1.RISKMAP REPORT 2014

2. Published by Control Risks, Cottons Centre, Cottons Lane, London SE 1 2QG. Control Risks Group Limited (the Company) endeavours to ensure the accuracy of all information supplied. Advice and opinions given represent the best judgement of the Company, but subject to Section 2 (1) Unfair Contract Terms Act 1977, where applicable, the Company shall in no case be liable for any claims, or special, incidental or consequential damages, whether caused by the Companys negligence (or that of any member of its staff) or in any other way. Copyright: Control Risks Group Limited 2013. All rights reserved. Reproduction in whole or in part prohibited without the prior consent of the Company. Photos on pages: 6 (top/bottom), 14 (top/bottom), 16 (bottom), 23 (top/bottom), 25 (top/bottom), 27 (top/bottom), 30 (bottom), 34 (top/bottom), 40 (top/bottom), 41 (top/bottom), 44 (top/bottom), 50 (top/bottom), 54 (top/bottom), 56 (bottom), 58 (top/bottom), 60 (top/bottom), 61 (top/bottom), 66 (top/bottom), 69 (top/bottom), 72 (top/bottom), 74 (bottom), 79 (top), 84 (top/bottom), 87 (bottom), 90 (top/bottom), 92 (top/bottom) and 100 (top/bottom) Press Association. All other images are from Shutterstock except those credited in the publication to Control Risks employees. Control Risks is an independent, global risk consultancy specialising in political, integrity and security risk. We help some of the most influential organisations in the world to understand and manage the risks and opportunities of operating in complex or hostile environments. We support clients by providing strategic consultancy, expert analysis and in-depth investigations, handling sensitive political issues and providing practical, on-the-ground protection and support. Our unique combination of services, geographical reach and the trust our clients place in us ensure we can help them to effectively solve their problems and realise new opportunities across the world. Working across five continents and with 34 offices worldwide, we provide a broad range of services to help our clients to manage risk. 3. RISKMAP REPORT 2014 Control Risks is delighted to launch RiskMap 2014, our authoritative guide to business risk in the year ahead. Drawing upon expertise from across our organisation worldwide, we forecast the major challenges and opportunities of doing business in the worlds most complex environments next year. Any publication entitled RiskMap is inevitably going to focus on risk, and as we look ahead we see no shortage of traps to snare the unwary. But we also see an abundance of opportunity delivered in part by the most extraordinary advances in living standards and public health. With the media headlines as ever dominated by risk and peril, that is well worth remembering. Richard Fenning, CEO, Control Risks 4. The rising expectations of a growing consumer class will challenge governments and bring new risks to business. Page 19 Changing economic realities in 2014 will expose the divide between financially needy countries and their more pragmatic counterparts. Page 37 01 AFRICA 02 AMERICAS A prime location and sizeable natural gas reserves will drive growing investor interest in 2014. Page 31 An end to the civil conflict will shape an election year that will spell continuity for business. Page 47 SPOTLIGHT ON: TANZANIA SPOTLIGHT ON: COLOMBIA The ever more complex structures of global businesses are facing increasingly localised risks, bringing new challenges and vulnerabilities. Page 1 As the hangover from the global financial crisis fades, risk will seem more attractive than ever. Page 7 THE MOUSE THAT ROARS HOW LOCAL ISSUES ACCELERATE INTO MAJOR PROBLEMS THE CHANGING GLOBAL ORDER: THE WORLD IN 2014 5. Cooling growth will elicit varying responses: some governments will rise to the challenge, others will not. Page 51 After a difficult 2013 for Europes economies, 2014 will see, at best, a fragile recovery. Page 67 Transition states face a busy election year, while a breakthrough on Iran remains unlikely. Page 81 03 ASIA-PACIFIC 04 EUROPE The messy outcome of the 2014 elections will dash investor hopes of a return to high growth. Page 63 Events in 2014 will show whether Turkey is on the path to modernisation or is slipping towards authoritarianism. Page 77 The successful reworking of Dubais economic model will lay the foundations for sustainable growth in 2014. Page 93 SPOTLIGHT ON: INDIA SPOTLIGHT ON: TURKEY SPOTLIGHT ON: UNITED ARAB EMIRATES MIDDLE EAST AND NORTH AFRICA 05 RISK RATING FORECAST 2014 Page 105 KIDNAP OVERVIEW Page 103 PIRACY OVERVIEW Page 101 TERRORISM OUTLOOK Page 99 6. Photographs taken by Control Risks employees 7. RiskMap Report 2014 THE MOUSE THAT ROARS 2 When 32 heavily armed terrorists entered the remote In Amenas gas plant in Algeria in the early hours of 16 January 2013, more than 130 foreign workers from nearly 30 countries were on site, representing a multitude of operators, contractors and sub-contractors drawn from nearly 50 companies based around the world. As events unfolded, my colleagues assisted companies on four continents and speaking six languages, helping to co-ordinate a multinational response to the crisis. The attack was also vividly and at times tragically recorded through social media as hundreds of workers hiding in the plant were able to relay events direct to their families and loved ones around the world in real time. Despite its remoteness, the In Amenas attack was inherently a global incident, affecting people, organisations, markets and perceptions worldwide. The number of different nationalities caught up in the In Amenas attack surprised many. But the geographic diversity of the workforce and its employment by companies ranging from major multinationals to small suppliers were not unusual in our globalised world. The oil and gas industry, often in the vanguard of international operations, has long embodied a complex kaleidoscope of inter-connecting contractual relationships. Major oil and gas projects bundle their skills and technologies like Rubiks Cubes, forming and re-forming into bewildering combinations to suit the specific needs of individual projects. Other sectors have adapted this flexible model and as we mentioned in last years RiskMap hardly any countries are now off-limits to shape-shifting multinational companies. Companies increasingly need to pursue elaborate, interlocking operational structures to grasp the opportunities on offer in a near-global marketplace. For instance, I am writing this having just left a meeting with a senior executive of a Japanese conglomerate that has a major stake in a US-listed Latin American mining company, which is investing billions of dollars in southern Africa with Russian and Indian co-investors to sell to Chinese customers. And this is a relatively straightforward proposition compared with some of the byzantine structures we encounter. BY RICHARD FENNING CHIEF EXECUTIVE OFFICER CONTROL RISKS THE MOUSE THAT ROARS HOW LOCAL ISSUES ACCELERATE INTO MAJOR PROBLEMS Companies increasingly need to pursue elaborate, interlocking operational structures to grasp the opportunities on offer in a near-global marketplace. 8. RiskMap Report 2014 THE MOUSE THAT ROARS 3 Organisations clearly cannot take advantage of such opportunities on their own. But new interdependencies create new vulnerabilities, from the liabilities of local partner organisations to the often harsh realities of novel operating climates. As organisations leverage their global reach into ever more convoluted combinations, they leave an ever greater digital footprint with the attendant risks of a breach of their cyber security. For those mapping growth strategies at multinational and global HQs, this presents a daunting risk management challenge: as business has become global, political, security and integrity risk have become more local. This is one of the key themes we explore in this years RiskMap. The competing gravities of localised politics and globalised economics generate friction that plays out in unexpected ways and places. As we saw in the In Amenas attack, the complex local dynamics of terrorism and criminality in the Sahara amplified by post-Gadhafi anarchy leaching over the border from Libya have reverberated globally through energy markets, international relations and corporate strategy. This is not just an issue in unstable post-revolutionary contexts. In the US, a grassroots political crusade against big government has repeatedly threatened to crash the global economy by forcing an unprecedented sovereign default; it seems bent on more of the same in 2014. Growing US isolationism after a decade of entanglement in Middle Eastern wars, meanwhile, has compromised global security management, leaving for example no coherent strategy to contain and curtail the Syria conflict. Across the Atlantic, localised (often fringe) political positions have obtained national prominence in the wake of the financial, sovereign and austerity crises, strengthening centrifugal forces that for the last few years have threatened to blow the European project off course. As challenging as this period has been for industrialised nations, the year ahead may prove particularly challenging in the emerging world. Even though the timing remains at issue, 2014 will probably bring to an end the era of quantitative easing that has sent capital flooding into BRICs, MISTs and other economies still in search of an acronym to join. The ensuing reversal of capital flows previewed in late summer 2013, when emerging-market currencies dropped precipitously against the US dollar on rumours of US Federal TOP: World national flags. BOTTOM: Petrochemical plant. The competing gravities of localised politics and globalised economics generate friction that plays out in unexpected ways and places. 