Q1 2010 Global Market Brief & Labor Risk Index

Think ouTside.

Global Market Brief & Labor Risk Index

2010

meThodology 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

www.kellyocg.com/marketbrief

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 costa rica

13 ecuador

14 mexico

15 united states

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 czech republic

39 denmark

40 France

41 germany

42 hungary

43 ireland

44 italy

45 luxembourg

46 netherlands

47 norway

48 poland

49 portugal

50 romania

51 russia

52 serbia

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 ghana

65 israel

66 kuwait

67 morocco

68 Qatar

69 saudi arabia

70 south africa

71 united arab emirates

cover: sheikh lotfollah mosque – isfahan, iran © Syagci

gloBal markeT BrieF & laBor risk index Q1 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

to ensure that their crisis-response

policies do not have unwelcome

consequences. China’s large stimulus

package effectively spurred growth

in 2009 but raises concerns of

overheating in 2010. The crisis also

revealed long-term weaknesses in the

fiscal positions of several European

governments. In order to restore

investor confidence and a stable

fiscal outlook, the governments

of Greece, Portugal, Spain, and

others will need to cut spending and

adopt politically distasteful structural

reforms. Such measures will be

unpopular, potentially leading to

political instability and even

social unrest.

Although many governments will

continue to support labor markets

through economic stimulus,

employment growth consistently lags

broader economic recovery. Popular

frustration over high unemployment

may arise. This poses a risk primarily

in countries that also suffer from high

inflation, such as Venezuela

and Argentina.

Throughout the world, governments

facing high unemployment and

fragile economic growth are caught

between expansionary policies that

would promote investment in the

long run, such as simplifying labor

regulations, and policies designed to

mollify labor’s short-term demands,

such as increased job security

and benefits. In countries with

approaching elections, such as

South Korea and Brazil, incumbents

will be tempted to engage in

populist rhetoric, but the assessment

of such risks will depend on country-

specific conditions.

■ ■ ■

➔ The global economic

crisis will recede further in 2010 as

strengthening global demand and

government stimulus spending

boost economic growth. However,

economic policies, especially labor

market policies, will continue to

dominate government agendas.

The strength with which countries

emerge from the downturn will vary

widely and governments will struggle


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

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

and adjustments. Meanwhile,

upcoming elections in Brazil,

Colombia, and Venezuela will

encourage incumbents to prioritize

economic growth and investments

in social spending programs over

fiscal discipline. Governments that

have pursued orthodox economic

policies throughout the past year

(including Brazil, Costa Rica, Chile,

and Panama) should be better

positioned to experience a stronger

recovery and a gradual reduction

in unemployment levels. Canada,

Mexico, and the US will have a

more difficult time. Employment

rate increases are projected to

lag economic growth, while fiscal

stimulus spending and higher

➔ Countries in the Western

Hemisphere are looking forward

to a strong economic recovery in

2010 following a difficult 2009. In

most countries, this will tend to

strengthen political stability and

help reduce the likelihood of major

economic disruptions. However,

improved economic conditions

and higher tax revenues may also

reduce government incentives to

pursue needed economic reforms

deficits will be necessary to boost

economic activity and create jobs.

At the other end of the spectrum,

those governments that have

pursued a heterodox policy mix

(such as Argentina, Ecuador, and

Venezuela) will probably face

greater challenges, including

inflation and higher unemployment

and underemployment levels.

Labor unrest looks increasingly

likely in countries such as Ecuador

and Argentina, where past policy

decisions have exacerbated the

impact of the economic slowdown on

unemployment, higher inflation, and

decreased labor market flexibility.

■ ■ ■


The americas – risk index summary TaBle – Q1 2010

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality contentment

Argentina 5 Y 6 8 4 5 Y 5 4 7 4 Y

Brazil 7 X 6 6 6 X 5 Y 3 6 5 6 Y

Canada 7 8 10 7 X 8 7 6 8 6 Y

Chile 7 6 9 5 X 7 7 5 8 6 Y

Costa Rica 7 X 7 8 6 X 7 X 6 4 5 6 Y

Ecuador 6 Y 3 7 4 4 3 4 4 4 Y Y

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

United States 8 Y 9 8 7 8 Y 8 8 9 7 Y 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’.


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

The political system is in a delicate balance. While the government has been able to regain the political initiative and bolster its position with two years left in power, its ability to continue doing so will be limited in such a tense environment. Relations with congress will probably become more complicated now that the administration has lost its majority in both houses. Political tension will rise as the government tries to maintain the initiative and weaken its adversaries.

