q2 2010 global market brief & labor risk index

Think ouTside.

Global Market Brief & Labor Risk Index

2010 2meThodology 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

2

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 colombia

13 mexico

14 panama

15 united states

Asia Pacific17 overview

18 risk index

19 australia

20 china

21 hong kong

22 india

23 indonesia

24 Japan

25 malaysia

26 new Zealand

27 pakistan

28 philippines

29 singapore

30 south korea

31 Thailand

32 Vietnam

Europe and Eurasia34 overview

35 risk index

36 Baltics

37 Belgium

38 Bulgaria

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 kenya

66 kuwait

67 morocco

68 Qatar

69 saudi arabia

70 south africa

71 united arab emirates

cover: ancient bridge, Zagoria, greece © 2007 Kai Koehler

4 | gloBal markeT BrieF & laBor risk index Q2 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

such as Australia. Most developed

economies continue to face high

unemployment, however, and are

managing only a modest recovery,

as in the US, or suffering continued

contraction, as in Ireland.

Governments in some emerging

markets have already begun to

withdraw stimulus measures,

relying on the private sector and

external demand to sustain growth.

It remains to be seen whether this

transition comes soon enough

to keep expansionary policies

from fueling inflation. If inflation

does increase, workers will likely

demand higher wages to keep

pace, potentially sparking social

unrest. Policymakers will have to

balance that risk as well the need

for long-standing structural reforms,

including to the labor market.

Some governments face additional

challenges, including political

unrest in Thailand and pulling off

a successful soccer World Cup in

South Africa.

Governments in the developed

world also face serious challenges.

Efforts to keep debt and deficits

in check have become serious

concerns, particularly in the

eurozone. The EU and the IMF

provided a loan package to Greece

to stave off sovereign default, and

recently announced a $930 billion

emergency loan package for other

EU governments facing fiscal issues,

such as Spain, Portugal, and Italy.

Stubbornly high unemployment

will likely be a bigger concern in

many other developed markets,

potentially affecting elections in

Japan this summer and the US in

November.

■ ■ ■

➔ As the world rebounds

from the financial crisis, emerging

markets are outpacing the

developed world both in the speed

of their recovery and job growth.

The Asia-Pacific region leads

the way, though Latin American

economies are also recovering

strongly. Thanks to high commodity

prices, growth is also robust in

Russia and the Middle East, as

well as a few developed nations


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


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.


Overview: The Americas

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors

due to a collapse of labor-intensive

exports to Venezuela. Meanwhile,

the economic recovery has been

accompanied by renewed calls

for higher pay in countries such

as Argentina and Brazil, where

labor unions are demanding wage

increases in excess of stubbornly

high inflation.

Labor reform has also crept onto

the legislative agenda of several

countries, although the chances

of passage look slim. In Brazil,

legislators hoping to strengthen

their electoral prospects in

October’s general elections

have joined forces with unions

to shorten the work week and

increase overtime pay, but will

struggle to find room in a crowded

➔ Economies throughout

the Americas are showing signs

of a sustained recovery thanks to

continued fiscal and monetary

stimulus and to rising commodity

prices. Brazil is leading the way

with strong job creation and a

GDP that is officially projected to

grow by 6% this year. Throughout

the rest of the hemisphere, GDP

growth rates are expected to range

between 3% and 5%, according to

government estimates, although

Colombia is likely to lag behind

legislative agenda before Congress

shuts down in July. In Mexico,

the ruling party’s efforts to push

through an ambitious labor reform

package that would increase the

transparency of labor unions and

make employer-worker contracts

more flexible are also likely to be

heavily diluted by an uncooperative

opposition that is positioning itself

for state elections later this year.

Finally, in the US, the Democratic

leadership may try to bring the

Employee Free Choice Act (which

makes it easier for workers to

unionize) to a vote after long delays

in order to win labor support ahead

of the midterm elections. But the

chances of the measure passing

remain slim.

