q3 2010 global market brief & labor risk index
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Think ouTside.
Global Market Brief & Labor Risk Index
2010 3meThodology sample reporT only
Global Market Brief & Labor Risk Index
2010
This is meThodology sample reporT only.
To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief
3
conTenTs
This material was produced by Eurasia Group in collaboration with KellyOCG. This is intended as general background research and is not intended to constitute advice on any particular commercial investment, trade matter, or issue, and should not be relied upon for such purposes. Eurasia Group is a private research and consulting firm. © 2010 KellyOCG and Eurasia Group.
3 preface: rolf kleiner, senior Vice-president, kelly ocg & ian Bremmer, president, eurasia group
4 methodology
72 about sponsors
The Americas6 overview
7 risk index
8 argentina
9 Brazil
10 canada
11 chile
12 el salvador
13 mexico
14 united states
15 Venezuela
Asia Pacific17 overview
18 risk index
19 australia
20 Bangladesh
21 china
22 hong kong
23 india
24 indonesia
25 Japan
26 malaysia
27 new Zealand
28 philippines
29 singapore
30 south korea
31 Thailand
32 Vietnam
Europe and Eurasia34 overview
35 risk index
36 Baltics
37 Belgium
38 croatia
39 czech republic
40 denmark
41 France
42 germany
43 hungary
44 ireland
45 italy
46 luxembourg
47 netherlands
48 norway
49 poland
50 portugal
51 romania
52 russia
53 spain
54 sweden
55 switzerland
56 Turkey
57 ukraine
58 united kingdom
Middle East and Africa60 overview
61 risk index
62 algeria
63 egypt
64 israel
65 kuwait
66 morocco
67 nigeria
68 Qatar
69 saudi arabia
70 south africa
71 united arab emirates
cover: Torres del paine, chile © 2009 Gerad Coles
4 | gloBal markeT BrieF & laBor risk index Q3 2010
Preface
rolf kleiner,
senior Vice-president,
kellyocg
ian Bremmer,
president,
eurasia group
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
continue to see a slower pace of
recovery, with continued concern
about European economies facing
fiscal crises.
Higher-than-expected growth
is pushing governments in
countries such as Brazil, Argentina,
India, Indonesia, Vietnam, and
Nigeria to turn their attention
toward managing inflation while
maintaining growth. Rising inflation
has been accompanied by pressure
for higher wages, which had been
held stable during the worst of the
economic crisis. Governments will
also be monitoring the prospects for
labor and social unrest through the
rest of the year. Recently, there have
been strikes at factories in China
and Bangladesh, and union protests
are expected in South Korea
over the next few months. As the
euphoria of a successful World Cup
subsides, South Africa’s government
will need to address stubbornly high
unemployment that also threatens
to spur social tension.
There are some prospects for
structural reform in two groups
of countries: those with stronger
economic performance that have
seen recent leadership changes
and those countries still under
pressure from fiscal problems. In
the first category, governments in
Japan, Australia, Malaysia, and New
Zealand have announced major
reforms, including of tax policy.
Meanwhile, governments in the
eurozone, especially Spain, Italy,
Greece, and Portugal, are under
pressure to push through labor and
pension reforms as part of their
broader austerity measures. While
there are implementation risks, such
reforms are necessary to improve
long-term competitiveness.
■ ■ ■
➔ Heading into the second
half of 2010, emerging markets
continue to lead the global
economic recovery; there are some
clouds on the horizon, however,
including rising inflationary
pressures and labor unrest. It
appears that many countries
in the Asia-Pacific region and
the Americas are going to have
higher-than-expected growth, but
unemployment will be the main
issue in Africa. Developed countries
5 | gloBal markeT BrieF & laBor risk index Q3 2010
Methodology
In addition to assessing the current risk environment, this report also takes into consideration the trajectory of risk trends.
Arrows alongside risk scores explain where risks are likely to show a very positive trend (X X), positive trend (X),
negative trend (Y), very negative trend (Y Y), or remain unchanged (blank) over the 3-month period of the report.
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
➔ The Global Market Brief &
Labor Risk Index is based on detailed
analysis of hard metrics of 30 unique
labor market, socio-economic, and
political factors, layered with localized
expertise of in-country consultants.
