Q4 09 Global Market Brief & Labor Risk Index

Think ouTside.

Global Market Brief & Labor Risk Index

2009 4meThodology sample reporT only

www.kellyocg.com

www.eurasiagroup.net

Global Market Brief & Labor Risk Index

2009

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. © 2009 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 china

21 hong kong

22 india

23 indonesia

24 Japan

25 malaysia

26 new Zealand

27 philippines

28 singapore

29 south korea

30 sri lanka

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: pudong district, shanghai, china © 2009 Alex Nikada

gloBal markeT BrieF & laBor risk index Q4 2009

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

management of labor pools and

expectations of future labor markets.

On the upside, Japan, Australia,

China, and India all sidestepped the

worst of the downturn. Germany

and France beat the US to show

economic improvement, but the US

and Canada now appear on track for

a protracted recovery. Aggressive

fiscal spending backed by strong

domestic demand and lowered

macroeconomic vulnerabilities has

perhaps put Brazil in the best position

for recovery, while African and Middle

Eastern countries are also responding

positively to the turnaround in

commodity demand from the world’s

leading economies.

However, arriving at this point has

revealed structural shortcomings

and exposed the reluctance of

governments to undertake reforms,

particularly in labor markets.

Argentina and Venezuela risk labor

tension in the face of inflation and

real wage destruction. Russia’s

economic turnaround is dependent

on oil prices instead of real reforms,

with unemployment potentially

rising again. The same trend is at

work in Africa where resource-rich

countries used the downturn as an

excuse to avoid making difficult

decisions to improve labor markets.

Asian economies by and large have

spent their way out of the crisis and

chose to put off structural reforms for

sunnier days, which means that the

coming year will be characterized by

continued labor market inflexibility.

Lastly, the US’s labor markets will

remain fragile for the foreseeable

future, while Europe is still very

vulnerable to credit and liquidity

risks, with subsequent risks to

labor markets.

■ ■ ■

➔ While the global

macroeconomic picture may look

more stable, labor markets are still

on shaky ground. Many of the world’s

economies are navigating out of

the economic downturn, with some

tentatively swinging upward and

others just now bottoming out. But

many of the strategies deployed to

weather the recession have strained

underlying structural fundamentals

and squeezed countries’


➔ The 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.

Methodology 4 economic

This variable captures the current

health of the macroeconomic

environment and the stability

of future economy activity

by aggregating measures of

government fiscal stability, the

monetary environment, national

account balances, and economic

growth.

5 policy environment

for Foreign investment

This variable measures how

hospitable the policy and regulatory

environment is for foreign investment

by assessing the extent to which

there are barriers to economic

activity, particularly cross-border

activity, and the degree to which the

economy is a destination for foreign

investment.

laBor risks

6 Flexibility

This variable considers the flexibility

that employers have in managing

human resources, the ability of labor

to engage in collective action, and

the potential for the labor regulatory

environment to change.

7 availability

This variable incorporates migration,

urban population, the size of the

labor force, and the extent to which

women participate in the labor force

as a measure of the availability of

labor in the economy.

8 Quality

This variable considers measures

of the education and skill level of a

labor force, a measure of the general

health of the population, and labor

productivity.

9 (dis)content

This variable examines the

potential for near-term labor unrest

by aggregating factors such as

unemployment and assessments

of the likelihood of labor unrest by

subject matter experts.

■ ■ ■

For all variables, scores range

from 1 to 10, where 1 is ‘high risk’

and 10 is ‘low risk’.

macro risks

1 political

This variable captures regime stability

by assessing popular legitimacy,

which is in part influenced by how

well the government functions, and

the regime’s ability to enforce policy

compliance.

2 social

This variable captures the extent to

which ethnic and other minorities are

engaged in social or political conflict,

controlling for the mitigating effects

of the socioeconomic wellbeing of

the population and the equality of

wealth distribution.