■ ■ ■


conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors

macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality contentment

Argentina 5 Y 7 8 4 5 Y 5 4 7 4

Brazil 7 6 6 7 5 3 Y 6 5 6

Canada 8 X 7 9 7 X 8 7 7 8 6 X

Chile 7 6 9 5 X 7 7 5 8 6

Colombia 7 Y 5 3 6 6 7 6 6 5

Mexico 6 6 5 Y 6 X 7 4 X 4 5 7

Panama 8 6 7 Y 6 7 4 3 5 7 Y

United States 8 8 Y 9 7 X 8 8 8 9 7 X

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 – Q2 2010


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

A pending constitutional amendment in the lower house would reduce the work week from 44 to 42 hours and increase overtime pay from 50% to 75% above regular hourly compensation. The proposal is being driven by the desire of some legislators to enact a popular reform prior to the October elections. While the reform may be approved in the lower house, it is unlikely to become law as there is little time to gain approval in the Senate before congress shuts down in July.

Brazil

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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

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors

is 29% higher than the rate of job

creation registered in any other

previous month of March. Given

these strong numbers, the Ministry

of Labor is increasingly confident

that unemployment will drop to 7%

by the end of 2010.

Such a promising growth outlook

has led to an uptick in inflationary

pressures and growing concern,

some of it unfounded, that the

Central Bank of Brazil may face

political pressure not to raise interest

rates. Projections for year-end

inflation for 2010 have grown from

4.5% to 5.3% in the central bank’s

weekly survey since the end of 2009.

The central bank opted against

raising interest rates in March, and

➔ The country’s growth

outlook improved over the first

three months of 2010, further

strengthening workers’ leverage

to demand higher pay. Brazil’s

faster-than-expected economic

rebound also caused the country’s

jobless rate to drop. According to

a central bank survey, the country’s

expected GDP growth rate rose

from 5.3% in January to 6.06 % in

May. Meanwhile, unemployment

fell from 9% in March 2009 to 7.4%

in February 2010, while 226,415

new jobs were created in the formal

labor market in March alone—which

many investors inferred that the

reason stemmed from the desire

of Henrique Meirelles, the central

bank governor, to run for elected

office in October. Meirelles has

since stated he won’t run, but his

loss of credibility probably means

the central bank will have to more

aggressively hike interest rates to

assure markets that the government

is committed to keeping inflation

low. The central bank’s decision to

raise interest rates by 75 basis points

on 28 April is a clear indicator that

that the government’s commitment

to keep inflation low has not been

undermined.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

While rising oil prices have stabilized the outlook for Canada’s strategic oil sands sector, not all signals are positive on the energy front. Natural gas prices have collapsed, putting significant pressure on Alberta’s economy in particular. Last year was the first year in which royalties from bitumen (oil sands) production exceeded natural gas revenues for the provincial government. Alberta gas prices are trading about $1/mmbtu below benchmark US prices, due to their distance from markets. The Canadian gas export industry also faces significant competitive pressure in defending its markets from emerging shale gas production in the US.

Canada

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aBouT sponsors

This will be particularly painful for

manufacturing-intensive central

Canada, particularly Ontario.

Ontario industry, dominated by the

auto sector, has already been under

significant restructuring pressures.

Ontario also faces uncertainty in

its consumer sector, along with

British Columbia, as the provincial

government harmonizes the

provincial sales tax with the federal

goods and services tax. This means

that a wider range of goods and

services will now be subjected to

a provincial sales tax in addition to

the federal tax.

Adding uncertainty is a decision

by Ottawa to tighten mortgage

➔ The Canadian economy is

at a significant turning point. Like

its neighbor to the south, Canada

will be adjusting to a withdrawal

of stimulus funds and a likely

tightening of interest rates by July

2010. The Bank of Canada signaled

at its 20 April meeting that such a

tightening was expected, sending

the Canadian dollar once again

above par with the US dollar. With

the loonie expected to hover at

close to parity for some time,

Canadian export industries will

continue suffer throughout 2010.

rules and end incentives for home

renovation. Collectively, higher

interest rates, a stronger dollar, tax

hikes in two key provinces, and

slowing housing and construction

markets would all seem to suggest

an economic slowdown is likely.