The analysis aggregates the
individual factors into 9 core risk
variables: 5 macro variables and 4
labor variables that are each assigned
a score on a 10-point scale projecting
the degree of risk over the next
90 days. Each risk variable is also
assessed as to whether it is trending
negative or positive.
macroeconomic environment
This indicator captures the current
health of the macroeconomic
environment through an assessment
of the stability of monetary and
fiscal policy, the stability of trade
and capital flows, and the quality of
economic performance, controlling
for historic macroeconomic stability
and the quality of official statistics.
policy environment for
foreign investment
This indicator measures how
hospitable the policy and regulatory
environment is for foreign investment
by assessing the extent to which
there are barriers to economic
activity and the degree to which
the economy is a destination for
foreign investment.
laBor risk
labor market flexibility
This indicator captures labor market
flexibility, assessing the regulatory
environment that employers face
in managing human resources,
the ability of labor to influence
policymaking, and the near-term
potential for changes in the labor
regulatory environment.
labor availability
The labor availability indicator
incorporates migration, urban
population, the size of the labor
force, the extent to which women
participate in the labor force,
and unemployment.
labor quality
The quality of labor is measured
by the education and skill level of a
labor force, the general health of the
population, and labor productivity.
labor contentment
This indicator assesses the likelihood
of labor discontent by combining the
existence or potential of near-term
labor unrest with the misery index,
which incorporates unemployment
and inflation rates.
■ ■ ■
For all variables, scores range
from 1 to 10, where 1 is ‘high risk’
and 10 is ‘low risk’.
macro-poliTical/
counTry risk
political environment
This indicator estimates the
predictability of the political
environment by measuring
regime and government stability,
government and opposition
effectiveness, and how well the
government functions.
social environment
This indicator captures the presence
and intensity of social conflict
among ethnic and other minorities,
controlling for the mitigating effects
of the socioeconomic wellbeing of
the population and the equality of
wealth distribution.
security environment
This indicator captures the issues
of personal security by incorporating
both the risk of armed conflict
(either domestic or foreign) and
criminal activity.
6 | gloBal markeT BrieF & laBor risk index Q3 2010
Overview: The Americas
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
are all expected to post impressive
growth rates this year. The US
recovery has been slower, and many
critics have begun to question
its durability given the growing
political resistance to maintaining
stimulus spending. At the other end
of the spectrum, El Salvador has
struggled to recover due to its lack
of policy flexibility since it adopted
the dollar as its currency in 2001,
while Venezuela remains stuck
firmly in recession thanks to high
inflation and stifling regulations.
Despite the general optimism
produced by strong growth in
the region, the outlook has been
clouded somewhat by rising
➔ The region is experiencing
steadfast growth, confirming signs
of a recovery at the start of this
year. Brazil is leading the recovery
with 9% GDP growth year-on-
year in the first quarter, thanks to
sustained government spending
in the run up to October’s general
elections. Chile has enjoyed an
impressive recovery after February’s
devastating earthquake, and
Argentina, Canada, and Mexico
inflationary pressures in some
states. Argentina is suffering an
increase in inflation expectations,
and prices in Venezuela continue to
increase thanks to highly restrictive
price and foreign-exchange
controls. Meanwhile, throughout
the region growth has yet to
produce many new jobs. Indeed,
Canada and Chile are two of the
only countries in the Western
hemisphere that have enjoyed
meaningful job growth; almost
everywhere else, unemployment
has been stagnant or worsened
slightly in recent months.
■ ■ ■
7 | gloBal markeT BrieF & laBor risk index Q3 2010
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Argentina 5 7 8 4 5 5 4 7 4 Y Y
Brazil 7 6 6 7 5 Y 3 6 5 6 Y
Canada 9 8 10 7 8 7 6 Y 8 6 X Y
Chile 7 6 9 7 X 7 7 5 8 6 Y
El Salvador 6 6 5 Y 5 6 6 4 4 6 Y
Mexico 6 6 5 Y 6 X 7 Y 4 4 5 6 Y
United States 8 Y 8 9 7 8 8 9 9 7 Y Y
Venezuela 5 4 5 3 2 Y 2 Y 4 4 2 Y
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
The americas – risk index summary TaBle – Q3 2010
8 | gloBal markeT BrieF & laBor risk index Q3 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
In April, the ruling National Action Party and the opposition Institutional Revolutionary Party passed antimonopoly legislation in the lower chamber of congress. The bill strengthens the Federal Competition Commission’s capacity to investigate and sanction dominant market players or those engaged in monopolistic business practices. The level of proposed sanctions was reduced during the legislative process and will be reduced further in order to gain approval in the senate, probably this fall.