Argentina

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

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

private estimates since early 2007.

State spending grew 30% year-on-

year in 2009, while revenue grew

by 19%. As a result, the federal

government posted a budget surplus

of 1.5% of GDP, down from 3% of

GDP in 2008. However, this result

reflects some creative accounting.

More sober estimates indicate that

the budget registered a deficit

of 1.6% of GDP. Argentina’s fiscal

accounts will probably continue to

deteriorate in 2010. The government

plans to move ahead with the

restructuring of $20 billion debt still in

default later in the year, but domestic

political problems threaten to delay

the deal.

➔ The economy seems to

have touched the low point on its

path to recovery. Official statistics

show the economy grew by 2.2%

year-on-year in November 2009,

and the government expects the

economy to have grown around

0.5% in 2009 compared to total

2008 GDP. Private analysts disagree,

however, suggesting the economy

likely experienced a pronounced

contraction of close to 3% in 2009.

Official estimates regarding inflation

have also diverged widely from

Inflation will probably become a

major problem in 2010. While official

figures put annual inflation at 7%,

private estimates put it above 12%,

and projections for 2010 are at 20%.

More importantly, inflation could

soar far higher driven by a recovering

economy, expansionary fiscal and

monetary policies, and high wage

increases. Powerful labor unions

have already stated they will seek

wage hikes of around 25% in annual

negotiations to take place during the

first half of the year. The government,

in need of union support, is unlikely

to be able to moderate these claims.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Part of a successful midterm election campaign for the Democrats will be convincing voters that the party and its leaders can prudently manage the deficit. A combination of fiscal restraint and populist politics could very well result in tax hikes on financial firms, the wealthy, and multinational corporations. While the president will begin to build a case for restraining government expenditures and raising revenue in coming years, efforts this year will likely provide more show than go.

United States

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

asia paciFic

europe and eurasia


aBouT sponsors

(estimated at 10%–12% of GDP in

2009) will likely remain high in 2010,

thanks to the existing structural

deficit, a decline in revenue caused

by slumping economic activity,

stimulus spending, and exiting of the

bailout programs.

With midterm elections at the end

of the year, the Barack Obama

administration will likely promote

policies popular with middle-

class voters, such as making Wall

Street repay bailout funds. The

administration and Democrat-

controlled Congress will also face

competing pressures to support

job growth and the economy

while showing fiscal responsibility.

➔ The economy is continuing

to stabilize after a precipitous

drop in economic activity during

2008 and the first half of 2009.

The economy started to grow

again in the third quarter of 2009,

and it is projected to strengthen

throughout 2010. However, recovery

is expected to remain fragile, with

unemployment likely to hover

around 10% through 2010. High

unemployment, contributing to weak

consumer demand, will pressure the

government to further support the

economy. The government deficit

Democrats are likely to pass up to

$200 billion in additional stimulus

spending, some of which may

include middle-class tax breaks and

unemployment assistance.

Despite the looming elections, the

administration will not necessarily

move aggressively on organized

labor priorities. Though it must retain

the support of labor as November

approaches—and sensitivity to labor

interests will continue to restrain

the administration’s ambitions

when it comes to a proactive trade

agenda—issues such as “card check”

are unlikely to move ahead on labor’s

terms.

■ ■ ■


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


aBouT sponsors

of overheating, such as inflation.

This year’s growth prospects for

these countries are bright, and they

appear poised to extend their lead

over the rest of the region. In other

countries, where growth prospects

may be lower but are also on a

firm footing, such as in Australia,

Bangladesh, and South Korea,

government policy is also beginning

to shift to reflect changing priorities.

Elsewhere in the Asia-Pacific the

picture is slightly different. For

countries where growth, while

improved, is still fragile, their

respective governments are

relying on stimulus policies to

secure a stable return to growth.

Prospects for these countries rely

➔ The outlook for most of

the Asia-Pacific region in 2010 is

significantly improved from 2009,

with Japan being the only notable

laggard. For the region’s fastest

growing economies—led in 2009

by China and with India, Indonesia,

and Vietnam not far behind—the

focus for policymakers has shifted

from fiscal stimulus to deficit

management and reining in signs

on a combination of resurgent

global demand and their ability

to manage domestic political

distractions. In countries such as

the Philippines, Thailand, and

Malaysia, where domestic political

developments are likely to hinder

policymaking, prospects are less

certain. In others, such as Singapore

and New Zealand, where political

distractions will not pose a threat

to growth, economic performance

is likely to track regional and global

growth patterns more closely.