Yet the Canadian economy is also

being bolstered by higher oil prices,

which act as an economic growth

engine in western Canada. The

financial sector is also healthy. A

recovery in the oil sands sector and

the ongoing strength of financials

should help offset job losses

elsewhere. Unemployment rates are

thus unlikely to rise, but probably

won’t improve much either.

■ ■ ■


Overview: Asia Pacific

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

exports has also led to sharper than

expected growth in export-oriented

countries such as Singapore and

Malaysia. With growth secure,

the governments of these states

have turned their policy focus

from stimulus toward how best

to position themselves for an

improved longer-term expansion.

In other Asia-Pacific countries,

meanwhile, smart government

policy and macroeconomic

management will be critical to

securing a return to sustainable

growth in 2010, while minimizing

risks of other macroeconomic

problems. Governments in Australia

and Vietnam, for instance, will

need to continue balancing pro-

growth policies with those aimed

at containing inflation. In Japan

➔ The Asia-Pacific region, led

by emerging giants China, India,

and Indonesia, will power much

of the nascent global economic

recovery in 2010. A combination

of recovering global demand for

exports, government stimulus

policies, and buoyant domestic

consumption has helped these

countries grow faster than expected

in the first quarter of 2010. The

strong recovery of global demand

for the region’s manufacturing

and New Zealand, authorities must

monitor the impact of stimulus

on public finances, even as they

maintain expansionary policies.

While pockets of uncertainty

will remain in some Asia-Pacific

countries, these are more likely to

be a drag on growth than to derail

it during 2010. Domestic political

and security problems in Pakistan

and Thailand will complicate

those countries’ efforts to secure

an economic recovery, but the

impact of these problems will be

contained. South Korea’s prospects

are brighter, but risks of worsening

tension with North Korea could

dampen investor sentiment toward

the region.

■ ■ ■


conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors




Australia 8 Y 9 9 8 8 8 7 8 8

China 7 Y 4 Y 8 6 6 5 X 6 6 6

Hong Kong 7 Y 7 10 7 X 9 8 6 Y 8 7

India 7 4 6 Y 4 X 4 5 4 2 X 6

Indonesia 6 X 6 7 6 X 5 XX 3 5 4 5

Japan 6 Y 9 10 7 X 8 6 7 9 9

Malaysia 5 3 Y 8 6 X 5 6 4 6 Y 7

New Zealand 7 9 10 6 X 8 8 7 8 8

Pakistan 4 3 Y 3 3 Y 6 4 3 2 4

Philippines 5 X 5 6 5 4 X 5 X 5 5 8

Singapore 8 7 8 7 X 10 7 6 8 7

South Korea 7 9 7 Y 7 X 8 4 6 8 7

Thailand 4 Y 5 Y 6 Y 6 7 7 5 5 7

Vietnam 7 6 X 9 4 X 5 4 5 4 7 Y

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q2 2010


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

A broad policy document was issued in April that formalizes the shift of FDI from the traditional manufacturing sectors to higher technology and value-added services and industries. The document also promotes FDI to central and western regions. Beijing clearly wants to harness foreign help to restructure the economy. Foreign investors should think critically about the opportunities created by this process as China’s leaders shift focus away from the coast to the rest of the country.

China

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preFace

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The americas

asia paciFic

overview

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australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

part reflects the fact that China was

coming from a low base in the first

quarter of 2009. Inflation slowed

a bit from February to March,

falling from 2.7% to 2.4%, with

the quarterly figure still below the

government’s 3% target for 2010.

But Beijing is worried that property

prices in 70 cities climbed 11.7% in

March. The Chinese government

has already announced measures

to cool the property sector, some of

which include prohibiting lending

for second or third homes. But

officials must be careful to avoid

triggering a hard landing.

Rising wages present another

inflationary concern this year.

Minimum wages have been raised

➔ The growth outlook

for China remains relatively

positive, but there are significant

challenges ahead, including an

overheating property sector,

inflationary pressures, and economic

restructuring. These challenges

underscore Premier Wen Jiabao’s

assessment that China is moving

from its most difficult year in 2009 to

its most complicated one in 2010.