El Salvador
0
1
2
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4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
forced the government to run a
high deficit (estimated to reach
4.7% of GDP) and to take on new
debt (estimated to hit 50% of GDP)
this year. Inflation has remained
low, however, coming in at 0.6% on
an annual basis in June. In another
positive development, remittances
from abroad—which account for
about 17% of GDP—have begun
to increase, up 2.6% in the first five
months of 2010 compared to the
same period in 2009.
Still, the tough economic conditions
and the need to invest in economic
development, public security,
and social initiatives have left the
government of Mauricio Funes in
➔ El Salvador was hit hard by
the downturn in the US economy
and continues to struggle, even
compared with its regional peers.
Growth is expected to rebound
to only 0.5%–1% this year, while
the projected average in Central
America and the Caribbean is
3.3%. As El Salvador’s economy
is based on the US dollar, the
government can only use fiscal
policy to manage the economy.
The fall in economic activity and
government tax revenues have
a difficult spot. His government
published a Five Year Plan in April
2010, which emphasized education,
healthcare, housing, public security,
and economic stimulus programs.
In order to finance this plan, the
government will propose new fiscal
reform measures, the details of
which will likely be unveiled at the
end of the year, aimed at raising
revenue from 14%–17% of GDP by
2014. Funes is likely to have trouble
getting all these reforms through
congress, but he will probably
get at least some of the measures
passed.
■ ■ ■
9 | gloBal markeT BrieF & laBor risk index Q3 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
President Obama is trying to tie export promotion to job creation by doubling US exports over five years. While Obama has recently claimed progress on this front, the government in fact expects the doubling to occur as a function of global economic recovery, not any new policies. The president may move forward on free trade agreements with South Korea, Panama, and Colombia, but the aggregate impact of these deals on US labor will be negligible due to the relatively small size of these economies compared to the US economy. 0
1
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9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
United States hopes of propping up the recovery.
Inflation is not a near-term concern
since it is expected to stay below
2% through 2011.
While the budget deficit is
expected to decline from 10.2%
last year to 9.1% by the end of
this year, popular opposition to
government spending is limiting
Washington’s ability to provide any
additional stimulus. In the wake of
the healthcare battle and in the run
up to the mid-term Congressional
election, Republicans are fighting to
score points by painting Democrats
as profligate spenders. As a result,
the likely extent of stimulus into
➔ While many analysts
continue to worry about the
durability of US recovery, the
numbers suggest that the
economy is in fact stabilizing.
GDP is expected to grow by 3% in
2010. That said, unemployment is
expected to rise to 9.6% this year,
up 0.3% from last year. This will
continue to be a drag on consumer
demand. The Federal Reserve is
expected to hold its Federal Funds
target rate between zero and
0.25% through the end of 2010 in
next year will be spending the 40%
of the American Recovery and
Reinvestment Act that has yet to be
disbursed.
Meanwhile, failing new action by
Congress, a host of tax breaks
will automatically expire at the
end of the year. While Congress
is expected to extend much of
the income, dividend, and capital
gains tax breaks for all but the
wealthy, uncertainty and questions
about timing may be preventing
some employers from hiring due
to fears of the tax impact on their
consumers and investors.
■ ■ ■
10 | gloBal markeT BrieF & laBor risk index Q3 2010
Overview: Asia Pacific
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
toward managing risks related
to overheating—most notably
inflation and labor unrest. There are
early signs that, for many of these
economies, managing inflation
and the consequences of higher
inflation will soon become top
macroeconomic policy priorities.
In India, Indonesia, Singapore,
and Vietnam, for instance, higher
than expected growth in 2010 has
raised questions about how to keep
inflation in check while sustaining
growth in 2011. Managing labor
unrest will also be a major concern.