9. RiskMap Report 2014 THE MOUSE THAT ROARS 4 Reserve tapering will put enormous strain on economies that failed to make the most of the salad years. Inefficiencies masked by abundant capital may stoke popular unrest and will almost certainly undercut the lifestyles to which many have grown accustomed, especially new graduates to the burgeoning global middle class. A spike in corruption and extortion risk seems likely to result. Not even the largest emerging-market economies will prove immune. In China, the government is attempting far-reaching changes to the economy by tackling some of the vested political interests that dominate certain industrial sectors. Already, the risk of being caught up inadvertently in an anti-corruption campaign or an attempt to influence pricing models has substantially increased. The complexities of local politics, hard to read even at close quarters and in good times, will grow more opaque and often distorted when viewed from foreign HQs. Chinas challenges will play out against the backdrop of lower, but still robust, GDP growth (the IMF currently projects 7.25% in 2014, down from consistent double-digit performance in recent decades). Other large emerging economies face even rougher seas. The tapering mini-panic hit India, Turkey and Brazil particularly hard; the latter two suffered significant unrest, largely driven by discontented urban middle classes. Among recent high-fliers, only Mexico appears better placed for solid growth next year, and even there the war between drug cartels and the state continues to disproportionately colour the countrys reputation. Then, of course, there are outright conflict zones. The list is led by the civil war in Syria, with Iran and Russia backing President Bashar al-Assads regime, and the Gulf Arab monarchies, Turkey and a lukewarm West backing the rebels. Syrias local political trends present no cause for optimism. A stalemate has developed whereby the rebels lack the firepower and unity to overthrow the regime, while the regime has demonstrated it has genuine grassroots appeal within the minority Alawite and Christian communities, and enough outside support from Iran and Hizbullah to hold on for the time being. The US-Russia agreement to mount an international effort to remove the Assad regimes chemical weapons may be a universal good, but its practical effect is to forestall any decision by the US or other powers to intervene on humanitarian grounds. This will encourage both sides in Syria to dig in and perpetuate the risks stalking neighbouring countries harbouring millions of refugees and being drawn, voluntarily or not, into the conflict. As usual, the risks are particularly acute in Lebanon, where Christian and Sunni factions strongly support the rebels, while the countrys most powerful faction, 10. RiskMap Report 2014 THE MOUSE THAT ROARS 5 Hizbullah, is deeply engaged on behalf of Assad. Egypt, meanwhile, has taken a step back from democracy. The re-imposition of military rule once again tested companies doing business in the Middle Easts largest economy, raising anew complex issues of business continuity, market resilience and, at the most basic level, the safety of local staff. 2014 will not see the return to normality that investors crave. In the Sahel and Yemen, al-Qaida, whose demise was only recently being talked of as a given in some Western capitals, has proved resilient. Indeed, if lawless areas of Iraq, Syria, Pakistan, Somalia and Afghanistan are included, al-Qaida-aligned groups are spread over as much territory as ever before. The centralised entity that perpetrated the 9/11 attack may be in terminal decline thanks to relentless drone strikes, but a shift in the centre of institutional gravity to al-Qaida in the Arabian Peninsula (AQAP), al-Qaida in the Islamic Maghreb (AQIM) and al-Qaida in Iraq (AQI) among other affiliates will preserve the networks lethal ambitions for the foreseeable future. One potential bright spot: progress in mid-late 2013 in talks between the US and Iran over the latters nuclear ambitions holds out some hope that the diplomatic logjam may shift. The chances are slim, and these moves may turn out to be no more than a change of tactics rather than strategy on Tehrans part. As an ancillary boon to the global economy and major importers, progress in these negotiations could pare the geopolitical risk premium underlying oil prices, combining with bumper unconventional production to bring prices down below the $100 per barrel threshold. Outside the Middle East, elections in Indonesia, India and Brazil will command significant attention. In Brazil, slowing growth rates have forced new burdens on the government of President Dilma Rousseff. Although the country will put on a good show hosting the 2014 World Cup and 2016 Olympics, doing business may grow even more complex as the government pushes for more state intervention to boost the economy and the rising costs of doing business continue to erode profit margins and Brazils attractiveness more broadly. In India and Indonesia, corruption and lowered growth expectations will dominate political debate, providing openings for a change in government in Indonesia after a decade of relatively consistent rule by one party. 2014 will not see the return to normality that investors crave. 11. RiskMap Report 2014 THE MOUSE THAT ROARS 6 In both countries, business risk could emanate from the disruption to vested interests that political change can precipitate. In India, elections will result in another weak central government, portending continued glacial progress on reforms that would revive growth and improve the operating environment. For investors, shifting power both economic and political needs to be monitored closely to avoid unwanted entanglement. RiskMap explores how this phenomenon of spikes in risk triggered by changes in the distribution of economic power is repeated in many different markets. As growth slows in many of the recent high-growth economies, political legitimacy is tested and unwary investors may find themselves in suddenly unfamiliar territory. On one level, this is nothing new: globally ambitious companies have always risked becoming embroiled in other peoples problems a long way from home. But what is new is the scale with which this is now happening. RiskMap highlights how many of the drivers of growth urbanisation, the growth of the middle classes, improvements in public health, increased access to natural resources transcend national boundaries and encourage investors to enter new markets. In 2014, this tension between opportunity and risk will become more acute as the era of high-growth emerging markets fuelling global GDP growth comes to a close and the complexities of local political tensions impinge more assertively on global operations. Any publication entitled RiskMap is inevitably going to focus on risk, and as we look ahead we see no shortage of traps to snare the unwary. But we also see an abundance of opportunity delivered in part by the most extraordinary advances in living standards and public health. With the media headlines as ever dominated by risk and peril, that is well worth remembering. TOP: Protester in Istanbul, Turkey, September 2013. BOTTOM: Hundreds of protesters clashed with police in Rio de Janeiro, Brazil, October 2013. 12. Kabul, Afghanistan by Edward Smith Control Risks 13. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 8 All good forecasts, particularly in the complex realm of global political and security risk, have a solid historical foundation and learn from past outcomes. In building our RiskMap 2014 outlook, we have drawn on a decade of risk analysis to identify underlying trends and assess how they are likely to evolve. LOOKING BACK: 2003-13 The ten years from 2003 to 2013 were bracketed by the invasion of Iraq and US withdrawal from Afghanistan, enlargement of the EU and the eurozone crisis, SARS in East Asia and a similar outbreak in the Middle East, the relinquishment of chemical weapons by Libya and their use in Syria, and the decision to build a nuclear bomb in North Korea and renewed negotiations to preclude the possibility in Iran. Along the way, the subprime mortgage collapse nearly destroyed global finance, the Arab spring upended decades of political stagnation in North Africa, BRIC became the watchword of the global economy, the urban population exceeded the rural population for the first time in history, fracking transformed energy geopolitics, and social media technologies revolutionised global communications and laid bare the secret workings of the Wests intelligence agencies. It was a decade of unprecedented opportunity and historic shifts of capital from the advanced to the developing world, tempered by rapidly evolving threats, a new emphasis on transparency and accountability, and rising concern about the sustainability of the post-war liberal democratic world order. With these shifts introducing unprecedented complexity and uncertainty into global affairs, managing security and political risks became more directly relevant to how companies do business. Developments in the Middle East and North Africa dominated global THE CHANGING GLOBAL ORDER: THE WORLD IN 2014 JONATHAN WOOD ASSOCIATE DIRECTOR, GLOBAL RISK ANALYSIS CONTROL RISKS Figure 1: Timeline of key events driving changes in global security and political risk 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20142003 Arab spring Eurozone crisis EU enlargement NATO withdrawal Arab spring Iraq war SECURITY RISK POLITICAL RISK KEY INCREASING RISK DECREASING RISK 14. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 9 security risk over the last ten years. The launch of the Iraq war in 2003 spawned increased security risks throughout the Gulf region, influencing evolving terrorist threats in Algeria, Iraq, Saudi Arabia and beyond. The gradual increase in tensions over Irans nuclear programme after 2009 added a new layer of strategic security risk most strongly felt in global oil markets while the Arab spring revolutions in early 2011 radically altered security environments in North Africa and the Levant, with regional and global spillover impacts. Nuclear sabre-rattling in North Korea, by contrast, had no sustained impact on global security risk, though it remained a sporadic source of regional crisis. The Iraq war and Arab spring also strongly affected global political risk, but resurgent leftism in Latin America, lingering state fragility across Central and West Africa, and the fallout from the global financial crisis especially in Europe were equally important. An underlying driver of each of these was the onset of the so-called commodities super-cycle in 2003, driven by both increased security threats to oil supply and voracious Chinese demand, which fuelled populism in key energy and mineral exporters and economic stress and occasional unrest in importers. Meanwhile, the political benefits of EU enlargement in 2004 (following the adoption of the euro currency in 2002) were swiftly belied by the acute sovereign risks that emerged during the financial crisis. Despite the fluid security and political environment of the last ten years, business thrived as opportunities appeared in fast-growing emerging and developing economies. Since 2003, emerging and developing countries share of nominal global output has doubled, from 20% to 40%. Nominal output in emerging Asia alone, powered by China, has increased by 700%, surpassing that of the eurozone in 2012. As a result, by 2013, the proportion of global output generated by countries that Control Risks rates at medium or high political and security risk had more than doubled (Figures 2 and 3). Our data also suggest that this is largely because of faster growth in medium- and high-risk countries, rather than increased risk in key economies (Figures 4 and 5). These trends are likely to persist in 2014. Correspondingly, risk appetite renewed after the emerging market crises of the late 1990s steadily pushed foreign investment up the political and security risk scale. The global carry trade, fuelled by falling interest rates (which hit historic lows in 2003 and again in 2009) and quantitative easing in the US and Europe, poured capital into higher interest currencies, triggering both inflation and capital controls in key emerging markets. As a result, by 2012, the first year in which more FDI flowed to emerging and developing 15. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 10 Figure 2: Global political risk ratings 2004-14, GDP weighted KEY INSIGNIFICANT LOW MEDIUM HIGH EXTREME 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 3: Global security risk ratings 2004-14, GDP weighted 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Figure 4: Average political risk rating vs average annual GDP 14% 12% 10% 8% 6% 4% 2% 0% -2% Low HighInsignificant Medium Extreme 14% 12% 10% 8% 6% 4% 2% 0% -2% Low HighInsignificant Medium Extreme Figure 5: Average security risk rating vs average annual GDP growth, 2004-14growth, 2004-14 Figure 6: Global political risk ratings 2004-12, FDI weighted KEY INSIGNIFICANT LOW MEDIUM HIGH EXTREME 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 Figure 7: Global security risk ratings 2004-12, FDI weighted 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 16. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 11 countries than advanced countries, about twice as much investment was directed towards countries that Control Risks rates at medium to high security and political risk as in 2003 (Figures 6 and 7). Even countries with the most extreme security and political risk profiles such as Iraq, Yemen and Somalia attracted significant investor attention, at least in the oil and gas sector. LOOKING FORWARD: 2014 AND BEYOND These trends place the world in a novel situation. The last time the current set of emerging and developing countries China, India, Brazil, Turkey and so on had such weight in the global economy was probably in the late 19th century, under radically different social, political and geopolitical circumstances. Charting the risk landscape ahead therefore requires identifying and assessing how these fundamental economic shifts are likely to play out for security and political risk. We have identified four trends that we believe are particularly important: changing bases of political legitimacy, new demands of the global middle class, emerging global security power vacuums and shifting strategic interests. CHANGING BASES OF LEGITIMACY Emerging markets is increasingly a misnomer. After ten or more years of torrid growth, leading emerging and developing economies are highly globally integrated, and increasingly liberalised and competitive. In short, they have emerged. As their resilience to the global financial crisis showed, many of the problems that plagued emerging markets in the 1990s high external debt, inflexible exchange rates and erratic macroeconomic policy have been largely resolved. However, emerging-market growth models are under pressure. Before the financial crisis, they relied on debt-fuelled consumption by the US and other Western countries. Since the crisis, growth has floated on a flood of cheap money, courtesy of rock-bottom interest rates in the US and Europe, and generous fiscal and financial stimulus at home. Moreover, emerging markets are still too reliant on relatively narrow bases of economic activity: manufactured exports, cheap credit and domestic investment in China; high oil and gas prices in the Gulf, Middle East and Russia; and mineral and agricultural commodity demand in South America. These sources of growth are already unsustainable: inflation, asset bubbles and overcapacity are increasingly problematic, the outlook for commodity prices is negative, consumption in the US and Europe is flat, and monetary tightening is inevitable. Indeed, a timely reminder of the inherent dangers of overreliance on cheap capital occurred in late 2013, when mere consideration of US Federal Reserve tapering caused emerging-market currencies to plunge, and raised the spectre of crises from TOP: Workmen, Changyang, China, by Harry Koops, Control Risks. BOTTOM: Rajasthan, India. 17. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 12 India to Indonesia to Brazil. That was a dress rehearsal: tapering will be a reality by the end of 2014. With the pillars of rapid emerging- market growth eroding, political settlements founded on so-called performance legitimacy based on delivering rapid growth and achieving concrete policy objectives are increasingly brittle. For the last ten years, ruling parties and leaders in major emerging markets have all managed to stay in power thanks in large part to rapid growth. But growth has fallen sharply since 2011 in most major emerging markets and is expected to remain below average next year (Figure 8). Performance legitimacy is also inherently self-limiting: high performance raises expectations, making subsequent goals progressively more difficult to meet. To stay in power, many emerging- market governments will need to both find new ways of delivering growth and cultivate more durable sources of political legitimacy. This is where political risk enters the outlook. It is impossible to restructure a large, complex economy without politicising the process. Many well-intentioned reforms have foundered in the face of well-organised political opposition. There is always an incentive to adopt populist policies or ideological frameworks that deflect attention away from slowing growth. But ideological bases of political legitimacy such as those instituted across Latin America and in parts of the Middle East over the last ten years are often bad for business and ruinous for foreign investors. The hunt for Figure 8: Average annual growth, 2004-11 and 2012-14 (projected) Brazil China Turkey India Indonesia Vietnam Russia KEY 2012-14 12% 10% 8% 6% 4% 2% 0% 4.3 10.9 6.6 2004-11 8.2 4.1 4.6 2.6 2.0 5.4 7.5 3.2 5.3 5.75.7 Source: IMF 18. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 13 growth, meanwhile, has provoked a new wave of trade protectionism and beggar-thy-neighbour policies. In the year ahead, how countries choose to deal with slowing growth will be a critical variable of the political risk landscape for business. RISING MIDDLE CLASSES Emerging-market governments are also facing different kinds of political demands. One of the historic effects of emerging-market growth is the rise of the global middle class those with annual incomes above $4,000 in purchasing power parity (PPP) terms. The middle class grew to more than 2bn people in the last ten years and is projected to expand to more than 3bn in the next ten. With sheer economic income moving comfortably above poverty levels, emerging middle classes are beginning to focus on a wider range of issues linked to personal freedom, economic opportunity and good governance. These demands invariably clash with entrenched political systems and vested economic interests. Indeed, the mass social protests since 2011 including the Arab spring, Occupy and Indignados movements, and anti-government unrest in Turkey, Brazil and Bulgaria reflect how economic change has greatly outpaced political change during the emerging-market era. Rising middle classes, armed with the trappings and ambitions of technological Figure 9: PPP per capita GDP at the time of emerging-market unrest, 2011-13 Bulgaria 2013 Romania 2013 Turkey 2013 Brazil 2013 Argentina 2012 Russia 2011 Tunisia 2011 Egypt 2011 $5,764 $8,227 $14,731 $12,340 $15,578 $14,870 $13,251 $18,200 Political repression, unemployment, corruption Political repression, unemployment, corruption Disputed elections, corruption Inflation, constitutional amendments, corruption Economic inequality, public transport fares, inflation, corruption Political and social repression, police brutality Electricity prices, corruption Working conditions, unemployment Middle-class threshold: $4,000 Key motivations 19. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 14 modernity, remain saddled with antiquated, opaque, inefficient and frequently corrupt governments and bureaucracies (Figure 9). Rather than simply plaudits from international financial institutions, they expect rapid growth to generate new and better opportunities for them, their families and their communities. The gulf between economic and political change is also replicated in the volatile distance between aspirational middle classes demonstrating in city centres and regimes rooted in conservative rural constituencies. And it is not just government that is targeted: business is also under middle-class scrutiny, on environmental, indigenous rights, workplace safety and economic justice grounds. The risks embedded in the rising global middle class are primarily political: people with tangible assets to lose are unlikely to promote violent insurrection, given the potential for collateral damage. Such social protest movements also rarely topple governments, but often provoke short-term accommodation, from rolling back economic liberalisation to beefing up public spending. Over the longer term, of course, rising middle classes have often been agents of broader even systemic political change. Urbanisation itself often provides the anvil on which multilingual, multi-ethnic societies are ultimately forged, removing levers of division that elites have manipulated to hold on to power. Whats more, small entrepreneurs flourish and gain political influence in more densely populated settings as populations must manufacture solutions to the logistical and infrastructure problems that governments fail to deal with. This implies that governments that do not address urban middle-class concerns are increasingly living on borrowed time. POWER VACUUMS Where social unrest led to durable conflict and political instability namely in Egypt and Syria it exposed the dysfunction of the current global governance architecture. While growing economic heft has made leading emerging markets indispensable to global governance, formalised by the inauguration of the Group of 20 (G20) leaders summit during the financial crisis, it has not yet compensated for the relative decline of the US and Europe, both of which remain consumed with domestic political and economic challenges. Put another way, rising powers may be able to veto the global agenda on climate change, intervention in Syria or trade liberalisation, to name a few but still lack the domestic stability, diplomatic maturity, hard power resources and soft power attraction to offer and enforce an alternate agenda. Stable platforms for strategic co-operation are currently few and far between. This has left global governance especially global security management at the mercy of bilateral negotiation and ad hoc TOP: Protest in So Paulo, Brazil, October 2013. BOTTOM: G20 Summit in St Petersburg, Russia, September 2013. 20. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 15 interventions, while making it more prone to disruptive tensions and strategic blunders. The unexpected deal over Syrias chemical weapons programme in the absence of any coherent strategy for managing the conflicts spillover impacts and sporadic flare-ups along the Line of Control in recent years in disputed Kashmir are cases in point. Meanwhile, the US expects Europe (grappling with the strategic fallout of the Arab spring) and the Gulf Arab states (vying with Iran for regional clout) to assume the mantle, and costs, of their own security. We expect these conditions to develop further in 2014 as the departure of most NATO military forces from Afghanistan more or less completes the strategic withdrawal of the administration of US President Barack Obama from the Muslim world. Much hinges on the ability of the US and China to see past a legacy of distrust and co-operate pragmatically on shared interests, such as nuclear non-proliferation and the containment of militancy in the Middle East and Central Asia. A global power vacuum poses both security and political risks to business. The security risks are perhaps more obvious, given that the diminishing war on terrorism which requires collaboration and information sharing to function will remit fewer resources and less training to countries already struggling to contain militancy. Pakistan, in particular, is about to get rather less strategic for the US in the absence of the need to sustain a large footprint in Afghanistan, while persistent capacity deficits in East Africa and the Sahel region continue to create permissive operating environments for militants. A primary concern is that militant groups whether linked to jihadist ideology, organised crime, or both will avail themselves of any breathing room to regroup, recruit and potentially reorient. Political risks, meanwhile, will continue to manifest primarily in trade and investment. The vaunted US pivot to Asia, for example, incorporates a trade agreement the Trans-Pacific Partnership, slated for completion in 2014 that pointedly excludes China, the worlds second-largest trading nation. This may, in the short term, increase the threat of politicised tit-for-tat trade disruptions in certain sectors, and in some quarters is perceived as an assault on the global trading system itself. However, if it spurs a new wave of trade liberalisation outside the WTOs moribund Doha round tackling the thorniest non-tariff barriers, such as import quotas and export subsidies opportunities for business could flourish, even without a truly global deal. SHIFTING INTERESTS Geopolitical uncertainty owes, in part, to rapid but fundamental shifts in strategic interests. Shale fracking has already dramatically reduced oil imports to the US from West Africa, and will gradually change US incentives 21. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 16 in the Middle East over the next decade. Simultaneously, Chinas ravenous energy and mineral consumption over the last ten years has bestowed strong strategic imperatives in sub-Saharan Africa, as have the burgeoning food needs of water-scarce but cash-rich Gulf emirates. Moreover, further strategic change is queued up for 2014 and beyond, as cargo volumes increase along newly ice-free Arctic shipping routes and liquefied natural gas (LNG) export projects come online in Australia and eventually the US and East Africa. Many of these shifts have only materialised over the last five years, and countries are still trying to identify and determine how to manage their strategic implications. Across a range of indicators, economic realities are complicating the status quo and threatening to rewrite geopolitics (Figure 10). Both the US and China, for example, are beginning to chafe at US security and freedom of navigation guarantees in the Middle East. Indeed, China overtook the US for the first time in late 2013 as the worlds biggest net oil importer. Its string of pearls strategy in the Indian Ocean viewed in part as a hedge against US dominance of global sea lines of communication is fast becoming a reality, with major commercial port developments up and running in Pakistan and Sri Lanka. Meanwhile, US allies Japan and South Korea anticipating Chinas influence over their own energy supply increasingly perceive a need to underwrite commercial relationships with military and diplomatic power. Shifting interests will generate new opportunities for business as developing geopolitical relationships forge pathways for investment. Markets that have long been closed or dominated by trade with major powers are being relentlessly prised Figure 10: Shift of key exports away from US and Europe to Asia, 2003-12 20% 15% 10% 5% 0% -5% -10% -15% -20% Middle Eastern oil South American agriculture African extractives Russian extractives KEY DECREASE IN EXPORTS TO US AND EUROPEINCREASE IN EXPORTS TO ASIA TOP: Arctic shipping routes will be increasingly ice-free. BOTTOM: US President Barack Obama, March 2012. 22. RiskMap Report 2014 THE CHANGING GLOBAL ORDER 17 open by geopolitical competition as true for some advanced countries such as Canada as for emerging markets such as Ukraine and Nigeria. But they will also be attended by collateral political risks, given the institutional and regulatory immaturity of many frontier investment destinations and the plausible assumption that diplomatic attention should bring commercial benefits. Company nationality has always been a factor, but is likely to play an increasing role in political risk. A similar condition can be applied to security risks, in cases where local communities reject an influx of foreign capital, foreign workers or both. The security profile of established firms can also change in line with geopolitical realities, as US and European companies have experienced in North Africa since the Arab spring. LOOKING AHEAD Over the last ten years the global economy has shifted up the political and security risk scales, changing the types of threats companies are likely to face today and in the future. A decade of rapid growth in the emerging world has fundamentally altered social arrangements and is beginning to put pressure on political systems, particularly in terms of how governments justify their authority. In certain regions, such as the Middle East and North Africa, this has provoked change that the current global power balance is ill-equipped to manage, introducing security threats that will cast a shadow over the coming year. These developments are coinciding with fundamental and long- term shifts in strategic incentives, often linked to resources, that are likely to rewrite the global distribution of power as much as economic change has revised the global balance of power. These factors put upward pressure on both global political and security risks in 2014. But this comes at a time when opportunities for business are diverse and improving in some fundamental ways. Ten years ago, HIV/AIDS threatened economic and social coherence in much of the developing world. Today, access to treatment has expanded exponentially and annual new infections have fallen by 25%. Over the same timeframe, extreme poverty fell by more than 400m people, even as the global population rose by nearly 1bn, sending poverty rates to historic lows. Meanwhile, over the next year more people in developing countries will access broadband on mobile devices than there were global internet users in 2003, and more children will have access to education than ever before. The hangover of the global financial crisis is fading, even in the US and Europe, Japan is at its most bullish in 20 years, and emerging markets in general are much better equipped to face economic challenges than during the 1990s. In this light, risk seems more attractive than ever. 23. REGIONAL OVERVIEWS This regional overview section looks at how the global themes we have identified will play in to political and security dynamics over the coming year in sub-Saharan Africa, the Americas, Asia, Europe, and the Middle East and North Africa. In addition, we spotlight five countries that merit a closer look in 2014 and examine some of the big questions they face. For more detailed analysis on more than 220 countries, please visit our Country Risk Forecast online service. To sign up for a free trial of Country Risk Forecast, please visit: www.controlrisks.com 01 AFRICA SPOTLIGHT ON: TANZANIA 02 AMERICAS SPOTLIGHT ON: COLOMBIA 03 ASIA-PACIFIC SPOTLIGHT ON: INDIA 04 EUROPE SPOTLIGHT ON: TURKEY MIDDLE EAST AND NORTH AFRICA SPOTLIGHT ON: UNITED ARAB EMIRATES 05 24. MALTA CYPRUS SYRIALEBANON JORDAN ISRAEL PALESTINIAN TERRITORIES EGYPT L I B Y A TUNISIA A L G E R I A MOROCCO Western Sahara MAURITANIA Canary Islands (SPAIN) Madeira (PORTUGAL) CAPE VERDE SENEGAL GAMBIA GUINEA-BISSAU GUINEA SIERRA LEONE LIBERIA CTE D'IVOIRE GHANA TOGO BENIN BURKINA FASO M A L I N I G E R N I G E R I A C H A D S U D A N SOU TH SU D AN CENTRAL AFRICAN REPUBLIC CAMEROON EQUATORIAL GUINEA SO TOM AND PRINCIPE GABON CONGO CONGO (DEMOCRATIC REPUBLIC OF) RWANDA BURUNDI UGANDA TANZANIA KENYA A N G O L A Z A M B I A MALAWI MOZAMBIQUE ZIMBABWE BOTSWANA NAMIBIA SOUTH AFRICA HIGH security in deprived urban areas LESOTHO SWAZILAND ERITREA E T H I O P I A DJIBOUTI Somaliland SOMALIA Y E M E N S A U D I A R A B I A OMAN UAE QATAR BAHRAIN KUWAIT MADAGASCAR COMOROS SEYCHELLES MAURITIUS Runion (FRANCE) I R A Q I R A N Zanzibar Cabinda (ANGOLA) ATLANTIC OCEAN Athens Kandahar K Tehran Baghdad Basra Erbil Amman Cairo Alexandria Tripoli TunisAlgiers Annaba Oran Rabat Casablanca Muscat Abu Dhabi Dubai Al Khobar Riyadh Jeddah Port Sudan SanaaAsmara Hargeisa Khartoum Addis Ababa NdjamenaKano Lagos Port Harcourt Niamey OuagadougouBamako Nouakchott Dakar Bissau Conakry Freetown Monrovia Yamoussoukro Abidjan Accra Cotonou Lom Malabo Douala Yaound Libreville Bangui Kampala Nairobi Mogadishu Kismayo Mombasa Dar es Salaam Dodoma Lilongwe Blantyre Mbuji-Mayi Lubumbashi Lusaka Luanda Kinshasa Brazzaville Windhoek Harare Bulawayo Beira Gaborone Pretoria Johannesburg Maputo Durban Cape Town Antananarivo Port Louis Damascus Beirut Abuja Kurdistan Region AFGHANISTAN 25. RiskMap Report 2014 AFRICA 20 POLITICAL RISK 2004-14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 KEY INSIGNIFICANT LOW MEDIUM HIGH EXTREME SECURITY RISK 2004-14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 AFRICA Against a backdrop of faltering growth and weakening currencies in major emerging markets, a number of sub-Saharan African countries have been bucking the trend with spirited debuts of sovereign bonds. Angola, Kenya, Nigeria, Rwanda, Senegal, Tanzania and Zambia have all raised during 2013 or plan to raise in early 2014 hundreds of millions of dollars this way, bringing the continent further into the fold of global capital markets. This symbolises the transformation in Africas fortunes over the past decade, which has seen buoyant commodity prices fuel sustained economic growth and poverty reduction. But it has not all been luck: prudent macroeconomic management, enhanced political stability and incremental operational improvements have played their part. Now, as the global boom in commodity prices eases, attention has turned towards a new growth story the African consumer. Hopes are riding high that Africas so-called youth bulge nearly half of sub-Saharan Africas population are between 15 and 29 years of age coupled with a burgeoning middle class concentrated in urban centres around the continent will provide a more sustainable economic path, as well as myriad investment JEAN DEVLIN ASSOCIATE DIRECTOR, AFRICA CONTROL RISKS SUB-REGIONAL RISK AVERAGES Southern Africa Central Africa West Africa Pol Sec Pol Sec Pol Sec Pol Sec East Africa 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 K 26. RiskMap Report 2014 AFRICA 21 opportunities. There are