This year China posted first-quarter

growth of 11.9% and its consumer

price index grew by 2.2%. The

higher than expected growth in

in several coastal provinces by

13%–20% to attract more migrant

labor.

Given these pressures, appreciation

of the yuan is looking more likely.

A revaluation would make imports

cheaper and lower costs for

industries that rely on imported

components or equipment. In

fact, China’s central bank has been

making the inflation argument as

a justification to change currency

policy. If it comes, however, any

appreciation is sure to be gradual

to minimize damage to the export

sector and to maintain jobs.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

On 6 April, a bill was submitted to the legislature that would require temporary staffing agencies (as of 2013) to employ on a full-time basis the temporary workers they dispatch. Though some business concessions have been eliminated to appease the party’s coalition partners, enough DPJ support is likely to push the bill through by the end of the legislative session in June. An exemption for 29 high-skill occupations will provide some relief for staffing firms.

Japan

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overview

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australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

more manageable coalition, offering

some hope that Tokyo will soon be

able to start making progress toward

rebalancing the country’s economy

by strengthening domestic demand.

After a severe contraction in 2009,

some projections now put 2010

growth above 2%. However, fiscal

deficit projections are near 10% of

GDP. The downturn has pushed

Japan back into deflation, further

harming efforts to revive economic

activity. One bright spot is that

unemployment has declined from

5.1% at the end of 2009 to 4.9% as

of April. The DPJ-led government

focused its early efforts on crafting a

fiscal stimulus package and

finalizing its first budget by the

close of Japan’s fiscal year on

➔ Japan’s macroeconomic

outlook is improving, though this

is more a function of external

demand, especially from Asia, than

it is the result of any increase in

domestic demand. Japan’s political

outlook has recently deteriorated

as maneuvering ahead of a July

election for the upper house of the

legislature has produced splits in

the largest opposition party and

exacerbated tension within the ruling

coalition led by the Democratic

Party of Japan (DPJ). The election

result will likely sort out the DPJ’s

leadership problems and produce a

31 March. The government has kept

up rhetorical pressure on the Bank

of Japan to maintain and augment

expansionary monetary policy to

combat deflation. Having survived

campaign finance scandals, both

Prime Minister Yukio Hatoyama

and Ichiro Ozawa, the DJP’s key

powerbroker, face upcoming

leadership challenges, but an

eventual shake-up, before or after

the July election, is unlikely to derail

the party’s agenda. Indeed, a more

policy minded successor is likely to

emerge, who will push ahead with a

variety of social-spending initiatives

including child care, education,

and income support, all boosting

private demand.

■ ■ ■


Overview:Europe and Eurasia

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


aBouT sponsors

Commission to impose austerity

programs, although the $930

billion loan guarantee program

from the EU and IMF will provide

financing assistance. However,

businesses and individuals are

unlikely to get much relief from

their governments—in the form

of tax cuts or expanded social or

unemployment benefits—anytime

soon. Fiscal adjustment will

continue within the eurozone, which

will threaten growth and possibly

spark further popular unrest.

Russia, meanwhile, showed signs

of a turnaround in 2010, with

its economy growing in the first

quarter and its budget deficit

and unemployment declining.

Many of these improvements are

due to rising commodity prices,

➔ European policymakers

will continue to be constrained

by the need to strengthen their

countries’ fragile fiscal positions. As

eurozone officials were coordinating

a response to the Greek fiscal

crisis in late April, ratings agencies

downgraded the sovereign debt

ratings of Spain and Portugal due to

their high deficits and debt levels.

Those European countries that have

deficits above the EU-mandated

maximum of 3% of GDP will face

continued and perhaps increased

pressure from the European

however, so it remains unclear how

sustainable they will be. That said,

the government moved to increase

pensions by more than 6% as of

April 2010, and this fall Moscow

may also introduce measures to

cushion the labor market ahead of

elections.