3 security

This variable is a function of the

existence or risk of armed conflict

(either domestic insurgencies or

cross-border threats) and internal

personal security issues.

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


Overview: The Americas

government’s stimulus efforts and

a pickup in commodity prices. The

US and Canada are also showing

positive signs of a turnaround, but

a fragile labor market in the US

and subdued manufacturing and

exports in Canada will likely translate

into a more modest, protracted

economic recovery. At the other

end of the spectrum, Argentina

and Venezuela, while also showing

signs of bottoming out, are likely to

struggle to restart economic growth

because of their negative policy

mixes, which continue to discourage

investment and have produced

heavy economic distortions such as

➔ Most countries in the

Americas appear to have reached

or are approaching bottom after

several quarters of economic decline,

and are beginning to show tentative

signs of economic recovery. Brazil

appears to be the best positioned

of all, with GDP growth projected

to be flat this year and as much

as 4.5% in 2010, thanks to the

double-digit inflation. The recovery

of the labor market will go hand-in-

hand with the scope and size of the

economic recovery throughout the

region. While unemployment levels

are already beginning to decline

in Brazil and Canada, they remain

stubbornly high elsewhere in the

Americas. Labor tension is also on the

rise in some of the region’s economic

laggards, particularly Argentina and

Venezuela, where both the Cristina

de Kirchner and Hugo Chavez

administrations are struggling to

increase wages alongside inflation.

■ ■ ■

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuala

asia paciFic

europe and eurasia


aBouT sponsors


macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality (dis) content

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

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

Canada 6 Y 8 10 7 X 8 7 8 9 6 Y

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

El Salvador 6 6 5 5 X 7 4 4 5 6 Y

Mexico 6 6 5 X 5 X 7 3 X 4 6 6 Y Y

United States 8 8 Y 7 6 Y 9 7 7 8 7 Y Y

Venezuela 7 5 6 3 2 2 5 5 1 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 – Q4 2009

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuala

asia paciFic

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

The Cristina Fernandez de Kirchner administration emerged weakened from its defeat in the June elections. The government, however, has resisted pressures to adjust to economic policy. In fact, it has intensified its battles with the media and the farming sector. Political tension will increase further in March 2010 when the newly elected congress is installed.

Argentina

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10

Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality (Dis)content

NXÇÅ

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuala

asia paciFic

europe and eurasia


aBouT sponsors

elections, had pushed to delay

annual wage negotiations between

companies and unions. Following the

vote, the government announced a

21% increase in the minimum wage.

Earlier in June, the local teamsters

and metal workers—considered

the labor movement’s benchmark

negotiators—had obtained 17% and

16.5% wage increases, respectively.

Elsewhere, labor tension continues

to rise. Massive violent protests

erupted in the oil and gas producing

provinces of Santa Cruz and Chubut

in August and September. The

oil workers’ unions in these two

➔ According to recent

indicators, Argentina’s economy has

hit bottom and may soon experience

a mild recovery, helped by improving

global economic conditions. But

political uncertainty and pressures on

the private sector will put a limit on

its recovery. For example, a recent

round of wage increases confirms

that labor activism remains high. The

government, which was keen to keep

labor tension at a minimum before

the 28 June midterm legislative

provinces are among the most active

in Argentina, but conflict intensified

this year as oil production dropped

along with the decline in oil prices

and the deteriorating regulatory

environment. In another sector, a

conflict involving Kraft Foods turned

violent in late September, after the

company refused to reinstate 157

workers fired in July. These types

of protests will likely continue as

unemployment and inflation remain

high in spite of the country’s mild

economic recovery.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

A bumpy and uneven economic recovery seems to be emerging in the US as businesses resume production and consumers open their wallets. Financial markets are stabilizing and credit risk normalized, but a glut of unemployed and under-employed mean the broader recovery will be painstaking.