Japan is the region’s sole outlier.

Growth prospects remain tepid as

policymakers face the challenge

of dealing with deflation amid

continued political uncertainties.

■ ■ ■





Australia 8 9 Y 9 7 X 8 Y 8 7 8 7

Bangladesh 5 4 4 4 4 Y 4 3 1 4

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

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

India 6 4 7 X 3 Y 3 5 5 X 3 5

Indonesia 7 X 6 8 6 X 5 X 3 6 X 4 5 YJapan 7 Y 9 10 6 8 6 Y 7 9 7

Malaysia 6 Y 4 Y Y 7 5 X 7 6 4 7 7

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

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

Singapore 8 Y 8 Y 8 7 X 9 7 5 8 7 YSouth Korea 6 Y 9 7 6 8 5 X 5 Y 7 5 YThailand 4 Y 5 7 Y 5 7 7 5 6 7

Vietnam 7 X 5 8 4 X 6 5 4 4 7

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q1 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


aBouT sponsors


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Healthcare will top the reform agenda for 2010, although opposition support will be difficult to secure. The opposition rejected Rudd’s first health insurance bill last year. The government is expected to reintroduce the legislation in February, with the goal of implementing means testing for private health insurance rebates. Another negative vote would give Rudd the option to call an early election. The opposition spokesman on finance has urged the opposition to compromise, but opposition leader Tony Abbott remains adamantly opposed.

Australia

0

1

2

3

4

5

6

7

8

9

10





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


aBouT sponsors

economic recovery remains fragile.

Some economic fundamentals point

to a general recovery, including

stronger consumer confidence, as

well as a drop in unemployment

to 5.5% in December from 5.7%

the previous month. The improved

outlook could give the central bank

room to raise interest rates again in

March, following three hikes late

last year.

Rudd has been pushing his reform

agenda during 2010, outlining a

goal of 2% annual productivity

growth in order to increase GDP by

570 billion Australian dollars ($504

billion) by 2050. The demographic

shifts expected in that time frame

➔ Having been one of the first

OECD countries to recover from

the global economic downturn,

the Australian government is now

working to rein in budget deficits

that the Kevin Rudd government

says ballooned because of spikes

in government spending during

the boom years of John Howard’s

administration in the late 1990s and

early 2000s. Rudd’s stimulus plan

has been criticized for widening the

deficit, although Rudd has resisted

calls to reduce stimulus expenditures

on the grounds that the country’s

are of particular concern, and

Treasurer Wayne Swan is expected

to release a report in the first

half of 2010 on the budgetary

challenges associated with an

aging population. While the ratio of

retirees to the working population

is currently 1:5, it is expected to

fall to 1:2.7 by 2050, although that

number is an improvement from

previous estimates. Achieving

Rudd’s productivity growth target is

expected to require major economic

reforms that may be difficult in light

of current economic conditions and

anticipated opposition resistance.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

The government’s 2010 budget will focus on boosting growth and employment because elections are due by mid-2011. Although the ruling People’s Action Party (PAP) will comfortably win the next elections even if the economy remains weak, poor growth and high unemployment would increase support for the opposition and erode the PAP’s legitimacy. The PAP has governed since independence, and the party won 82 of the 84 elected seats in parliament in 2006, despite winning only 66% of the popular vote.

Singapore

0

1

2

3

4

5

6

7

8

9

10





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


aBouT sponsors

global demand for exports. A

slump in demand for Singapore’s

manufacturing exports in the

fourth quarter of 2009 led to a 7%

contraction, after growth had surged

in the second and third quarters

by 21% and 14%, respectively.

Nevertheless, the government,

which maintains sufficient fiscal

reserves to fund more stimulus,

can be expected to provide further

support for the economy if there are

signs that global demand is weak.