In China, Bangladesh, South
Korea, and Hong Kong, there are
increasing concerns about labor
issues, such as the minimum wage,
that are likely to raise business costs
and disrupt operations.
➔ The Asia-Pacific region, led
by China, India, and Indonesia, is
expected to continue to fuel the
global economic recovery over
the coming quarter, although
concerns that the region’s growth
could be affected by a slowdown
in demand for the region’s exports
remain. Policy priorities among
most of the nations with the fastest
growing economies have squarely
shifted from accelerating growth
The region’s strong economic
growth will also create space for
governments to pursue important
structural reforms, particularly in
countries that are less burdened
by rising inflation or labor
unrest. Elections, or leadership
transitions, in Australia, Japan,
and the Philippines will boost the
prospects for positive changes
in economic policy, including on
taxation. Incumbent governments
in Malaysia and New Zealand have
also announced plans for dramatic
economic reforms, but it is less
clear if these governments have the
political will to push the changes
through in the coming quarter.
■ ■ ■
11 | gloBal markeT BrieF & laBor risk index Q3 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Australia 7 8 10 7 X 9 7 7 8 7
Bangladesh 5 5 Y 4 3 X 4 3 5 1 4 YChina 7 5 8 7 Y 6 5 7 Y 6 4 YHong Kong 7 7 10 6 9 Y 8 6 8 7 YIndia 7 4 7 6 XX 5 X 5 4 2 4
Indonesia 6 6 6 6 X 5 X 3 5 4 4 YJapan 6 ▼ 9 10 7 X 7 6 7 9 8
Malaysia 5 3 8 7 X 5 6 4 6 Y 6 YNew Zealand 7 8 10 6 9 Y 7 7 8 7
Philippines 6 X 5 6 4 X 5 5 5 4 7
Singapore 8 ▼ 7 8 8 XX 9 6 6 8 7 YSouth Korea 8 9 7 8 X 7 3 5 7 6 YThailand 4 4 6 5 X 7 6 5 Y 4 8
Vietnam 6 5 9 4 X 6 5 5 Y 5 6
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
asia paciFic – risk index summary TaBle – Q3 2010
12 | gloBal markeT BrieF & laBor risk index Q3 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Although there is no immediate threat to the ruling Congress-led United Progressive Alliance (UPA), some of its allies and supporters in parliament have deserted it, leaving the coalition with only a slim majority. The government now can only push through legislation that is not polarizing or by expending large amounts of political capital. Under these conditions, controversial reforms, such as changes to India’s highly restrictive labor laws, are unlikely.
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
India sale of 3G and broadband wireless
spectrum auctions adding over
$20 billion in revenue. As a result,
the government will likely meet or
beat its projection of a fiscal deficit
of 5.5% of GDP for fiscal
year 2010–2011.
The major cloud on the horizon
is inflation, which exceeded
10% in May in annualized terms.
Worryingly, the rise in inflation
appears to be broad-based, rather
than driven by food or fuel, as had
been the case in recent months. At
the same time, industrial production
growth has picked up sharply;
in April 2010 it grew by 18%
compared with the year prior. High
inflation is likely to feed through to
➔ The economy expanded
by 8.6% in the first quarter of
2010, propelled by strong growth
in investment and exports. Solid
growth has created a strong
environment for hiring, but the
government is still concerned
about potential headwinds from
the global economy, which could
cause exports and capital inflows to
moderate. As such, the government
is only gradually pulling back
fiscal and monetary stimulus.
Government revenue is high, with
robust economic growth resulting
in strong tax collections, and the
wage demands, as many salaries
are linked to the consumer
price index.
The government plans to introduce
new legislation on corporate and
income taxes this year. Strong
industry and political opposition
resulted in the draft tax code
published in June with more
exemptions and preferences than
the previous version. The difficulties
may result in the finance ministry
not being able to cut the corporate
tax rate from 30% to 25% as
originally proposed. Overall, the
code is positive for the fast-growing
infrastructure sector, which is
becoming a major employer.