Further signs of recovery are also

emerging in Turkey. The country’s

economy grew in the fourth quarter

of 2009 and unemployment fell at

the start of 2010. The employment

outlook, however, remains uncertain

because the labor market remains

rigid. A growing budget deficit will

also constrain reforms, such as a

cut in payroll the tax, that would

decrease the cost of hiring workers.

■ ■ ■


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


aBouT sponsors




Baltics 6 Y 6 8 4 Y 7 3 6 6 2

Belgium 5 Y 7 8 6 9 5 5 8 5

Bulgaria 7 5 7 4 8 6 4 6 5 YCzech Republic 5 Y 8 8 6 6 6 5 8 5

Denmark 7 9 7 7 X 9 6 5 9 6

France 7 X 8 7 6 8 4 6 8 4

Germany 7 Y 9 8 7 8 3 6 9 4

Hungary 6 XX 8 9 5 X 8 6 6 7 4

Ireland 6 9 8 5 9 6 6 8 4 YItaly 5 Y 7 7 6 6 4 5 7 5

Luxembourg 7 9 8 6 X 8 4 5 9 7

Netherlands 5 8 8 7 8 Y 3 5 8 7

Norway 7 9 8 7 X 9 4 5 9 8

Poland 6 X 7 9 6 7 6 6 7 5

Portugal 7 8 7 4 8 2 6 7 3 YRomania 7 5 7 4 X 8 4 4 5 4

Russia 6 Y 6 5 5 X 6 6 7 5 4

Spain 6 Y 7 7 4 7 2 8 8 3

Sweden 7 Y 9 8 6 8 4 6 9 6

Switzerland 7 8 8 7 Y 8 5 5 9 8

Turkey 7 Y 6 7 6 X 7 5 5 X 5 4

Ukraine 5 X 5 8 3 X 6 6 4 5 5

United Kingdom 6 8 6 6 9 Y 6 6 8 5

very positive trend

positive trend

negative trend

very negative trend


europe and eurasia – risk index summary TaBle – Q2 2010


very positive trend

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current quarter

prior quarter

current quarter

prior quarter

low risk

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A rising budget deficit and government debt that is projected to reach 93.2% of GDP by 2013 are pressuring Paris to cut spending. While the government has decreased the number of public-sector employees, this may not cut enough costs to meet EU rules. A recent failure to implement a carbon tax has further slowed measures to raise government revenue. Since Sarkozy has signaled that taxes will not be increased, more austere measures may be introduced.

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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


aBouT sponsors

the dollar is helping manufacturing

firms, declining export strength

casts a pall over future growth

prospects.

Unemployment and its social and

financial costs remain pressing

concerns. The 2009 annual

unemployment rate was 9.5%,

and the likelihood of continued

social unrest remains high, as

unemployment is expected to

mildly decline starting only in 2011.

Like other EU countries, France

aims to reduce its budget deficit,

4.9% of GDP in 2009, to 3% by

2013. The government’s reform

program experienced a strong

setback because of losses suffered

➔ The French economy

contracted 2.1% in 2009, but is

expected to grow about 1.5% in

2010. One reason for France’s

economic contraction is that the

country’s exports continue to face

strong competition from Germany,

which has held unit labor costs

flat, largely on the back of strong

productivity growth. France’s share

of exports to the eurozone fell by

nearly four percentage points—

from 16.8% to 13.2%—in 2009.

While recovering global demand

and the euro’s depreciation against

by the ruling party in March 2010

regional elections. Following these

poor results, President Nicolas

Sarkozy decided to prioritize

pension reform. A major proposal

is due in September. The new

labor minister, Eric Woerth, is

coordinating policy with employers

and trade unions and may raise

the legal retirement age from 60

as well as increase the period for

which workers must contribute,

despite the unpopularity of such

moves. Sarkozy has signaled he

will aim to maintain pensioners’

living standards, however, implying

that their benefit rates will remain

untouched.

■ ■ ■


very positive trend

positive trend

negative trend

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current quarter

prior quarter

current quarter

prior quarter

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high risk

Portugal’s minority government is increasingly divided and under international pressure to address the deficit. This instability will complicate Portugal’s ability to implement austerity measures the EU and the IMF will demand if an aid package proves necessary. Elections won’t be held until 2013, however, meaning that some workable political arrangement needs to be struck. An external support package could actually help to bring one about, as increased funds might provide the government more room to maneuver.