Despite the improving economic

picture, structural unemployment

among Singapore’s resident labor

force, which reached a seasonally

adjusted 5% in late 2009, is an

➔ Singapore’s economic

recovery is expected to gain

momentum in 2010, after it

performed better than expected

in 2009. The economy contracted

by just 2.1% in 2009, surpassing

earlier projections that it may shrink

by up to 9%. The government now

projects 2010 growth of between

3% and 5%, with the opening of

the first of two integrated resorts

in January 2010 expected to have

significant spillover effects for the

broader economy. However, the

projections also rely on improving

important concern. Foreign labor

from Malaysia, India, and China

has crept into the semi-skilled and

lower-skilled categories, displacing

local workers. At the same time,

higher-end professionals, managers,

executives, and technicians have

been displaced by expatriates who

are more willing to work on local

terms. In addition, by mid-year the

government is due to wind down

its Jobs Credit Scheme—a fiscal

stimulus package designed to

support employment by subsiding

salaries in companies that retained

workers during the global financial

crisis. This could have a negative

impact on employment, especially

manufacturing jobs.

■ ■ ■


Overview:Europe and Eurasia

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

term outlook is unclear. Fiscal politics

in the eurozone are becoming

increasingly volatile and uneven,

with dramatic implications for the

growth and inflation outlook as well

as the interest rate environment.

This situation will persist for some

time. Businesses and investors will

need to take careful account of

specific sector and firm implications,

suggesting a much more complex

and diverse business environment in

Europe for years to come.

Russia’s macroeconomic situation

is steadily improving after that

country saw the sharpest contraction

of any major economy during the

economic crisis. Social instability is

a risk, particularly in single-company

➔ Fiscal strains are a fast-

growing risk across Europe.

With a combination of extremely

high public debt, lax policy and

massive risks to competitiveness,

the situation in Greece is a huge

test of fiscal policy coordination

in the eurozone. In the near term,

Greece is likely to get support

from other eurozone countries to

prevent default, and its government

will launch a program of fiscal

consolidation. However, the longer-

towns. However, the government

has financial and coercive resources

at hand to limit the spread of

social instability, and unrest would

pose little threat to underlying

political stability.

In Turkey, factional politics will

largely block the legislative

process. Policy inertia is likely to

prevail throughout 2010, and the

prospects for progress on structural

reforms and the country’s bid for

EU membership are dim. With the

ruling party facing a marked decline

in its popularity, the temptation to

resort to populist policies will be

considerable, especially as the 2011

election approaches.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend


europe and eurasia – risk index summary TaBle – Q1 2010

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors




Baltics 6 6 8 4 7 3 5 7 3 YBelgium 6 7 Y 8 6 9 5 5 8 5

Czech Republic 5 Y 9 8 5 6 6 6 8 5

Denmark 7 9 7 7 X 9 6 5 8 6

France 7 8 Y 7 6 8 X 4 6 8 5

Germany 7 9 8 6 8 3 Y 6 9 4

Hungary 5 Y 8 9 5 Y 8 6 5 7 4 YIreland 5 9 8 5 9 6 6 8 4 YItaly 6 7 7 6 6 Y 4 5 8 5

Luxembourg 7 9 8 6 X 8 4 4 9 7

Netherlands 6 8 8 7 X 8 4 5 8 7

Norway 7 9 8 7 X 9 5 5 9 8

Poland 5 X 7 9 5 X 7 6 6 7 5

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

Serbia 6 5 7 3 6 X 5 4 6 2

Spain 6 7 7 5 7 2 8 8 3 YSweden 8 9 8 6 X 8 3 6 9 6

Switzerland 7 8 8 7 X 8 5 5 9 8

Turkey 8 X 6 Y 7 5 7 5 4 4 4 YUkraine 4 X 4 8 3 X 6 6 4 5 5

United Kingdom 7 Y 8 7 7 9 7 6 8 5


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Belgium will assume the rotating six-month presidency of the Council of the European Union in July. In addition to the government’s coalition dialogue, this post has the ability to slow reform, as policymakers divert attention to EU issues. Pension reform currently under consideration and many current unemployment benefit measures are only valid until the end of June. Further efforts to curb the relatively high unemployment rate face planning and implementation risk.

Belgium

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

continue Van Rompuy’s policies to

contain the deficit and the relative

stability across Belgium’s ethno-

linguistic boarders. The government

is to introduce levies on banks,

life insurers, and nuclear power

producers in 2010. The money from

these industries, which received

government aid during the crisis, will

then be used for VAT discounts on

construction projects and restaurant

meals. This has the potential to

increase demand and possibly spur

employment. Further support for

consumers will come from increased

unemployment benefits, including

additional ones for workers with

individual contracts.

➔ Belgium experienced 5.4%

year-on-year GDP growth in the

third quarter of 2009, while the

unemployment rate was 7.9%.