United States

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conTenTs

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The americas

overview

risk index

argentina

Brazil

canada

chile

el salvador

mexico

united states

Venezuala

asia paciFic

europe and eurasia


aBouT sponsors

are improving, financial markets

are rebounding, and residential

construction and home sales are

recovering—though this is partially

due to government support

programs like Cash for Clunkers and

a generous homebuyer tax credit.

The recent bounce in the equities

markets might portend a wider

recovery.

However, the unemployment rate

is approaching 10% and there is

concern that the pace of recovery will

not be enough to reduce the large

number of job seekers. The labor

market remains extremely fragile—

➔ A gradual and tentative

recovery is gathering pace in the

US, but there is some doubt about

the economy’s underlying strength

and durability. Nevertheless, the

steep decline in GDP halted mid-

year, bringing an end to the worst

single-year performance in the

postwar era. The improved result

was propelled by modest business

and consumer spending, and an

end to the rundown in inventories.

Corporate and consumer confidence

reflected by an unanticipated

jump in layoffs in September and a

contraction in the labor participation

rate, as discouraged workers

drop out of the labor market. This

could put pressure on the Obama

administration and Congress to show

that the costly stimulus package

is working or to pursue additional

stimulus measures. On current trends,

an economic recovery will be modest

in the latter half of 2009 before

increasing to a 2%–3% GDP growth

range in 2010.

■ ■ ■


Overview: Asia Pacific

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

sri lanka

Thailand

Vietnam

europe and eurasia


aBouT sponsors

the global economic downturn, and

growth projections across Asia have

been bumped upwards.

Going forward, however, some

Asian governments may be hard-

pressed to maintain their current

spending levels—particularly if the

US and other foreign markets do not

pick up significantly in 2010. Much

of Asia’s recent growth has been

supported by government stimulus

spending, rather than a recovery

in the region’s export markets. The

global downturn has also highlighted

a range of structural problems in the

Asian economies, including inflexible

labor markets. As a rule, Asian

governments prefer to spend money

at home and hope for a recovery

abroad rather than tackle politically

difficult reforms.

➔ The Asia-Pacific region

showed concrete signs of recovery

in the second quarter. Among the

region’s largest economies, Japan

returned to positive growth and

China accelerated by almost two

percentage points. Australia avoided

a technical recession with just one

quarter of negative growth, and

its central bank has been the first

to raise interest rates among the

industrialized countries. Meanwhile,

India remained very little affected by

National politics are also affecting

economic prospects in Asia. On the

upside, political stability in Malaysia

and a strong mandate for the

incumbent president in Indonesia will

allow these governments to focus on

fostering economic growth. On the

downside, continuing political chaos

in Thailand is hampering effective

policymaking. Perhaps the biggest

political story in recent months is

the victory of the Democratic Party

of Japan (DPJ) in recent elections,

ending decades of rule by the Liberal

Democratic Party (LDP). The new DPJ

government is likely to move ahead

with stimulus plans to boost social

spending in a long-term effort to

increase private consumption. Many

countries in Asia could benefit from

similar goals.

■ ■ ■





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

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

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

India 7 5 5 5 X 5 5 5 3 5 Y

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

Japan 8 X 9 10 6 8 X 5 Y 5 9 9 Y

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

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

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

Singapore 9 Y 8 Y 8 6 Y 9 7 6 8 8 Y

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

Sri Lanka 6 4 Y 8 4 Y 5 Y 5 4 4 6 Y Y

Thailand 4 X 5 8 4 X 7 5 5 6 7 Y

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

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q4 2009

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

sri lanka

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

The latest investment announcements by developers of the massive Gorgon LNG field in Western Australia highlight the bullish sentiment surrounding Australia’s LNG sector, which is expected to be a massive job creator in Western Australia and Queensland. The greatest risks to developers are environmental activism and Australia’s emissions trading program that covers the LNG sector. Nevertheless, state governments are actively promoting development of gas fields, thereby moderating regulatory threats.

