‘an immediate ceasefire and the withdrawal of troops from Ukraine.’ Zelensky stated that he was not very optimistic about the talks. The Kremlin refused to comment on Moscow’s goals. Meanwhile, President Zelensky urged the EU to grant Kiev an ‘immediate membership via a new special procedure’. The statement came after European Commission President Ursula von der Leyen stated on 27 February that the EU ‘wants them (Ukrainians) in’. It is still unclear what the ‘new special procedure’ to join the EU would look like, while Russia-Ukraine talks are unlikely to bring a significant breakthrough.

Europe: EU, Germany to supply lethal military aid to Ukraine

Sectors: all; defence; European Partnership (EaP)
Key Risks: war-on-land

On 27 February the European Union (EU) agreed to supply EUR500m lethal military aid and other assistance to Ukraine. The EU will use its ‘European Peace Facility’ financing instrument, which has a ceiling of EUR5bln, to provide the aid. It marks the first time in history that the EU will finance the purchase and delivery of weapons to a country under attack. Meanwhile, on 26 February Germany’s Chancellor Olaf Scholz reversed Berlin’s longstanding policy of blocking lethal aid from being sent to conflict zones. Scholz committed to supply Ukraine with 1,000 anti-tank weapons and 500 ‘Stinger’ class surface-to-air missiles. Germany also authorised its NATO partners to make German-made arms deliveries to Ukraine. Further European military and economic assistance to Ukraine is likely to be announced in the coming week.

MENA: IMF sets out pre-conditions for further bailout talks with Lebanon’s government

Sectors: all; banking & finance
Key Risks: policy uncertainty; business risks; economic risks;

On 24 February it was reported that the IMF outlined a string of necessary pre-conditions – many of which governments in Lebanon have long-failed to deliver on – necessary to initiate bailout talks. Pre-conditions would include an audit of the Banque du Liban, fiscal reform and a shake up of the country’s insolvent banking sector. The Fund also reportedly asked to lift banking secrecy and to implement capital controls – an instrument on which Beirut has failed to achieve consensus. Prime Minister Najib Miqati has sought to secure an IMF staff-level deal before upcoming parliamentary elections in May 2022. However, although necessary to secure a roadmap out of the crisis, Beirut’s political factions may be reluctant to embark on significant reforms in the run up to elections. Until then, the country’s deep and protracted economic and financial crisis will continue unabated.

Sub-Saharan Africa: Kenya’s president backs opposition leader after suspected election deal

Sectors: all
Key Risks: civil unrest, intercommunal violence; political violence; policy uncertainty

In Kenya, President Uhuru Kenyatta announced on 26 February his endorsement of leading opposition figure Raila Odinga ahead of the August presidential elections. The endorsement appears to confirm suspicions that Kenyatta had struck a deal with Odinga that will likely see Kenyatta preserve his political influence post-August elections, despite the country’s presidential two term limit. The endorsement will likely undermine the campaign of Deputy President William Ruto who has until now enjoyed a significant polling lead. In previous elections, support from Kenyatta’s Kikuyu community – the country’s largest ethnic group – has proved decisive.  Following allegations by Odinga of electoral malpractice, large-scale intercommunal violence erupted after the 2007 and 2017 elections. Should polling or the result prove close, Ruto and Odinga may fall back on ethnic mobilisation, risking an escalation in political tensions that could again culminate in severe unrest and violence.