After Prime Minister Herman Van

Rompuy assumed the new post

of EU president in late 2009, Yves

Leterme replaced him. Leterme had

previously resigned from this role in

2008 amid a scandal over the rescue

of a financial group and complicated

government coalition building.

Leterme signaled that he would

More political tension may

follow as the French-speaking

south experiences a higher

rate of unemployment than the

Dutch-speaking north, with the

construction, manufacturing,

and services industries being the

most affected. Renewable energy

and renovation will benefit from

subsidies in Wallonia starting in May

2010. Employment prospects may

depend more on regional reforms,

because the government is slower

to implement changes and the

regions have different employment

situations.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

While officially the government has signaled that there is no broad-based credit crunch, studies show that businesses are facing increasing challenges in securing credit. Small and medium-sized businesses, which provide about 75% of jobs in Germany, are particularly affected. The government is crafting a proposal for banks to develop a fund to provide loans to medium-sized businesses. While the government would not be directly involved in the fund, it would absorb some of the banks’ associated risks.

Germany

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

to reduce employment subsidies at

the end of 2010.

The efficiency of short-term work

and similar programs depends in

part on the strength of recovery in

global demand in 2010, because

many of the firms using these

measures depend on export

sales. Recognizing the economy’s

overreliance on exports, the

government plans to increase

spending on education and research

to 7% of GDP by 2015 in order to

boost competitiveness and support

the labor market in the short term.

However, firms, such as those in

the auto industry, may still need to

make structural changes that would

➔ Germany has maintained a

relatively low unemployment rate

during the recession (currently about

7%), in part because of popular

short-time work programs, which

allow employees to work reduced

hours while continuing to receive

the majority of their wages through

government subsidies. However,

firms are facing pressure from

credit constraints—in addition to

continued weak demand—which

may hinder their ability to retain

employees as the government plans

necessitate layoffs in the near future.

In addition to supporting the labor

market, the government enacted

several tax breaks, which came

into effect in January 2010. These

include an increase in the childcare

allowance, a higher tax credit for

those with dependent children,

and VAT decreases for hotels—

amounting to €8.5 billion (about

$11.9 billion) in tax reductions thus

far, with more to come throughout

the year. However, these tax breaks

are not guaranteed after 2010, as

the government will likely attempt to

rein in its growing deficit.

■ ■ ■


Overview:Middle East and Africa

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

Iran, and Yemen, it is unlikely that

regional conflicts will have a broad

destabilizing effect on the GCC. The

countries will also likely coordinate

security policy more closely.

To the Persian Gulf’s west, 2010 will

be a mixed bag for the Arab states

of North Africa. Egypt and Morocco,

both relatively stable in the short

term, will continue to court foreign

investment with market-friendly

reform, while Algeria’s statist policies

will continue to hinder investment.

Israel withstood the worst of the

global financial crisis and is likely to

see a stable political environment

➔ In the Middle East, the

states of the Gulf Cooperation

Council (GCC) will slowly begin to

rebound from the global financial

crisis and the resulting recession in

early 2010. With higher oil prices

and generally stable politics, growth

will return to the region. And while

the GCC states will continue to

warily watch developments in Iraq,

in the short term, but as the year

progresses, tensions with Iran and

with Hizbullah in Lebanon could

temper that confidence. In sub-

Saharan Africa, states such as Ghana

and South Africa will remain broadly

market-friendly, but will also have

to contend with rising domestic

tension that could lead to policy and

reform slowdowns. On the upside,

Ghana’s new oil production may

provide a new source of cash for the

government, and a successful World

Cup this summer would shine a

positive light on South Africa.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend


middle easT and aFrica – risk index summary TaBle – Q1 2010

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors




Algeria 4 4 Y 4 4 Y 4 2 Y 5 3 2 Y

Egypt 6 5 Y 7 5 Y 5 6 3 3 2

Ghana 5 Y 3 8 3 X 4 3 5 2 3 Y Y

Israel 7 7 6 X 8 X 7 6 X 5 8 7 X

Kuwait 5 6 7 5 X 4 7 3 7 7

Morocco 7 X 5 8 5 6 5 X 4 X 3 X 5

Qatar 8 8 7 5 X 6 7 X 3 5 9

Saudi Arabia 7 6 6 5 X 6 7 5 6 6

South Africa 7 4 Y 6 5 6 Y Y 3 Y 6 5 3 X

United Arab Emirates 8 7 7 4 Y 5 8 4 7 6 Y


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

There is a high likelihood that Israel will reengage Hamas in the Gaza Strip in 2010. Hamas is likely to avoid provoking Israel, but at the same time it is trying to use the lull following Israel’s Operation Cast Lead in 2008–2009 to rearm. Any Israeli military action in the Gaza Strip will likely spark concerns about security in Israel in general, but Gaza campaigns actually have very little impact on Israel more broadly, including the business environment.