substantial grounds for optimism. The continents current trajectory compares well both to its past performance and to other developing regions further up the convergence curve. The IMF predicts that by 2017 more than half of the 20 fastest-growing economies in the world will be in Africa. At the same time, there is significant divergence: Africa also holds the majority of the worlds least competitive economies. Underperformance in the key areas of job creation, reducing inequality and infrastructure development further tempers optimism. With the African Development Bank (AfDB) estimating that 10m people enter the workforce each year, governments face serious challenges, both economic in terms of improving employment opportunities and political, in coping with the demands of a younger, more educated and more informed electorate. Frustration with the stagnation of living standards and lack of services for large swathes of the population is also shaping domestic political debate, and is likely to translate into more regular unrest and differing patterns of political competition and violence in many places. This mix makes for an attractive but complicated environment for investors in 2014. RISE OF THE URBANITES The African consumer story hinges on the growth of the continents mega cities: Lagos and Abidjan in the west; Kinshasa and Luanda in Central Africa; and Nairobi, Dar es Salaam and Johannesburg in the east and south. The continent is rapidly urbanising, and half of all Africans are Source: World Bank Doing Business report, 2014 TOP 5 BOTTOM 5 5 3 RWANDA 52 in the world 67 in the world GHANA 2 1 1 MAURITIUS 20 in the world 2 3 RWANDA 32 in the world 4 BOTSWANA 56 in the world 5 ERITREA 184 in the world 4 185 in the world REP. OF CONGO 3SOUTH SUDAN 186 in the world 2 41 in the world SOUTH AFRICA 188 in the world CAR CHAD 189 in the world The best and the rest: Africas Doing Business rankings, 2014 27. RiskMap Report 2014 AFRICA 22 TOP: Lagos, Nigeria. BOTTOM: Nairobi, Kenya. expected to live in cities by 2040. In the most populous country, Nigeria, that proportion has already been reached. Amid the sprawl and congestion, a new breed of urbanites has become established. Affluent, well-educated and brand conscious, these consumers are being targeted as a lucrative market segment, with ever more shopping centres (malls) being built to cater to tastes in consumer retail, coffee and fast-food chains, supermarkets, consumer electronics, banking and leisure. Urbanisation and a growing middle class bring opportunities to diversify growth into consumer sectors and lower transaction costs, improving service delivery and encouraging innovation. The most striking example in the past decade is the rapid expansion of mobile technology in Africa, which has seen advances beyond those in many developed countries. An estimated 35% of Kenyan and 25% of Tanzanian GDP now flows through mobile payments and online banking. The development of Silicon Savannah Nairobis tech innovation hub and the regional expansion of South African supermarket chains such as Shoprite demonstrate the diversity of opportunities on the continent outside the extractives sector, where FDI has traditionally been concentrated. Moreover, the most dynamic commercial developments are not coming from new investors, but are driven by those already doing business Source: Population Division of the Department of Economic and Social Affairs of the UN Secretariat, World Population Prospects: The 2010 Revision and World Urbanisation Prospects: The 2011 Revision Africa is urbanising: projected population split to 2050 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 KEY URBAN 60% 50% 40% 30% 100% 90% 80% 70% 20% 10% 0% RURAL 28. RiskMap Report 2014 AFRICA 23 on the continent. This includes African-owned businesses, often with a concentration within one market and now looking to expand beyond their region. Nigerian and South African banks, and telecoms companies such as Kenyas Safaricom are just some examples of a growing trend of targeting mainly urban dwellers across sub-Saharan Africa. GREAT EXPECTATIONS While the expectations of Africas urban elites have so far been broadly accommodated within existing political systems, the weight of expectations of those further down the income ladder has become more pressing. How the spoils of newfound prosperity are shared matters greatly to continued stability. Africa is less equal than it was ten years ago, and is second only to Latin America in terms of the proportion of wealth controlled by the top 10% of the population. To ensure long-term stability, some governments have realised that they must spread the benefits of growth beyond a narrow elite. But this has not always resulted in the implementation of effective policies to achieve more equitable results. Unlike Europe and North America, or more established emerging markets such as Brazil or Turkey that have seen social upheaval driven mainly by the middle classes, the key actors in Africa are less affluent urbanites: the so-called floating middle class (those spending between $2 and $4 per day) and the urban poor (those living on less than $2 per day). Poverty, high levels of youth unemployment and frustrations over living standards will remain the main drivers of protests and social unrest. Over recent years, unrest has tended to erupt in response to unpopular reforms, such as removal of subsidies, utility tariff increases and other service delivery issues or, in countries where organised labour is strong, wage negotiations. Protests over the removal of fuel subsidies of the kind that paralysed Nigeria in early 2012 and fractious labour disputes such as those in South Africa in 2013 will become more common as administrations struggle to tackle difficult issues that disproportionately affect lower-income groups. In Sudan, the protests that have been a notable feature of the past three years are likely to recur in the coming year should the government move ahead with the removal of subsidies on wheat and other food commodities. Meanwhile, access to information and means to mobilise can be a force to drive accountability, but can also cause unrest to escalate, posing a concomitant risk of business disruption. Aside from the increased risk of operational disruption, near-jobless growth combined with rising inequality presents a deeper challenge to the legitimacy of governments and their leaders, as events in North Africa over recent TOP: Sasolburg protest, South Africa, January 2013. BOTTOM: The Lukasrand Tower, Pretoria, South Africa, August 2012. 29. RiskMap Report 2014 AFRICA 24 years amply demonstrate. The structural factors that have for decades driven instability in Africa have not disappeared. Strong economic growth in the past ten years has improved long-term prospects for stability, but the twin pressures of urbanisation and growing youth unemployment over the next decade will weigh on those prospects. Such pressures are most acutely evident in countries with weak state institutions and recent histories of violence, such as the member states of the Mano River Union (Guinea, Liberia and Cte dIvoire), which saw some of the worst conflicts of the turn of the millennium. They now face the daunting challenge of providing sufficient numbers of stable jobs for their growing youth populations. Source: World Bank, GINI index The GINI coefficient measures income inequality; higher numbers indicate greater inequality 63.9 63.1 57.5 56.3 52.5 51.5 50.8 50.8 50.5 50.1 48.8 47.7 47.3 47.3 45.7 45.5 44.4 44.3 44.1 43.9 42.8 65.8 41.5 41.5 40.5 40.3 39.8 39.8 39.4 39.3 38.9 38.638.2 37.6 35.5 35.4 35.3 34.6 33.6 33.3 33.0 42.7 64.3 N/A N/A N/A N/A N/A N/A 30 - 39 50 - 59 60 + 40 - 49 KEY An unequal continent: income inequality as measured by GINI coefficients 30. RiskMap Report 2014 AFRICA 25 POWER TO THE PEOPLE Many governments have put development of infrastructure, and in particular power, at the top of the agenda, both to provide a boon to business and to respond to popular demands for improved standards of living. Much of the financing raised through bond issuances has been earmarked for projects in these areas. Even Nigeria, which has long suffered from debilitating power shortages stemming from its notoriously inefficient power sector, in 2013 finalised its drawn-out privatisation of the sector, paving the way for long-term improvements. Meanwhile, US President Barack Obama in July 2013 made the announcement of a $7bn Power Africa initiative to improve access to electricity over the next five years in East Africa the cornerstone of his trip to the region. However, operational barriers such as dilapidated power transmission grids, outdated regulatory frameworks and vested interests clinging to the dysfunctional status quo will mean that improvements to the business environment stemming from new investment and reforms such as those in the energy sector will remain slow and patchy. One of the biggest infrastructure projects on the continent, the $80bn Grand Inga dam in Congo (DRC), which would supply more than 500m people with renewable energy, is unlikely to be operational before the 2030s, hampered by financing constraints and uncertainty about the governments commitment to the project. Job creation is a second area of focus, underlined by a growing emphasis, at least at the policy level, on economic diversification, fiscal incentives for labour-intensive industries and a reinvigorated agenda on agricultural development. However, as with infrastructure, effects on living standards will only be felt in the long term. ACCOUNTABILITY FOR SOME Frustrations over difficult reforms and stagnant living standards are feeding into a wider campaign for accountability in Africa. As in other emerging markets such as India, corruption has become a rallying point for civil society to demand greater accountability and transparency from governments. This has also been on the agenda of international donors, which maintain significant, if declining, influence in Africa. Debt relief and budgetary support over the past decade have had performance indicators attached, including greater accountability of governments to their citizens. Failure to meet these has been backed up by the withdrawal of assistance, such as the removal of donor funding in Zambia in 2011 following high-level corruption scandals, or blacklisting of the worst TOP: Madagascar President Andry Rajoelina, December 2012. BOTTOM: Congo (DRC) President Joseph Kabila, September 2013. 