Australia

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conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

sri lanka

Thailand

Vietnam

europe and eurasia


aBouT sponsors

was shorter and shallower than

forecasted, with just one quarter

of negative economic growth. The

Reserve Bank predicts a return to 3%

GDP growth in 2010 and has also

cut the forecast for unemployment,

originally expected to reach 8.5%.

The better than expected outlook

has been helped by continuing

strong export demand from China,

especially for major resources such as

iron ore and coal. The government’s

spending initiatives—targeted at low-

to middle-income households, the

building and construction sector, and

major infrastructure projects—have

also helped sustain business and

➔ Australia’s central bank

became the first in the industrialized

world to raise official interest rates in

what is seen as a harbinger of a fuller

and more widespread economic

recovery. The Reserve Bank was

one of the swiftest in cutting rates

in the immediate aftermath of

the global financial crisis. And in

October it raised the cash rate from

3.00% to 3.25%. Australia is one of

the few nations to narrowly avoid

an economic recession, at least

in a technical sense. Its downturn

consumer spending. The government

is so far resisting political pressure to

withdraw spending from its February

stimulus package, worth some 42

billion Australian dollars ($27 billion).

It is under no fiscal pressure to reduce

spending given that the country’s

debt-to-GDP ratio is roughly 14%, a

level that is modest by in comparison

to other developed economies. Now

the task at hand is to manage the

economic recovery, which will likely

include further interest rate hikes.

■ ■ ■


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

One growing concern is the rapid population increase over the last two years, to 5 million. Foreigners make up 1.25 million of that number—an increase of 500,000 from 2008—and the number of permanent residents has risen to a total of 533,000. Further rapid increases in population size in the near term would put excessive strain on the country’s current infrastructure. Existing government projections only plan for the population to hit 6.5 million in the next 20 years.

Singapore

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The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

philippines

singapore

south korea

sri lanka

Thailand

Vietnam

europe and eurasia


aBouT sponsors

is in place. The property market

improved in July, and there has been

an increase in the number of new

business startups.

Singapore has seen fewer layoffs

and more job openings over the

past quarter. Unemployment has

remained lower than expected, at

about 3%, due in part to the 4.5

billion Singapore dollars put into the

government’s Jobs Credit Scheme.

Under the scheme, the government

has paid employers 12% of each

employee’s monthly wages, up to

2,500 Singapore dollars per month.

The government has extended the

scheme for an additional six months

beyond the previous deadline

➔ Singapore is showing

promising signs of a return to strong

growth. The country’s economic

rebound, which began in the second

quarter of 2009, is expected to

continue for the remainder of the

year, although overall growth for

2009 is expected to remain negative.

There has been some improvement

in the manufacturing sector,

which accounts for a quarter of

Singapore’s economy. Electronics and

pharmaceuticals in particular have

shown signs of improvement. Other

indicators also suggest a recovery

of December 2009, although at

stepped-down rates of 6% and

3% respectively for the next two

quarters. Despite the wage credits,

the manufacturing industry continues

to see job losses, although the rate

has slowed. Employment in the

construction and services industries

has slowly begun to improve.

Nevertheless, any sustainable

recovery in Singapore’s economy will

rely on the return of global demand.

Singapore remains one of the most

trade-dependent economies in the

world, with a trade-to-GDP ratio of

more than 300%.

■ ■ ■


Overview:Europe and Eurasia

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


aBouT sponsors

in the private sector, as banks use

ECB funds to purchase government

debt. The future tax policy

consequences of these responses

are uneven, but increases are likely

almost everywhere.

Similar risks are evident in Russia,

though there have been some

recent bright spots—notably a

decline in unemployment, which

has been well received by Russian

policymakers. However, the Russian

economic recovery remains tentative

and fragile. The economy is highly

vulnerable to a correction in oil prices

and to any return of the global credit

squeeze that plagued markets in

early 2009. Additionally, there are

concerns that seasonal factors, rather

➔ Strains in the financial and

real economy are evident across

Europe and Eurasia, despite data

showing slight growth in some key

countries. In eastern Europe, credit

and liquidity factors are worse than

in western Europe, and the health

of the banking sector is an ongoing

uncertainty. The European Central

Bank’s liquidity-boosting operations

seem to have helped minimize

sovereign financing risks, but this may

result in a crowding out of investment

than an underlying improvement in

the economic environment, have

supported employment levels and

that unemployment may begin to rise

again toward the end of the year.

