This year, Ukrainians can look forward to progress in their favour in relations with Russia and with the European Union. At home, however, there will be growing political instability.
First, foreign policy. Progress on two fronts is closely interlinked. Ukraine gained its independence in 1991 when Russia had been weakened by an imploding USSR and a failed hard-line coup d’état. Vladimir Putin’s Russia of 2016 will increasingly come to resemble Leonid Brezhnev’s USSR of the late 1980s. Read more
The aim of an equity market circuit breaker is to provide safeguards to address market volatility and inspire investor confidence. It’s hard to argue with the rationale, but this week’s new measure in China has had unintended consequences for the world’s second largest economy. And it’s not the first time that the China Securities Regulatory Commission (CSRC) has made such an error of judgement.
Under previous rules, trading in individual mainland Chinese stocks had to remain within a 10 per cent price limit based on the prior day’s close. Monday’s innovation extended restrictions to the entire CSI 300 index, however; this time at even tighter boundaries of 5 per cent and 7 per cent. In essence, if an upward or downward move exceeds 5 per cent, the index goes into auction mode (when trades may be submitted but not executed). A subsequent move to the 7 per cent boundary means all stocks are suspended. Read more
Impeachment procedures against Dilma Rousseff, the president of Brazil, are finally under way.
On three occasions last year, the country was shaken by some of the largest popular protests in its history. But that was not enough to instill any sense of urgency into Rousseff’s administration. On the contrary, with each passing week, more and more people became convinced that the president had completely lost the ability and judgement needed to overcome the obstacles that hamper her administration, our politics and our economy. Opinions polls show that 65 per cent of Brazilians support impeachment, while 62 per cent wish the president to resign. Read more
For much of the early 2000s, Brazil, Russia, India, and China (the Brics) were seen not just as “the engine of new demand growth and spending power,” as Goldman Sachs researchers put it in 2003, but also as the likely begetters of a new international order, in which the US – and the west more generally – would play a much less significant role.
Today, the idea that the Brics could lead the way to this new order seems more distant than ever. Read more
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The Republic of Turkey is going through one of its most challenging periods since its foundation in 1923, directly exposed to severe regional crises that are spiralling into serious geopolitical tensions.
Inevitably, this is not helping the economy. The new government’s commitment to reform has been welcomed; the key test will be to transform intentions into concrete measures. This is now more urgent than ever, and acting quickly will be as important as acting decisively. Read more
Since Ukraine gained independence it has failed to enact reform of its energy market, resulting in monopolisation and inefficient use of scarce energy resources.
Energy reform is critical for the Ukrainian economy, as energy constitutes 30 per cent of GDP with turnover of 400bn hryvnia ($17.5bn) a year. Ukraine’s biggest monopolies are concentrated in the energy sector, so wise state regulation, demonopolisation and competitive rules are essential to make the market efficient and to eliminate corruption. Read more
A year on and I am sitting on a tropical island, eating my dinner on the beach and, like in Namibia, the Tanzanian African night sky remains unpolluted by man-made light. Good news and bad news…
Generally it has been a difficult year for developing Africa’s power needs. A combination of lower commodity prices, China’s economic slowdown, dollar strength and local currency weakness have made it a tough year for nearly all African governments. Revenues are down, the cost of servicing debt is up, and where dollar liabilities have needed to be serviced by local currency that has often led to a lack of liquidity in the local currency markets. As a result, we have seen government projects slip, and with them the ability to fund or procure much-needed power infrastructure development, despite the lower cost of fuel generally. Read more
As 2015 draws to a close, Mexico and the UK can look back on 12 months of enriching exchanges as part of their Dual Year, originally conceived as a cultural initiative but subsequently expanded far beyond to areas including trade, investment, tourism, education, science and innovation.
Throughout the “Year of Mexico in the United Kingdom” and the “Year of the United Kingdom in Mexico” both countries have combined efforts and seized an historic opportunity to consolidate economic progress. Two main goals have been achieved: the doubling of bilateral trade to $7bn, and achieving the figure of half a million Britons travelling to Mexico yearly, a number that, taking into account the importance of tourism for the Mexican economy, has resulted in a windfall of $17.5bn. Read more
Reform is a pressing need across emerging markets, especially as global demand remains weak and rising US interest rates threaten to increase funding costs. For countries to revive growth, they will need to create a more favourable environment for business. Politicians in many countries acknowledge this and have put structural economic reforms at the heart of their governing agenda.
But everywhere the outlook for reform is heavily dependent on political leadership and the larger political economy: where leadership and popular support for reform is strong – as in India – the outlook is positive; but where politicians are more interested in power than leadership – such as in Turkey and South Africa – the prospects for positive change are dim. Read more
Investors in Russian equity and debt enjoyed, on average, a relatively better year than peers in other major emerging markets. The rouble-denominated Micex gained 17 per cent in the year up to Christmas week, while the dollar denominated RDX added only 0.3 per cent – the difference being accounted for by the 16.5 per cent year-to-date fall in the value of the rouble versus the dollar. Over the same period, the MSCI EM Index lost 17 per cent and the MSCI World Index was off 4 per cent. The yield gap applied to Russian sovereign debt, and that on issues from the biggest corporations, contracted substantially despite the cut to sub-investment grade by two rating agencies earlier in the year.