31. RiskMap Report 2014 AFRICA 26 offenders, such as Madagascars Andry Rajoelina or Guinea-Bissaus Gen Antonio Indjai, the leader of an April 2012 coup. In Congo (DRC), although donors turned a blind eye to the questionable circumstances surrounding President Joseph Kabilas re-election in 2011, the IMF in late 2012 suspended $240m in planned loans over the governments failure to publish dubious mining contracts. The financial impact of the decision appears to have prompted some improvements in transparency in the countrys mining sector, as it tries to win back compliant member status of the Extractive Industries Transparency Initiative (EITI). Nonetheless, as leading donors largely in Europe and North America reorient towards a model of economic diplomacy to defend their commercial interests on the continent against the inflow of money and interest from rising powers such as Brazil, China, India and Turkey, their leverage to influence African governments is likely to decline. These new partners, with different historical ties and objectives informing their engagement, take their own unique approach to Africa. China in particular, which has become the continents largest trading partner in recent years, has generated much debate over its approach, though commentators often fail to appreciate the multitude of actors and interests that make up the story of China in Africa. Source: OECD Factbook 2011: Economic, Environmental and Social Statistics China, now Africas largest trading partner: as a percentage of total trade 1992 2000 2005 2009 KEY GERMANY 16% 14% 12% 10% 8% 6% 4% 2% 0% CHINA UKRUSSIA BRAZIL US INDIAFRANCE JAPAN 32. RiskMap Report 2014 AFRICA 27 The main result of these shifts is that civil society organisations and local media will gain a more prominent role as advocates for better governance. Local civil society and vibrant local media in many countries are furthering the momentum of international accountability campaigns. Liberias President Ellen Johnson-Sirleaf, long a darling of the countrys international partners, has faced mounting domestic criticism of public appointments favouring family connections, likely contributing to the September 2013 resignation of her son as head of the National Oil Company of Liberia. BUT NOT FOR OTHERS Nonetheless, progress in the area of accountability will remain slow. Countries with entrenched leaderships, though not immune to the momentum generated over the past decade, will take longest to change. A steadfast contingent of ageing presidents continues to cling to power, from the continents record holder, Equatorial Guineas Teodoro Obiang, to Angolas Jos Eduardo dos Santos, Robert Mugabe in Zimbabwe, Paul Biya in Cameroon and Ugandas Yoweri Museveni. While such gerontocrats will eventually cede power to new generations, the continued dominance of former liberation movements in southern Africa in particular is likely to remain strong. These have a superficially stabilising but ultimately corrosive effect on governance in what is the continents youngest region in terms of independence. Angola remains one of the continents most unequal societies, with a poor reputation for tackling corruption, though it provides relatively high levels of predictability, particularly for the offshore oil sector. Similarly, in Mozambique the ruling Frelimo party presents the country as a stable and attractive investment destination, though discontent continues to bubble up regularly, driven by dashed hopes of socio-economic development. Weak bureaucracies and pervasive corruption across African countries will continue to blight the business environment. Moreover, sudden or fundamental shocks in systems lacking accountability can prompt stability to quickly dissolve, as seen in North Africa. INCREASED CONTESTATION Nonetheless, outright conflict has become less of a headline risk for business in Africa than at the turn of the millennium. Outside Somalia and Central Africa, sustained large-scale armed opposition has largely disappeared from the political landscape. Politicians and parties have become more likely to appeal against unfavourable results or mobilise protests than to launch an armed campaign against the government, particularly in countries with large urban populations well connected through social media. Threats since mid-2013 by TOP: Liberian President Ellen Johnson-Sirleaf, November 2012. BOTTOM: Zimbabwe President Robert Mugabe, September 2013. 33. RiskMap Report 2014 AFRICA 28 opposition party and former rebel movement Renamo to trigger a renewed civil war in Mozambique are an exception, but serve primarily to underline its desperation to remain relevant in a post-conflict environment dominated by Frelimo. This is not to say that political violence is fading as a risk to business. Rather, it will present more nuanced and manageable risks across different geographies. As competition at the ballot box has increased, so too has the potential for unrest, with upsurges in electoral violence likely to become increasingly common. 2013 saw violence around Contestation increasing at the ballot box Sep 13 Guinea legislative Yes, UN envoy called for disputes to be settled in court Violent riots pre-election Feb 13 Djibouti legislative By opposition Yes, but late Post-election protestNo Mar 12 Guinea-Bissau presidential Military coup seized former PM Carlos Gomes (front-runner) and interim President Raimundo Pereira Jul 12 Congo legislative Limited clashes in districts with opposition supporters Aug 12 Angola legislative By 4 parties and 5 coalitions Yes No Nov 12 Sierra Leone presidential and legislative By opposition By opposition - - - - - - - Yes Dec 12 Ghana presidential and legislative By opposition, NNP Yes No No No Mar 13 Kenya presidential By defeated candidate Raila Odinga Yes Post-election violence in stronghold of defeated candidate No Jul 13 Zimbabwe legislative and presidential By opposition Yes Yes Ruling pending Very limited reports of voter intimidation No No No No Very limited reports May 13 Equatorial Guinea parliamentary By opposition No Sep 13 Rwanda parliamentary No Two grenade attacks couple of days before election Small-scale protests in capital Lom Jul 13 Togo legislative Opposition denounced irregularities and fraud but election observers said process was fair and transparent Date Appeal accepted Appeal lodged Results disputed Country/ Election Incidence of violence No No Source: IFES Election Guide 34. RiskMap Report 2014 AFRICA 29 legislative elections in Guinea, while despite the relatively peaceful polls in Kenya and Zimbabwe, both retain an explosive mix of ingredients that will complicate future elections. 2014 should be comparatively quiet, with voters in Namibia, Mozambique and South Africa going to the polls. However, 2015 holds greater prospects for unrest as voters turn out in traditionally more volatile Guinea, Nigeria and South Sudan. Meanwhile, political friction will increase in Tanzania ahead of a constitutional referendum in 2014 and general elections in 2015. Politics is also becoming more factionalised, with different groups competing for political influence to promote their own agendas and favour their own members, whether on ethnic or other grounds. The extent and nature of such factions varies across the continent. In Kenya, for example, political parties are more akin to highly personalised vehicles created solely for election purposes and with a narrow focus on promoting the specific interests of their respective leaders ethnic group. Even in de facto one- party states such as South Sudan, deep rifts between competing ethnic groups and political alliances within the ruling elite are becoming more visible. This is detrimental to building a common agenda and, as is clear from the factional struggles that have divided Nigerias ruling Peoples Democratic Party (PDP) in 2013, complicates policymaking to the point where essential reforms to improve competitiveness are continually deferred. POLITICAL GAMES Resource nationalism, which has garnered significant investor attention amid a slew of contract reviews, new legislation and regulatory changes across the continent, should be viewed in the light of these shifting political dynamics. Provisions for greater local content are often a slightly awkward government response to popular expectations that ordinary citizens are entitled to the proceeds of the commodity boom. Higher royalty payments, more stringent tax regimes and local content legislation all featured in reviews of legal and regulatory frameworks for mining and oil and gas from Cte dIvoire to Equatorial Guinea in 2013. Meanwhile, public concerns over environmental degradation and destruction of local livelihoods are gaining traction with governments under growing popular pressure. Governments aim to manage public expectations in these areas without unduly compromising relations with investors. Although South Africas ruling African National Congress will base its campaign for the April 2014 elections on a long-term economic development plan, the party is expected to push through reforms to the mining code ahead of the polls in a bid to placate calls for economic transformation 35. RiskMap Report 2014 AFRICA 30 from its core constituency. The possible introduction of export controls on a group of yet to be determined strategic minerals will further dampen investor sentiment and scupper government plans for robust economic growth. THE LIMITS OF REGIONALISATION Diverse political and in some cases security challenges have begun to test the fledgling conflict resolution mechanisms of regional organisations, with the African Union struggling to take a leading role in the Mali crisis in 2013 and the UN stepping up to the plate in Central African Republic and Congo (DRC). Sub-regional bodies, most notably the Southern African Development Community (SADC), which has been key to facilitating the 2013 elections in Zimbabwe and mediating the crisis in Madagascar, have played a more significant role. Increased regional integration will continue to be touted as one of the key tools for Africa to develop: on paper, the benefits are self-evident. However, such optimism has so far outstripped the operational capabilities of these organisations to decisively resolve conflicts. As Chinese, Indian and Brazilian engagement in Africa expands and US interest in the continent has waned with Obamas pivot towards Asia, the question of who underwrites security, particularly in parts of the continent of little strategic significance such as Central African Republic, will weigh on the outlook for long-term stability. BUCKLE UP The growing complexity of risk in Africa underlines the need for risk management tailored to specific business activities in the local context. The fostering of a greater number of consumers through more inclusive growth by governments is a key strategic growth area for non-resource investors, and while this sector is less susceptible to classic political interference, it is affected in other ways. The corrosive effect of poor governance and insecurity in large, mainly remote areas mean that transnational threats of smuggling and terrorism pose risks to businesses dependent on extended supply chains, for example. Exposure to corruption, the large presence of counterfeit goods and lack of enforcement against organised crime also present serious challenges for these sectors. Africas boom is far from over: growth rates are forecast to outstrip most other regions over the next ten years. If the continents governments can overcome the challenges of diversifying economies, managing expectations and building flexible labour markets, the picture will be positive. But for those looking to jump on the bandwagon, be sure to buckle up: its going to be a bumpy ride. TOP: Oil and gas refinery. BOTTOM: Central African Republic rebels, March 2013. 