■ ■ ■
13 | gloBal markeT BrieF & laBor risk index Q3 2010
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Opposition victories in the 2 June provincial and municipal elections have rejuvenated the opposition and will further increase policy gridlock in a system already plagued by political infighting. Lee’s ruling Grand National Party performed poorly outside the capital region. Lee’s signature projects are all in jeopardy, including administrative reforms, a major waterways project, and a development plan for Sejong City. A cabinet reshuffle is likely and may include the replacement of Prime Minister Chung Un-chan.
South Korea
0
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
raise rates, albeit gradually, over the
course of the year.
Labor unrest is almost certain
to grow during the summer
given the 1 July implementation
of a law curbing the power of
trade union representatives at
Korean companies. Korea’s 1997
Labor Act banned companies
from paying full-time trade
unionists, but many of these union
representatives have continued
to enjoy payroll and benefits
packages paid by firms. Under
the revision to the law, employers
must now cap the number of union
representatives at 24 (although
some variation is permitted based
on the size of both the workforce
➔ South Korea’s robust
economic recovery is accelerating,
with the IMF now raising growth
projections for 2010 to 5.8%,
before a slight moderation back
to 5% in 2011. Economic activity
is increasingly led by the private
sector. A national debate will
intensify about whether, when, and
how to roll back the expansionary
policies pursued by President Lee
Myung-bak. The Bank of Korea,
which in mid-July raised interest
rates from their all-time low of 2%
to 2.25%, will probably continue to
and the particular union).
Some companies have already
struck collective bargaining deals
with their unions, and others may
decide to pay union representatives
under the table. On balance,
however, companies will tread
carefully given that the government
has threatened violators of the
so-called time off rule with jail and
fines. The Korea Confederation of
Trade Unions and the Korean Metal
Workers Union have promised
strikes in July. Kia Motors, which
pays more than 100 full-time trade
union representatives, is the most
prominent target of protests and
potential strike actions.
■ ■ ■
14 | gloBal markeT BrieF & laBor risk index Q3 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
Overview:Europe and Eurasia
Italy (where excessive bureaucracy
hurts the business environment)
and Greece would help boost
economic growth and improve
the employment outlook. Aging
populations are also a concern
throughout most of Europe, and
many countries are considering or
implementing pension reforms. The
effects of these kinds of structural
changes on business activity
and growth have been lagging,
however, and political instability in
Spain, Italy, Germany, and Portugal
may jeopardize implementation of
these reforms.
Russia’s situation is, however,
more positive. Increased industrial
output, manufacturing, and fixed
investments were positive drivers
for the economy during the most
➔ Europe presents many
concerns, with EU authorities
continuing to monitor the
trajectory of the eurozone crisis
and the fiscal consolidation and
austerity plans of many European
economies. A longer-term concern
looms, however, particularly for
the southern European nations of
Italy, Greece, and Portugal: Their
competitiveness is challenged by
inflexible labor markets and tax
environments that have stunted
business activity. Spain has passed
labor reforms, and similar efforts in
recent quarter, while rising retail
sales further demonstrated a
recovery in domestic demand.
Nevertheless, the price of oil
and possible tax hikes on the
economically vital oil and gas
sectors are points of uncertainty in
the near-term growth outlook.
Positive economic trends are also
evident in Turkey. The economy
grew during the first quarter of
2010 compared to the same period
a year ago, and unemployment has
been declining. If implemented
effectively, a new fiscal rule will be a
positive long-term driver of growth.
As is the case in Russia, a boost
in public expenditure ahead of
upcoming elections could support
public sector workers and social
initiatives.