Valuations started 2015 excessively cheap because of political and economic fears that proved unfounded. The conflict in eastern Ukraine did not spread further and sanctions were not added to. Domestically the government’s response to falling oil revenues and tough macro conditions was pragmatic and effective. For sure nobody can say that 2015 has been a good year for Russia; what we can say is, “it could have been a lot worse”. Read more
The devastating floods in India’s southern state of Chennai, and now yet another deadly typhoon (Melor) bringing massive flooding in central Philippines, point to a rising frequency of climate-related disasters. For an effective response to these increasingly costly events, we can no longer regard them as one-off acts of nature. They are part of an emerging pattern shaped by human activity, in two ways. Globally, climate change is making countries far more hazard-prone; locally, environmental destruction is adding to the fall out.
Rising population densities mean that more people are locating in flood-prone areas. Unregulated urbanisation and inadequate drainage and flood protection are exacerbating people’s vulnerability. Read more
The World Trade Organization’s Tenth Ministerial Conference gets under way today in Nairobi – the first time the meetings have been held in Africa.
Fourteen years ago, the WTO launched its Doha Round of multilateral trade negotiations. The 9/11 atrocities had occurred just two months before. Those events strengthened the resolve of WTO members to show that economies with varied priorities and interests could come together with a shared purpose. Read more
What is most surprising about the Venezuelan opposition’s overwhelming electoral victory on December 6 is that so many people were surprised. In any normal democracy, when a government is responsible for a massive economic recession, runaway inflation, endemic shortages and a collapse of personal safety, voters can be expected to dole out harsh punishment at the ballot boxes.
Venezuela—needless to say—is not a normal democracy. It is a country where checks and balances, military subordination to civilian authority, freedom of the press and the right to dissent have all but vanished. The opposition’s victory is therefore not the ultimate proof of Venezuela’s democratic virtues, as members of the government have argued, but instead an opportunity to rebuild democracy based on tolerance, pluralism, and republican principles, all of which were systematically disdained by chavista governments. Read more
FirstPower has a most perplexing problem for a Nigerian business: too much electricity. In a country with an enormous power deficit, where grid power is only available for a few hours each day, its 14 megawatt power plant in Ijora, an industrial hub in Lagos, has been ready since early 2015. It cannot be brought online because the local Distribution Company (Disco) – the regional government granted monopoly – has no incentive to “play ball”.
Despite the recent privatisation of Nigeria’s power sector, the electricity industry has not been deregulated. Rather, the old state distribution behemoth was carved into “Nigeria’s 11 primary Discos [which] are monopolies,” as the Nigeria Electricity Regulatory Commission (NERC) admits. As a result, competing private plants are routinely denied permission to distribute by the NERC. Read more
By Jayant Rikhye, HSBC
To the list of emerging Asia’s economic powerhouses, add one more: South East Asia and its 625 million inhabitants.
Spanning countries as diverse as Vietnam, Indonesia, the Philippines and Singapore, the Association of South East Asian Nations (Asean) is often considered an “also-ran” that gets far less attention than China and India.
To underestimate the region, however, would be a mistake. Read more
Investors seem to think that President Mauricio Macri will soon resolve Argentina’s long-standing debt crisis. Yet the task may prove a lot more difficult than expected by those who have not been following the case closely.
Except for former president Cristina Fernández and the chairman of the central bank, few people really know how much President Macri found in the bank’s reserves when he took office on December 10. More importantly, the economy may not kick start, even with Mr Macri’s dream team, without tapping international capital markets in January. Read more
The move to confer reserve status on China’s currency is part of a process that could lead to nearly $3tn being injected into the country’s bond and equity markets. We’ve taken a close look at where the money could come from.
On its own, the inclusion of the renminbi in the International Monetary Fund’s basket of reserve currencies, known as the Special Drawing Right (SDR), could lead to capital flows of $30bn into China within the next 12 months. Read more
Last weekend’s legislative elections in Venezuela herald the start of a new political era in the country. The opposition coalition won a stunning 112 out of 167 seats in the single-chamber National Assembly: a political earthquake that upends the political landscape in the country that hosts the world’s biggest oil reserves.
Sunday’s earthquake was built on an unprecedented grassroots mobilisation by thousands of opposition volunteers whose stories have barely begun to be told. They hit the streets in numbers to quash any attempt at vote rigging and to keep the vote peaceful. Read more
By Ali Safavi, National Council of Resistance of Iran
The heinous terrorist attacks in San Bernardino last week and in Paris last month were clear reminders of the growing threat of Islamic extremism. This vicious ideology continues to take new physical forms – once al-Qaeda, now ISIS. Their goal is to create an Islamic “state” capable of enforcing Sharia law by force and unwinding humanity’s democratic achievements.
While the Sunni variant of fundamentalism desperately seeks to achieve this objective, the Shiite version in Tehran is well on its way. It should be confronted, not engaged.
Hotspots like Syria, Iraq, and Yemen have become a breeding ground for ISIS. In all of them, Tehran’s fundamentalist regime plays a key role in the mayhem. Read more
This week, the EU and World Bank met to discuss development financing as a means of tackling some of the root causes of irregular migration. This comes after last month’s Valetta Conference, where European leaders pledged €1.8bn to address the potential causes of migration in Africa. This was a crucial start but we need further direct support for areas under specific threat. In both the Middle East and Africa there are clear crisis spots where a majority of EU bound migrants originate. Eritrea, Somalia and South Sudan have been identified but there also needs to be a focus on West Africa, an area bearing the brunt of the continent’s Islamist terror threat.
In Nigeria, terrorist activity has increased significantly since 2013, largely as a result of Boko Haram. In the last week of November the group claimed responsibility for a suicide bombing of a Shiite Muslim procession near Kano which killed 21 people. Over 100 people remain unaccounted for following a battle near the town of Gulak and eight people were murdered in an attack on the northeast region and neighbouring Niger. Read more