In Turkey, growing debt and deficits

are a major concern. However, a

new stand-by agreement with the

IMF would provide cheap financing

and leave more room for private

borrowing in domestic debt markets.

Still, budget cuts are a major political

challenge because the government

is wary to take such measures in

advance of the 2011 election.

■ ■ ■


political social security economic Foreign Flexibility availability Quality (dis) content

Baltics 7 7 8 4 7 3 5 7 3

Belgium 6 7 8 6 8 5 6 8 6

Croatia 6 X 8 8 5 7 5 6 7 4

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

Denmark 7 9 8 7 9 6 5 8 6

France 7 8 7 6 8 4 6 8 5

Germany 7 X 9 8 6 8 X 5 6 9 3

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

Ireland 6 9 8 6 9 6 6 8 5

Italy 7 8 7 6 6 4 6 8 5

Luxembourg 7 9 8 7 7 5 5 9 7

Netherlands 6 8 8 6 8 5 5 8 8

Norway 7 9 8 6 9 4 5 9 8

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

Portugal 7 8 7 6 7 Y 2 6 X 7 5

Romania 6 Y 6 7 3 6 4 5 6 3

Russia 7 Y 6 Y 6 6 X 6 6 7 6 5 YSpain 7 7 Y 7 6 7 2 8 8 3

Sweden 8 9 8 7 8 4 6 X 9 6

Switzerland 7 9 8 7 8 6 5 9 8

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

Ukraine 4 Y 6 X 7 2 5 6 6 5 5

United Kingdom 7 8 6 6 9 6 6 8 5

very positive trend

positive trend

negative trend

very negative trend


europe and eurasia – risk index summary TaBle – Q4 2009

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


aBouT sponsors


very positive trend

positive trend

negative trend

very negative trend

current quarter

prior quarter

current quarter

prior quarter

low risk

high risk

Belgium’s economy remains stuck in recession and unemployment is uncomfortably high. The export-driven economy has limited scope to dictate its own fortune and will rely heavily on the economic performance of France and Germany, which in turn reflect broader global demand drivers. Accordingly, lawmakers and officials may have relatively limited scope for policy responses.

Belgium

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preFace

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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


aBouT sponsors

government spending has held up

reasonably well and helped to boost

public investment. This is, however,

a reflection of a political decision,

rather than recovering fundamentals.

In addition, declining tax revenues

mean increasing governmental

financing needs. This suggests future

tax increases.

Labor unions are strong politically,

and they are increasingly

assertive in terms of demands

on the government to deal with

employment declines. This political

action could limit wage declines

associated with broader demand

trends—a situation not uncommon in

much of Europe.

➔ Unemployment is an

increasingly pressing concern. The

jobless rate has topped 8% as the

country remains locked in a yearlong

economic decline. GDP dropped by

0.3% in the second quarter of 2009

and is down 3.7% over the course of

the year. However, the rate of decline

is slowing, raising hopes that the

economy will shortly see some uplift

in the wake of stronger performances

from the major European economies

of France and Germany. And while

household spending remains weak

(it has not grown for five quarters),

The policymaking efficacy of the

Belgian political system is often

compromised by the divide between

the country’s ethno-linguistic groups.

While this is not a new phenomenon,

economic pressures make it a larger

problem. In addition, because a

good deal of governing responsibility

is at the local level, the ability to

implement public works programs

and other responses that might help

alter the demand outlook is more

complicated than in many other

countries.