■ ■ ■
15 | gloBal markeT BrieF & laBor risk index Q3 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Baltics 6 6 7 4 7 X 4 6 7 3 YBelgium 4 7 Y 8 7 8 Y 5 6 7 5 YCroatia 6 7 8 5 8 3 5 7 3 YCzech Republic 6 8 8 6 6 X 7 6 8 5
Denmark 8 9 8 7 9 6 5 8 5 YFrance 7 8 7 6 8 X 4 6 8 4 YGermany 6 8 8 6 7 Y 3 6 9 5
Hungary 6 X 8 9 5 7 Y 6 6 7 4
Ireland 6 9 8 5 9 6 7 8 3 YItaly 5 Y 7 Y 7 6 6 Y 4 6 8 4
Luxembourg 7 9 8 7 8 X 3 X 5 9 7
Netherlands 6 8 8 6 7 Y 3 5 8 6
Norway 7 9 8 7 Y 8 4 5 9 8
Poland 8 X 7 9 6 7 6 6 Y 7 5
Portugal 7 8 7 5 7 Y 3 6 7 3
Romania 6 5 7 4 Y 7 4 5 6 4
Russia 7 7 6 6 X 6 6 7 5 4
Spain 6 Y 7 Y 7 4 7 Y 3 8 8 2
Sweden 7 Y 9 8 7 8 4 6 9 6
Switzerland 8 8 8 7 Y 8 5 5 9 8
Turkey 6 Y 5 5 Y 6 7 4 6 5 4
Ukraine 6 5 Y 8 3 X 5 6 4 5 4
United Kingdom 7 8 7 6 Y 9 7 6 8 5
europe and eurasia – risk index summary TaBle – Q3 2010
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
16 | gloBal markeT BrieF & laBor risk index Q3 2010
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current quarter
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prior quarter
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General elections are not due until 2013, but early elections are increasingly likely and could be triggered if Italy’s public debt becomes an acute problem for markets. A sovereign debt downgrade could precipitate a further loss of public confidence in the government of Prime Minister Silvio Berlusconi, which is already suffering in the polls. Left-wing Democratic Party leader Pier Luigi Bersani is aggressively opposing current austerity plans, attempting to align his party with the angry popular mood.
Italy
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8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
EU authorities, Italy announced
austerity measures in May intended
to halve its deficit to 2.7% of GDP
by 2012. Rome will freeze public
sector wages and hiring for three
years, and decrease funding to
Italy’s regions and cities. That may
force local governments to lower
healthcare spending and raise taxes,
which in turn may constrain regional
business activity, especially in the
already stagnant south. Collectively,
these measures will probably hurt
domestic demand by decreasing
government spending and
household consumption. The current
plans do not yet, however, include
tax increases, and the markets and
➔ The Italian economy
continues to struggle, with growth
of just 0.5% year-on-year in the first
quarter of 2010, and unemployment
for the same period at 9.1%. Italy’s
public deficit, however, is not in as
dire a situation as those of Spain or
Greece. Market pressure remains a
concern and a source of uncertainty
for the business environment and
employment situation.
Public debt is estimated at 120%
of GDP. To calm markets and
EU authorities may consider that
insufficient, raising the possibility of
future tax hikes.
The government has sought
to boost competitiveness by
establishing so-called zero
bureaucracy zones in the country’s
south, significantly cutting red tape
in order to foster entrepreneurship.
Many Italian firms employ few
workers, so this may not significantly
increase employment. The failure to
deal effectively with competitiveness
is one of the main obstacles to
employment and economic growth
in Italy.
■ ■ ■
17 | gloBal markeT BrieF & laBor risk index Q3 2010
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current quarter
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current quarter
prior quarter
low risk
high risk
The heated campaign ahead of the 12 September public referendum will mark the beginning of a long battle leading into the general elections. The declining popularity of the ruling Justice and Development Party (AKP) may lead the party to resort to populist election spending, reducing the incentives for compliance with the new fiscal rule. The parliament has already approved the government’s proposal to create 70,000 new posts for teachers, 30,000 for the police, and 15,000 for clerics.
Turkey
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
in March dropped by 2.1
percentage points year-on-year to
13.7%. Inflation is also declining. In
June, annualized inflation dropped
to 8.4%, a decline of just over half
a percentage point from the May
numbers. A 2.5% slide in food
prices was the main factor behind
the falling inflation, with lower
energy prices also contributing.
Lower inflation prompted the
central bank to announce that it
will probably maintain interest
rates at current levels in order to
support the economic recovery.
Analysts expect the central bank to
start tightening in September and
to increase the weekly repo rate,
currently at 7%, by 100–125 basis
points by the end of the year.