36. Dar es Salaam Tanzania 37. RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 32 RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 32 RWANDA BURUNDI TANZANIA KENYA Zanzibar Kampala Nairobi Kismayo Mombasa Dar es Salaam DodomaMbuji-Mayi Lubumbashi SPOTLIGHT ON: TANZANIA LOOKING AHEAD Buoyed by its sizeable natural gas reserves, strategic location, and relatively benign security and political environment, Tanzanias international profile will continue to rise in 2014. A constitutional referendum should pass off peacefully, while planned infrastructure developments will start to bear fruit in the coming years, enabling the country to maximise its investment potential. Nonetheless, corruption and unrest stemming from rising popular expectations will continue to temper investor optimism. Tanzania will attract more investor interest in 2014 and with good reason. Although its 40 trillion cubic feet (tcf) of proven natural gas reserves are its prime attraction, the country also offers a relatively benign political and security environment (by regional standards), and a strategic location. Growth of 7% is forecast for 2014 on the back of anticipated expansion in the energy and mining sectors. Meanwhile, international investors are likely to respond positively to the finance ministrys August 2013 request for a syndicated loan of up to $700m, and the governments plans to issue a $1bn sovereign bond in 2014. Nigeria, South Africa and Kenya have been the traditional entry points and operational bases for investors in Africa. However, each has its drawbacks: political tensions and challenging industrial relations in South Africa, and high-profile security threats in Kenya and Nigeria given added prominence by the September 2013 attack by Somali extremist group al-Shabab on the Westgate shopping centre SIMISO VELEMPINI ANALYST, AFRICA CONTROL RISKS 38. RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 33 (mall) in the Kenyan capital Nairobi. Risk-averse investors will increasingly look to more stable, peripheral countries that can provide similar advantages at lower risk. In a nod to its rising international profile in 2013, Tanzania welcomed both Chinese President Xi Jinping and US President Barack Obama. During Xis first visit to Africa as an elected official, he unveiled an $800m infrastructure development package. Meanwhile, Obama announced that the country will be one of the first beneficiaries of the US governments $7bn Power Africa initiative to reform the continents energy sector. FINAL FRONTIER Compared with the three African powerhouses, Tanzania is a frontier market with a rapidly urbanising population. Its overlapping membership of two regional organisations the East African Community (EAC) and the Southern African Development Community (SADC) means that it is well positioned to give investors access to a high-growth market with roughly 400m residents. EAC moves towards harmonising investment incentives and the SADCs removal of almost all tariff barriers underscore both regions commitment to leveraging their natural resources and human Projected GDP growth in selected African markets, 2012-16 6% 5% 4% 3% 10% 9% 8% 7% 2% 1% 0% 2012 2013 2015 2016 KEY KENYAGHANATANZANIA ZAMBIA NIGERIA SOUTH AFRICA 2014 Source: IMF 39. RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 34 TOP: Dar es Salaam port. BOTTOM: President Jakaya Kikwete and Chinese President Xi Jinping, March 2013. capital to ensure collective sustainable growth. Increased global interest in gas-to-power projects and demand from South-east Asian countries seeking to diversify their energy sources will drive development of Tanzanias nascent gas sector. Japans Sumitomo Corporation in May 2013 signed a $414m deal with the government to build a 240MW natural gas-fired power plant, signalling strong Asian interest in Africas aspiring entrant into the continents select group of gas exporters. Regional power deficits will give the government further impetus to meet its target of exporting gas to other African countries by 2015. Elsewhere, a move from subsistence to commercial agriculture provides opportunities for export to neighbouring countries. The Southern Africa Growth Corridor of Tanzania initiative aims to equip subsistence farmers seeking to make the transition to commercial farming. However, land rights remain a contentious issue, while bureaucratic bottlenecks and multiple land claims from locals will delay both agriculture and mining projects. Although it will continue to attempt to attract investment in the aforementioned areas, the government is also likely to concentrate its efforts on boosting investment in tourism, FMCG, construction and pharmaceuticals. GREAT EXPECTATIONS Inadequate infrastructure will remain one of the primary challenges facing investors in the coming years. The government is highly likely to allocate a significant proportion of the proceeds of the $1bn sovereign bond to improving power and transport infrastructure. Various initiatives outlined in the governments Vision 2025 development plan underline its commitment to facilitating infrastructure investment to unlock Tanzanias economic potential. The government plans to complete a $211m upgrade to bring Dar es Salaams port up to the standard of that in Mombasa (Kenya) by 2015, galvanised by World Bank estimates that inefficiencies at the port cost Tanzania $1.8bn in revenue annually. A planned upgrade of the TAZARA railway line the infrastructural backbone of the EAC and SADC is also slated for completion by 2015. Public-sector corruption and weak institutional capacity will undermine the governments ability to effectively manage the countrys resources. But tentative moves towards improving transparency are encouraging. The draft Natural Gas Policy likely to be enacted in late 2014 takes a strong line on transparency, and is likely to lead to a long-term reduction in corruption in the sector. However, the deep systemic reforms needed to plug revenue leakages and ensure the efficient deployment and use of capital across line 40. RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 35 ministries will not be forthcoming in 2014, given the distraction of the general elections looming in 2015. Nonetheless, sustained progress is likely thereafter. Meanwhile, socio-economic pressures are rising in tandem with development of the gas sector. The majority of the population lacks access to electricity and running water. Public expectations of the governments ability to create new jobs and improve access to basic services are high at a time when it has limited means of addressing them. These issues will exacerbate latent sectarian tensions and drive localised unrest, primarily directed at the government, in the medium term. CONTINUITY NOT CHANGE A constitutional referendum set for April 2014, and presidential and legislative elections in 2015 will cause limited political upheaval. The referendum has contributed to an escalation in sectarian violence since early 2013 both in Zanzibar and on the mainland. Zanzibari demands for greater autonomy stem from the prospective economic impact of the development of offshore gas reserves. Planned infrastructure projects, 2013-18 Improvement of TAZARA line Construction of freight station Mbeya Kapri Mposhi Isaka Kigali Mtwara Tanga Bagamoyo Dar es Salaam KENYA CONGO (DRC) ZAMBIA MOZAMBIQUE MALAWI BURUNDI RWANDA KEY Port under construction Port upgrade Railway under construction Railway Construction of natural gas pipeline Terminal under construction Airport under construction Source: Tanzania Five Year Development Plan 2011/12 - 2015/16, Presidents Office, Planning Commission 41. RiskMap Report 2014 SPOTLIGHT ON: TANZANIA 36 Nonetheless, the demands of a small but vocal separatist group for a dissolution of the union and the creation of an independent Zanzibari state are unlikely to be realised. Instead, with an eye towards the 2015 polls, the ruling Chama Cha Mapinduzi (CCM) party is likely to agree to a revised revenue-sharing deal that will pave the way for more offshore exploration off the coast of Zanzibar. The overall impact of the various ballots on the broader security environment will be limited, with violence on the scale of that seen around the elections in Kenya in 2007-08 highly unlikely. Meanwhile, the likely victory of the CCM and its presidential candidate in 2015 will also ensure broader policy continuity and stability in the longer term. COMING IN FROM THE COLD Kenya and Mozambique have grabbed international headlines and stoked investor interest in East Africa in recent years, relegating Tanzania to third place. However, as the operational environment becomes increasingly complex in neighbouring countries, Tanzanias stable outlook, strategic location and pro-investment climate will become ever more appealing. Proven natural gas reserves and reported discoveries in East Africa, 2013 0.88 ETHIOPIA KENYA TANZANIA MOZAMBIQUE UGANDA 0 0.5 0.23 4.5 Ogaden basin: 2.7 tcf in Calub and 1.3 tcf in Halila Discovery of gas in Mbawa 1 block L8 but no proven reserve 32-65 tcf of recoverable gas in Area 1, 87 tcf in Area 4 10-13 tcf in block 2; 11-21 tcf in blocks 1,3 and 4 Albertine Region KEY 0.0 - 0.4 1.0 + 0.5 - 0.9 Proven reserves (tcf) Source: US Energy Information Administration (May 2013) and UK Trade & Investment 42. U N I T E D S T A T E S O F A M E R I C A M E X I C O BELIZE GUATEMALA EL SALVADOR HONDURAS NICARAGUA COSTA RICA PANAMA CAYMAN ISLANDS (UK) JAMAICA CUBA BAHAMAS TURKS AND CAICOS BERMUDA (UK) HAITI DOMINICAN REPUBLIC PUERTO RICO BRITISH VIRGIN ISLANDS ANGUILLA (UK) SINT MAARTEN DOMINICA US VIRGIN ISLANDS ARUBA CURAAO BONAIRE ANTIGUA AND BARBUDA GUADELOUPE MARTINIQUE (FRANCE) BARBADOS ST VINCENT AND GRENADINES GRENADA ST LUCIA ST KITTS-NEVIS TRINIDAD AND TOBAGO FRENCH GUIANA SURINAME CHILE A R G E N T I N A PARAGUAY URUGUAY B R A Z I L GUYANA COLOMBIA ECUADOR P E R U B O L I V I A VENEZUELA CAPE VERDE PACIFIC OCEAN ATLANTIC OCEAN Crdoba Vancouver Seattle San Francisco Los Angeles Tijuana Phoenix Minneapolis Chicago Detroit Toronto Montral Ottawa Quebec New York Philadelphia Washington (DC) St Louis Atlanta Houston Dallas Hermosillo Monterrey Tampico Guadalajara Mexico City Acapulco Cancn Miami Havana Kingston Port-au-Prince Santo Domingo Belmopan Guatemala City San Salvador San Pedro Sula Tegucigalpa Managua San Jos Panama City Coln Cali Bogot Medelln Caracas Georgetown Paramaribo Cayenne Belm Guayaquil Manta Quito Lima Arequipa La Paz Santa Cruz Asuncin Santiago Buenos Aires Montevideo Recife Belo Horizonte So Paulo Rio de Janeiro Braslia Salvador da Bahia Boston New Orleans 43. RiskMap Report 2014 AMERICAS 38 2014 will see the effects of the likely tapering of quantitative easing in the US take hold across Latin America. The regions assets have been magnets for capital in recent years, and logic has it that an eventual US stimulus withdrawal will increase US bond yields and prompt a reversal in the flow of funds out of Latin America. That will weaken local currencies, cause interest rates to rise and threaten countries such as Brazil that have heftier financing needs. To paraphrase Warren Buffett, only when the tide goes out do you discover whos been swimming naked. 