Israel

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

the move that would trigger a new

electoral season. The approval of a

two-year budget in 2009 means that

the usually rancorous annual debate

over spending will not happen in

2010, and that economic policy for

the most part remains in the Bank of

Israel’s (BoI) very competent hands.

Israel’s budget deficit is projected to

be approximately 4.9% of GDP for

2010, with a 2010 GDP growth rate

expected to approach 2%. Inflation

for 2010 is anticipated to be 3.9%,

and unemployment is expected to

rise to 8% by the middle of the year.

The combination of a calm domestic

political outlook and the economy

➔ Israel withstood the worst

of the global financial crisis and

is on a somewhat satisfactory

trajectory in the diplomatic

arena. These two factors have

contributed to a prevailing mood

of complacency that is likely to

continue throughout 2010. The

domestic political environment is

surprisingly stable and does not

appear to be vulnerable. Prime

Minister Benjamin Netanyahu has

constructed a durable coalition; no

party is likely to leave it in 2010,

appearing to be on the right track

will let Netanyahu dedicate time

and resources to international

diplomacy. However, it is also quite

likely that Israel will engage in

another military campaign against

Hamas in 2010. Iran, meanwhile, is a

much bigger concern for Israel than

either the West Bank or Gaza Strip,

but Netanyahu has shown that he is

willing to work with the US timeline

for seeing real Iranian commitment

to negotiations and the eventual

imposition of sanctions.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

South Africa’s media and advertising industry, which has slumped in recent months due to the economic recession, will rebound with the influx of millions of advertising dollars related to the World Cup. The month-long tournament will also bring in hundreds of thousands of tourists, providing an opportunity for local businesses to increase sales and advertise their brands to a global audience.

South Africa

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

dividends that it will yield for

President Jacob Zuma and the ruling

African National Congress (ANC),

tension over high unemployment

will continue to escalate. Radicals

within the South African Communist

Party and the ANC believe that

government economic policy has

been ineffective in dealing with

curbing unemployment and want

to push the government to adopt

more radical policies. Julius Malema,

leader of the ANC’s Youth League,

has pushed the government to

consider nationalization of the

mining sector, larger government

subsidies to unemployed

workers, and an accelerated land

redistribution program. On the

other hand, business sector interests

➔ South Africa’s 2009

economic contraction is easing,

and GDP growth for 2010 is

estimated by the IMF to reach

almost 2%. However, inflation

is currently running higher than

the central bank’s 6% target, and

unemployment remains high at 26%.

The central bank will be caught in a

conundrum between raising interest

rates to stave off inflation or easing

rates to support GDP growth.

Despite the national euphoria

surrounding the approaching World

Cup tournament and the political

will be concerned about the likely

corporate tax hikes needed to pay

for additional social benefits, as will

foreign investors.

Zuma, meanwhile, will come under

increasing pressure to reshuffle his

cabinet to address growing public

unease about unemployment.

Minister of Labor Membathisi

Mdladlana, despite being close

to the trade union leadership, has

lost credibility because of rising

unemployment and is at risk in any

cabinet shakeup. Alternatively, if

Zuma does not move Mdladlana

out of his portfolio, Zuma will ask

the minister of finance to increase

social subsidies in his February

budget statement.

■ ■ ■


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

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

About KellyOCG

KellyOCG is the Outsourcing and Consulting Group of Fortune 500 human resources solutions provider, Kelly Services, Inc. KellyOCG is a global leader in

innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent Workforce

Outsourcing (CWO), including Independent Contractor Solutions, Human Resources Consulting, Career Transition and Organizational Effectiveness, and

Executive Search. Visit www.kellyocg.com.

To Receive this Report

This report is available on an annual subscription basis. To access a complimentary report abstract, and for full subscription details, visit kellyocg.com/marketbrief

More Information

To find out more about how the KellyOCG / Eurasia Group partnership can add insight to your global planning, please contact [email protected]

exiT

mailto:[email protected]


kellyocg.com/marketbrief

www.kellyocg.com/marketbrief