➔ Turkey’s economy remains
strong, though it does face some
obstacles. GDP grew by 11.7%
in the year ending in March 2010
compared to the same period in
2009, but there was a considerable
slowdown in the quarter-on-quarter
growth rate. GDP grew by 1.7%
in the fourth quarter of 2009
compared to the third quarter, but
output remained broadly flat in
the first quarter of 2010 compared
to the three months ending in
December.
Other macroeconomic indicators
were also positive. Unemployment
While monetary tightening is
delayed, fiscal tightening is already
underway. The government aims
to pass legislation that introduces
a new fiscal rule before the 2011
budget is implemented. If followed
rigorously, the law could encourage
fiscal prudence in the absence of an
IMF program. Currently the central
government is outperforming the
budget targets due to a strong
cyclical recovery and tax hikes.
In the first quarter, the central
government budget deficit was
4.7% of GDP. Between January
and May, the central government
deficit declined by slightly more
than half compared to the same
period in 2009.
■ ■ ■
18 | gloBal markeT BrieF & laBor risk index Q3 2010
Overview:Middle East and Africa
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
but incentives among power
brokers in both countries to retain
the status quo are strong. Egypt
faces a number of challenges
both politically and economically
that could be aggravated by the
sudden death of President Hosni
Mubarak, while Saudi Arabia’s aging
princes are likely to compromise
on a successor, leaving most of the
squabbling behind closed doors.
The Gulf Cooperation Council
(GCC) countries are slowly
recovering from the economic crisis,
with Qatar projecting outstanding
growth numbers for 2010 and
Kuwait expecting another budget
surplus coupled with healthy GDP
growth. The United Arab Emirates
(UAE) has emerged from the worst
phase, but Dubai’s debt issues
are not over yet and Abu Dhabi
➔ As the world economy
emerges from recession, the
Middle East and Africa present
opportunities for growth but also
carry stability risks.
Regional tensions remain a concern.
The precarious situation between
Iran and Israel is unlikely to affect
growth in Israel, however, barring
military conflict. Egypt and Saudi
Arabia, which are the West’s
primary Muslim allies in the region,
are both led by aging leaders and
face possible successions in the
near term. Volatility is a concern,
enjoys new financial leverage
over its sister emirate.
Employment will be a priority
across the African continent in
2010. Unemployment continues
to dog Morocco, and despite
high government spending, new
jobs will hinge largely on the EU’s
economic recovery. Algeria faces
both ongoing political instability
and a rocky investment climate in
2010, with rising food prices and
high unemployment, while Nigeria
faces high inflation and demands
for an increase in public-sector
wages. After a successful World
Cup, South Africa must address job
creation to mitigate the possibility
of social unrest caused by crippling
double-digit unemployment rates.
■ ■ ■
19 | gloBal markeT BrieF & laBor risk index Q3 2010
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Algeria 3 4 Y 5 4 Y 3 2 5 4 1
Egypt 6 Y 5 Y 8 5 Y 5 5 4 2 2
Israel 7 7 Y 7 8 7 5 5 7 7
Kuwait 7 6 7 Y 6 X 5 9 4 7 8
Morocco 7 6 Y 8 5 5 4 4 3 5
Nigeria 5 X 2 5 4 X 5 4 4 1 2
Qatar 7 6 8 6 X 5 7 4 5 7
Saudi Arabia 6 Y 6 6 Y 6 X 6 7 4 6 6
South Africa 6 Y 3 6 5 6 4 Y 6 4 2 Y
United Arab Emirates 7 6 7 Y 6 5 8 4 7 7
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
middle easT and aFrica – risk index summary TaBle – Q3 2010
20 | gloBal markeT BrieF & laBor risk index Q3 2010
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high risk
While Israel’s engagement with Hamas and Hizbullah remains tense, and meaningful talks with the Palestinian Authority are unlikely, Israel’s relationship with Turkey and Iran are of even more concern. The government appears unsure of how to reverse its deteriorating relations with Turkey. And while the chances of an Israeli strike on Iranian nuclear facilities remain small, if international sanctions fail to influence Tehran’s behavior, hawks in Israel could start pushing for a preemptive attack.