Portugal

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The americas

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overview

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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


aBouT sponsors

cost of doing business for the

foreseeable future.

Portugal also faces public financing

challenges, exacerbated in April

by the downgrade of its sovereign

debt rating. With financial market

players increasingly concerned

about the sustainability of Portugal’s

public debt, it is increasingly likely

that Portugal will seek aid from the

eurozone and the IMF. Such an

arrangement could support a long-

term adjustment effort.

The government is already

implementing an austerity plan,

which has been met with significant

public protests that may continue

snarling the country’s public

➔ Portugal’s economic

situation recently deteriorated

as the budget deficit was

estimated to be even wider than

earlier expected: about 9.3%

of GDP in 2009. The downturn

continued through 2009, with GDP

contracting 2.7%. The 2009 annual

unemployment rate was 9.6%, and

there are no indications of a reversal

in 2010. Portugal lacks obvious

areas of comparative advantage to

fuel growth and eastern European

countries are expected to become

more competitive in terms of the

transit system. To curb public

expenditures, the government

plans to freeze the pay levels of

about 700,000 public employees

and to hire one civil servant for

every two leaving the service.

The government also plans to

implement a ceiling on government

transfers to social security to fund

benefits, which may reduce the

consumer demand in the near

term. Tax reforms, moreover, will

cut welfare benefits and cancel

certain tax breaks. Fewer tax

breaks may further strain domestic

demand already threatened by

unemployment.

■ ■ ■


Overview:Middle East and Africa

conTenTs

preFace

meThodology

The americas

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europe and eurasia


overview

risk index

algeria

egypt

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

the US or Israel in the short term,

they continue to be wary of their

neighbor and its nuclear ambitions.

Even if there is no attack on Iran,

Tehran does have the capacity

to undermine the GCC states.

Likewise, despite the low likelihood

of an Israel-Iran confrontation,

tension between Hizbullah—Iran’s

main regional proxy—and Israel

is rising. An Israel-Hizbullah

confrontation would destabilize

Lebanon and widen the gulf

between the GCC states and Iran.

As far as Egypt is concerned,

President Hosni Mubarak’s illness

and the rise of a formidable

challenger in former International

Atomic Energy Agency (IAEA)

head Mohamed ElBaradei has put

the carefully crafted succession

➔ The diverse economies

of the Middle East and Africa will

enter the second half of 2010

facing various challenges. But as

the global recession subsides, the

region is poised for steady, if not

spectacular, growth.

At this stage, the main threats to

growth are political and security

related. While the oil producing

states of the Gulf Cooperation

Council (GCC) are operating on the

assumption that there will not be

military conflict between Iran and

plans on hold—or might shelve

them altogether. In Algeria, the

growing hostility between the

military and the president could

destabilize his administration. South

African authorities, meanwhile, are

positive about the implications of

a successful World Cup in June

and July, but are also aware of the

far-reaching consequences of a

crime spree and/or terrorist attacks

during the tournament. Lastly, in

Kenya, while the adoption of a new

constitution is broadly positive,

implementation of the newly

decentralized political system could

fan regional and ethnic rivalries

around the next national elections.

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The americas

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algeria

egypt

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors




Algeria 3 YY 4 6 Y 3 3 2 6 3 2 Y

Egypt 6 5 Y 7 5 5 5 3 2 2

Israel 7 X 8 X 7 X 8 7 6 6 8 X 7

Kenya 5 X 3 6 4 X 5 5 4 4 4

Kuwait 6 X 5 7 5 5 X 8 3 7 8

Morocco 7 X 7 8 6 X 5 X 5 4 4 5

Qatar 7 7 8 5 X 6 8 3 5 8

Saudi Arabia 6 5 X 7 Y 6 X 6 7 4 6 7

South Africa 6 Y 3 6 5 6 Y 4 6 4 3

United Arab Emirates 7 6 7 Y 5 5 8 3 6 7

very positive trend

positive trend

negative trend

very negative trend


middle easT and aFrica – risk index summary TaBle – Q2 2010


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Despite press reports about a possible reworking of the water-sharing agreement between countries in the region (notably Egypt, Sudan, Ethiopia, Uganda, and Kenya), Egypt will aggressively block any change. Its effective domination of the Nile and its veto power over upstream water projects is something that all Egyptian political actors believe is sacrosanct and key to Egypt’s economic well-being. The issue will continue to arise, but it is unlikely that the parties will reach a new agreement.