2014 will expose the divide between these countries and their more pragmatic cousins, led by the likes of Chile, whose more solid economic fundamentals will better insulate them from market volatility. These countries enjoy the protection afforded by low current account deficits, higher reserve levels and less dollar-denominated debt. They also have more margin for currency depreciation. TAPER TANTRUM The panicked reaction to the US Federal Reserves initial tapering announcement in May 2013 means that the withdrawal of stimulus is likely to be modest in its initial stages. NICHOLAS WATSON HEAD OF ANALYSIS, AMERICAS CONTROL RISKS AMERICAS POLITICAL RISK 2004-14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 KEY INSIGNIFICANT LOW MEDIUM HIGH EXTREME SECURITY RISK 2004-14 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 SUB-REGIONAL RISK AVERAGES South America Central America North America Pol Sec Pol Sec Pol Sec Pol Sec Caribbean 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 44. RiskMap Report 2014 AMERICAS 39 We do not expect a repeat of 1994s so-called Tequila crisis, when sudden Fed tightening caused a sharp devaluation of the peso in Mexico, with impacts across the region. If tapering advances, it would signify that a sustainable recovery is under way in the US. Although China is now the leading trade partner for the likes of Brazil, Chile and Peru, the US remains Latin Americas pre-eminent trade partner. For Mexico, which sends more than 80% of its exports to its northern neighbour, measured tapering should be seen as a boon, not a blow, because it represents a vote of confidence in the USs economic recovery. But the economic climate will be less benign for Latin America than it has been for many years. Prices for commodities, on which many countries relied in the boom years, are on a downward trend as Chinas growth slows and in all likelihood enters a new phase of development a steady clip of 7% rather than the 9% gallop of the last decade. Studies show that for every percentage point the Chinese economy slows, the Latin American countries with the closest ties to China decelerate by 1.2%. Nobody is saying Latin America will catch a cold because China sneezes, but the likes of Brazil and Peru may have a case of the sniffles in 2014. Nonetheless, the picture is far from uniform. Mexico is more of a competitor in manufactured goods markets than a supplier of commodities, and its labour cost advantage is likely to continue in 2014 as near-shoring comes back into vogue. Annual GDP growth, selected Latin American markets and China, 2010-14 6% 4% 12% 10% 8% 2% 0% 2010 2011 2013 2014 KEY CHILEBRAZIL MEXICO PERU CHINA 2012 Source: IMF 45. RiskMap Report 2014 AMERICAS 40 TOP: A member of YoSoy132, Mexico City, June 2012. BOTTOM: Oil workers protest, Rio de Janeiro, Brazil, October 2013. GOVERNING GETS HARDER While the Mexico-Brazil reversal of fortunes will not be as pronounced as the markets sometimes make out, Brazils problems point to a failure to address key issues during the boom years. Faced with a cooling of both domestic and international markets, Brazil will struggle to switch swiftly to an investment-led growth model because of the failure of recent governments to tackle the infamous Brazil cost the umbrella term for the burdens of doing business there, covering poor infrastructure, high borrowing costs, a complex tax regime and archaic labour legislation, among others. President Dilma Rousseffs record of state intervention limits reasons for optimism, and suggests she is more likely to address the symptoms of Brazils declining competitiveness than the causes. To top it off, Brazil faces a presidential election in October 2014 that will limit the scope for much-needed reforms, including a tax overhaul and an update of the labour code. Brazil is not the only country where trickier economic conditions will make governing more difficult and reduce the political appetite for reform. Approval ratings for Peruvian President Ollanta Humala are likely to remain low in 2014, though this does not presage a political crisis: his predecessor but one, Alejandro Toledo (2001-06), governed with single-digit approval ratings for much of his presidency. Possible routes to overcome tougher economic conditions will not always be exploited. Perus massive Conga mining project is likely to remain hostage to regional elections in 2014, and will therefore remain stalled. In neighbouring Argentina, dwindling support for President Cristina Fernndez following a setback in the 2013 legislative elections is unlikely to herald any U-turn on state intervention in the economy or a concerted effort to tackle inflation. The economy is therefore likely to remain weak. Nonetheless, Fernndez will continue to defer dealing with problems beyond 2014. LATIN SPRING? The 2013 protests in Brazil prompted concern that Latin America may be vulnerable to further outbursts of middle-class unrest. After all, the inequality, corruption and poor public services that triggered the Brazilian protests are problems across much of Latin America. But this does not necessarily herald the onset of a wider Latin spring, despite the economic frailties and public frustration evident in some countries. Latin America has long endured high levels of unrest, and it would be wrong to see every strike and protest as foreshadowing the eruption of major social upheaval. Not only were Brazils newly prosperous middle classes frustrated with crushing commutes, but gathering inflation, insipid economic performance and, 46. RiskMap Report 2014 AMERICAS 41 most significantly, conspicuous expenditure ahead of the 2014 football World Cup created the conditions for mass protests. The Brazilian middle class and expectations of its rights and dues has grown more significantly than that of any other country in the region in recent years, while public spending ahead of the 2014 World Cup and 2016 Olympics is a unique double-barrelled catalyst for unrest. The phenomenon of middle-class frustration certainly exists beyond Brazil. A decade of growth across most of the region has forged new social demands that those in government have not always kept up with. In Chile, frustration has crystallised around the costs and unfairness of the education system. In Mexico, the YoSoy132 movement, mainly comprising middle-class students, has denounced what it sees as President Enrique Pea Nietos too-cosy relationship with the mainstream media. The Mexican middle class will also continue to grumble about tax rises especially the 16% value-added tax on home mortgages that Pea Nieto hopes to levy from 2014 and the opacity of government spending. Both here and in Chile, urban middle classes increasingly compare their countries to far-flung peers in the OECD, to which they both belong, rather than their immediate neighbours. But this does not portend mass protests that transcend class or sector interests. Mexican teachers will remain restive in 2014 and the lefts losing presidential candidate in 2006 and 2012, Andrs Manuel Lpez Obrador, will whip up opposition to energy reform, but neither of these movements will rock Mexicos political foundations. Similarly, a steady background hum of protest will be evident in Venezuela as frustration simmers at government mismanagement of the economy, crime and shortages of basic goods. But this is unlikely to coalesce into a national movement or social explosion in 2014, barring a significant drop in the price of oil. Venezuela will instead remain acutely polarised amid economic confusion, not crisis. The new demands of emerging and emerged middle classes, and the disconnect between their aspirations and the old way of doing politics, will not bring sudden or dramatic political change. The old politics is less sclerotic than it is sometimes given credit for, and most demands centre on the problems of daily life, not a desire for revolutionary change. If she runs, anti-establishment presidential candidate Marina Silva in Brazil who might be expected to pick up a sizeable protest vote would be likely to win fewer votes in 2014 than she did in 2010. Rousseff will win re-election, even though a self-serving Congress will dilute a political reform expressly designed to appease the disillusioned. In Colombia, where major protests took place across the TOP: Brazils Marina Silva, February 2013. BOTTOM: Mexican President Enrique Pea Nieto, October 2013. 47. RiskMap Report 2014 AMERICAS 42 country in August 2013, the establishment incumbent or possibly his protg will win the 2014 presidential election. In Chile, independent Marco Enrquez-Ominamis political high-water mark is likely to have been 2010, not 2013, and former president Michelle Bachelet (2006-10) will return to power at the beginning of 2014. Bachelets pledge to undertake constitutional reform reflects the need for an update of the social contract, which in turn reflects the changes wrought on society by economic growth. Ironically, the need to tweak the underlying settlement between people and politicians will generate outbursts of social strife as Bachelet challenges social conservatives. She will also face pressures on her left Source: IMF GREENLAND PERU COLOMBIA GUYANA VENEZUELA JAMAICA CUBA BOLIVIA CHILE 5.7% 4.2% 5.8% 1.7% 5% 4.5% PANAMA 6.9% EL SALVADOR 1.6% 1.2% 2.8% HONDURAS 2.8% KEY Booming markets Bypassed markets Booming and bypassed markets, projected growth rates 2014 48. RiskMap Report 2014 AMERICAS 43 flank: she is likely to enact some kind of education reform in 2014, but it will be a watered down measure that will not end protests. Where discontent translates into protest in the region, it will not always be led by the middle classes, still less by the tech-savvy or urban Twitterati. Latin America may now be more urban than rural, but traditional sectors with long-standing grievances remain potent actors. In many cases, protests will not represent the phenomenon of the emerged market, but rather the enduring reality of the bypassed market: the swathe of Latin America that believes the benefits of stellar growth have not trickled down to them. So mining projects in Peru will remain entangled in locally driven protests amid rising frustration that Humala is failing to deliver socially inclusive growth. In Colombia, concerns over the impact of free trade on local agriculture and the poor state of infrastructure will remain sore points outside the cities. And in Mexico, protests against energy reform will attract NEETS (not in education, employment or training) and retired government employees. LOCAL VACUUMS For decades Latin America complained about the overweening presence of the US in its affairs. In the early 2000s, as US foreign policy turned overwhelmingly to the Middle East and elsewhere, the tables turned and some regional policymakers grumbled about US neglect in the face of a leftist tide across Latin America. They would argue that Latin America has suffered the effects of a power vacuum for years already. Others seized the opportunity t