Israel
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
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preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
central bank chief, Stanley Fischer,
is high. The two-year budget
passed earlier this year means that
any fiscal controversies have been
postponed. Israel also signed an
ascension agreement with the
OECD in June. Membership in the
elite group, one of Fischer’s long-
running efforts, is taken in Israel as
approval of the country’s long-term
economic policies and will likely
mean more foreign investment in
Israeli markets. Some people are
concerned, however, that Israel
has moved from being one of the
most dynamic emerging markets
to being one of the smallest
developed markets.
➔ Israeli markets escaped
much of the fallout from the
Greek crisis and remain strong,
following the country’s relatively
steady economic trajectory
during the global financial crisis.
The Israeli Central Bank recently
raised growth forecasts for 2010
to 3.7% from 3.5% and lowered
the unemployment forecast for
the end of the year to 7.0% from
7.4%. Inside Israel, there is growing
confidence that the country has
escaped the global slowdown
and, accordingly, confidence in the
Despite economic stability, political
uncertainty in Israel is growing.
Following the poor handling of the
pro-Gaza Turkish flotilla, as well
as US pressure to extend a freeze
on settlements in the West Bank,
Prime Minister Benjamin Netanyahu
has multiple interests to balance.
His political coalition is unlikely to
collapse in the coming quarter, as
he will likely look to placate the
rightwing elements that are wary
of the government acquiescing
to pressure from the Obama
administration on settlements and
territorial concessions.
■ ■ ■
21 | gloBal markeT BrieF & laBor risk index Q3 2010
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current quarter
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current quarter
prior quarter
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high risk
King Abdullah is 85 and succession could soon become an issue. Although the powerful Saudi princes have a competitive relationship, they want to ensure Saudi stability and the continuation of the Saud family dynasty. So while there could be intense political jockeying immediately following Abdullah’s death, the princes will rally around whomever the Allegiance Council selects as the next king. That choice will have a big impact on the pace of social reform in Saudi Arabia.
Saudi Arabia
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
and Saudi youths in particular have
a hard time getting jobs. Saudi
Arabia’s human capital problem will
not be resolved in the short term,
and the country will continue to
depend on foreign workers for both
its unskilled and skilled labor needs.
Saudi Arabia is embarking on
an ambitious plan to develop
alternative energy sources,
intended both to create jobs and
to address Saudi Arabia’s long-term
energy needs. Electricity generation
exhausts around three-quarters
of Saudi Arabia’s domestic oil,
and strong oil export revenues
will be necessary to support the
➔ With oil above $70 a
barrel, the outlook for the Saudi
economy is rosy. The budget is on
track for another surplus, and the
country will continue its aggressive
spending on infrastructure projects,
focusing on transportation and
utilities. This could push GDP
growth above 3% in 2010. Riyadh
wants to have infrastructure in
place for its growing economy and
population, and remains confident
about the direction of its economy.
But unemployment remains high,
government’s continued spending
on infrastructure. Although Saudi
authorities previously stated
that the country would focus on
developing solar rather than nuclear
power, King Abdullah in April
announced the establishment of a
new nuclear and renewable energy
center, indicating that Saudi Arabia
will pursue nuclear power as well.
From a political perspective, the
pace at which Saudi Arabia moves
forward on its nuclear program will
be driven by the progress of Iran’s
nuclear program, as well as the
programs of the other GCC states.
■ ■ ■
22 | gloBal markeT BrieF & laBor risk index Q3 2010
About this Report
The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,
Kelly Services and Eurasia Group, the global political risk consultancy. The report, a proprietary blend leveraging Kelly’s labor market knowledge with
Eurasia Group’s expertise in political and socio-economic risk analysis, delivers a groundbreaking resource for companies as they assess market
investments and global labor strategies.
Published on a quarterly basis, the Global Market Brief & Labor Risk Index is segmented by four geographies: the Americas, Asia-Pacific, Europe and Eurasia,
and the Middle East and Africa, with detailed insights for 55 of the world’s most important economies.
About Eurasia Group
Eurasia Group is the world’s leading global political risk research and consulting firm. Since 1998, it has helped clients make informed business decisions in
countries where understanding the political landscape is critical. The firm’s research analysts are trained social scientists with post-graduate degrees, extensive
professional experience, and a diverse range of language capabilities. Headquartered in New York, it also has offices in Washington and London, as well as a
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