Egypt

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aBouT sponsors

a concern for the authorities.

The government hopes that by

maintaining social services it can

counter any instability resulting

from unemployment. GDP growth

in 2010 will probably come in at

around 5%, though this is below the

economy’s full potential.

The government is likely to boost

spending in the run-up to the

fall parliamentary elections. The

elections are shaping up to be

less open and fair than recent

votes, and the government, by

opening its purse strings, will

try to undermine opposition

groups considering protests. The

biggest story in Egypt, however, is

President Mubarak’s recent illness

➔ The Egyptian economy will

continue its steady if unspectacular

trajectory during the second

quarter. Inflation has not eased

as quickly as the government had

hoped, and will probably end the

year near 10%. The authorities

would prefer a lower number but

do not think that price pressure of

this magnitude will be destabilizing.

Official statistics indicate that

unemployment is below 10%, but

the real number of unemployed

and underemployed is probably

much higher, and as in many

other Arab states, this remains

and its impact on the succession

and overall stability. Mubarak’s

opponents will continue to ratchet

up the pressure on him to clarify

a succession plan. The president

will ignore any such move because

it would be taken as a sign of

weakness, especially now that

former IAEA director ElBaradei

has returned to Egypt and is

continuing his vocal criticism of the

government. ElBaradei’s popularity

is growing, and the authorities do

not appear to know how to sideline

him. While tension will rise in the

coming months, destabilizing

violence is unlikely. Neither is the

government likely to pursue any

radical policy shifts.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Beginning in late 2010, the UAE will allow foreigners to hold controlling ownership stakes in UAE-based companies, part of a broad and careful liberalization process that will likely result in more foreign investment in the UAE. The new law will increase the limit on foreign ownership from the current 49% to as yet an unspecified percentage, although 100% foreign ownership will not be permitted.

United Arab Emirates

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egypt

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aBouT sponsors

media reports were saturated with

often alarmist stories about foreign

workers fleeing the UAE, but the

labor force is now stable. In fact,

many of the people who left Dubai

have moved to Abu Dhabi, which is

pursuing large-scale infrastructure

projects.

The UAE is still dealing with

fallout from the Dubai debt crisis,

however. Dubai World offered a

broadly generous restructuring

plan that includes full repayment

but with extended maturities. The

plan provides a short-term fix, but

future support from Abu Dhabi

may be necessary if Dubai and its

real estate sector do not benefit

➔ The economy of the United

Arab Emirates (UAE) has largely

stabilized since the Dubai crisis.

After the economy shrank by 3.5%

in 2009, authorities now estimate

GDP will grow by about 2.5% in

2010. This projection is largely in

line with independent analysis. With

oil prices above $80 per barrel, Abu

Dhabi’s economy will expand and

will sustain the rest of the emirates.

Officials think that inflation could

reach about 2% in 2010. At the

height of the global recession, local

from a strong economic rebound.

While Abu Dhabi will continue to

guarantee Dubai’s liabilities, its

willingness to provide financial

support is waning, making it more

likely that future assistance would

entail more explicitly commercial

terms. The current plan’s terms

were driven by the recognition

that Dubai still needs external

financing and that it cannot

alienate creditors. In addition, Abu

Dhabi’s government recognizes the

difficulties of separating out Dubai

World–related credit risk from that

of the UAE as a whole, and it wants

to avoid a broader contagion.

■ ■ ■


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

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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.

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network of experts around the world. For more information, please visit www.eurasiagroup.net.

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q2 2010 global market brief & labor risk index

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