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very positive trend

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current quarter

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A significant political battle is brewing over tax cuts. Elements within the Christian Democrats, backed by the Free Democrats, want to push tax reductions. However, the chancellor maintains support for a balanced budget. The issue cannot be easily resolved, but the breakdown of the prevailing consensus on the budget could have some spillover effect, leading to more divergent fiscal policy in the eurozone as a whole—which in turn could have important implications for wages.

Germany

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The americas

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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


aBouT sponsors

September elections gave a very

narrow majority to a coalition of

the Christian Democrats and the

Free Democrats, ending a four-

year arrangement under which the

Christian Democrats had to rely on

their usual opponents, the Social

Democrats, as a coalition member.

While this will bring about a more

ideologically consistent government,

serious strains are likely to emerge,

particularly over tax and broader

fiscal policy. In addition, Chancellor

Angela Merkel could face leadership

contests as the new term progresses.

The new government is likely to

push back against political pressures

for wage hikes, and will oppose

➔ While Germany posted very

narrowly positive GDP growth in

mid-2009, significant risks remain. In

addition, this data may simply reflect

one-off measures, such as a widely

utilized car-scrapping program or

monetary loosening carried out by

the ECB. Serious risks to the banking

sector remain, and a number of firms

are under heavy pressure. In addition,

the global demand outlook—vital

given how important exports are to

the German economy—is still

very uncertain.

efforts to establish a minimum

wage. This bodes well for labor cost

containment. However, while the

Social Democrats performed very

poorly, it is that party’s centrist bloc

that will suffer. As a result, the Social

Democrats could begin to push for

more aggressive wage increases

and other benefits that would raise

costs to employers. They may also

be politically strengthened if new

leadership is able to ally with the

Left party—something the outgoing

leadership refused to do. The current

strength of the center-right does

not mean these risks should be

taken lightly.

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Overview:Middle East and Africa

conTenTs

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overview

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algeria

egypt

israel

kuwait

morocco

nigeria

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

economy, they are also trying to

design new labor policies and

develop reliable human capital, which

appeared to be lacking as they tried

to manage the global financial crisis

domestically. Some nations such

as Saudi Arabia have revived major

educational projects. Others—such

as Kuwait, Qatar, and Bahrain—are

implementing new labor laws that

would raise the skill level of their

workforces. Many Gulf leaders

now admit that they need to make

labor conditions more attractive by

providing workers with the freedom

to choose their employer and

manage their employment contracts

as they wish. By creating better

working conditions in their countries,

governments hope to attract high-

quality managers, who can train a

native workforce and make it more

competitive.

➔ As commodity prices rise,

many countries in the Middle East

and Africa are starting to operate

under the assumption that the

recession is nearing an end. But

the global financial crisis exposed

significant shortcomings in a number

of political and economic systems.

Many leaders are now considering

new economic and labor policies to

avoid future financial shocks, but in

almost all cases the state will remain a

key actor in the local economy.

While many Middle Eastern

governments are focused on

strengthening their role in the

With respect to Africa, commodity-

dependent countries such as Algeria,

Zambia, Angola, and Uganda

seem to have recovered from the

initial shock and consequences of

the global economic crisis. Many

governments in the region view

2010 as a year of relative economic

growth, but they also must deal

with structural challenges, which will

keep them exposed to potential

volatility. Widespread concerns about

economic instability across Africa has

fostered corruption at the highest

levels and weakened the notion of

good governance and transparency.

This could gradually discourage

foreign investors and keep these

economies in a state of stagnation.

Short of addressing these issues,

many African governments will not

be able to withstand another shock.

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Algeria 3 Y 6 4 X 4 Y 3 3 5 4 3 Y

Egypt 6 7 8 5 6 X 5 4 4 1 Y

Israel 5 7 5 Y 8 X 8 X 4 4 8 6 Y

Kuwait 3 Y 7 7 5 4 7 X 4 X 8 7 X Y

Morocco 7 6 9 5 X 7 X 4 4 4 X 5 Y

Nigeria 5 Y 2 3 3 Y 5 6 5 2 Y 2 Y

Qatar 8 X 8 7 6 X 6 6 4 6 Y 8

Saudi Arabia 8 X 7 5 Y 6 7 6 5 6 5

South Africa 7 5 5 Y 5 7 3 Y Y 7 5 3

UAE 7 8 8 4 Y 6 Y 7 5 8 7

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middle easT and aFrica – risk index summary TaBle – Q4 2009

conTenTs

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algeria

egypt

israel

kuwait

morocco

nigeria

Qatar

saudi arabia

south africa


aBouT sponsors


very positive trend

positive trend

negative trend

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current quarter

prior quarter

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prior quarter

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high risk

Although a confrontation between Israel and Hizbullah is relatively unlikely in the near term, the Lebanese militia has reportedly acquired new missiles with ranges that can reliably target Haifa and Tel Aviv. If Israel and Hizbullah descend into conflict, there would likely be an exodus of workers from Haifa and Tel Aviv, and economic activity would be severely constrained.

Israel

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economy, which in turn is pushing

up the unemployment rate. The

Bank of Israel opted to leave interest

rates unchanged for October, in

part due to conditions in the labor

market and the stronger shekel,

which increased by 2.6% against the

dollar in September. Unemployment

continues to rise, although at a slower

pace than during previous recessions

(notably 2001–2003) and it appears

to be remaining at a lower rate than

the central bank anticipated.

Because of its strong alliance

with Histadrut, the Israeli labor

organization, the prime minister’s

➔ Israel looks to be emerging

ahead of most countries from the

global slump, thanks to proactive

measures by the Bank of Israel and

stimulus spending by the normally

fiscally conservative Prime Minister

Benjamin Netanyahu. In September,

Bank of Israel Governor Stanley

Fischer was the first central banker

in OECD countries to raise interest

rates. Nonetheless, the continuing

weak US dollar is prolonging troubles

for Israel’s export-dependent

office is likely to be very mindful

of labor conditions and the

unemployment rate. In fact, it has

taken a very solicitous approach to

firms that are considering layoffs

or shutting down, offering tax

breaks and other incentives to keep

employees on the payrolls. Israel’s

unemployment rate is likely to

continue to rise slightly in the coming

months, but it will stabilize when the

dollar strengthens and Israel’s exports

rebound.

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very positive trend

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current quarter

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Annual crime statistics show a 3.4% decrease in the murder rate compared to the previous year. However, the murder rate remains one of the highest in the world, while the number of rapes, robberies, and hijackings increased from recent years. The government has committed additional resources to fighting crime ahead of the FIFA 2010 World Cup.

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and unions, which form a key part of

his support base. The Congress of

South African Trade Unions (Cosatu)

is becoming increasingly vocal in

its calls for policy change, which

include banning temporary labor

brokers and amending the monetary

policy regime. Zuma’s government is

unlikely to yield to most of Cosatu’s

demands, but the resulting tension

could cause policy paralysis as they

filter through to similar disputes

within cabinet.

The policy challenges ahead are

formidable. Despite a decline in

poverty levels, improved access to

➔ After a quiet first 100 days

in office, President Jacob Zuma

is starting to play a more active

political role and his authority is

growing. He signaled his intention

to ensure better policy coordination

and implementation with solid initial

appointments and the formation

of a national planning commission,

headed by former finance minister

Trevor Manuel. But Zuma’s leadership

will be tested as he tries to balance

the competing interests of business

potable water, and better school

attendance, levels of inequality are

growing. But 13 million citizens

are now recipients of social grants.

The real economy has come under

significant pressure from the global

economic crisis. In response, the

government has indicated that it will

maintain public spending, but with

revenue collection falling, the budget

deficit will widen. Difficult decisions

will have to be made if fiscal

discipline is to be maintained.

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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

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

Executive Search. Visit www.kellyocg.com.

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