A summary of the report
2019 is already shaping up to be a year of protests. Europe has experienced a new type of protest, originating in England with the Extinction Rebellion movement that paralysed parts of London for several days in the spring to condemn the failure of governments to tackle climate change. Other countries have seen school children and students rallying in response to calls for action on climate change from Greta Thunberg and a new generation of activists appealing on behalf of the planet.
But there have also been many examples of large-scale protests of the traditional kind. The ‘yellow vest’ movement in France, originally formed at the end of last year to protest an increase in fuel prices, was able to secure a change in policy from President Macron after a two-month series of consultations at town halls across France at which disillusioned voters conveyed their grievances to officials. Argentina is just one of the countries in the Willis Towers Watson Political Risk Index that has seen national strikes and demonstrations against the rising cost of living, with the government of President Macri responding by freezing the price of a range of food and consumer goods.
In many cases, protests can serve as an important outlet for social grievances, allowing people to come together to share their experiences and literally demonstrate their opinions and concerns. In most countries, and in most cases, the police and security services are able to keep demonstrations peaceful and within recognised limits. The government gets a first-hand sense of one aspect of public opinion, while those taking part enjoy a sense of participation, expression, and solidarity.
We take note of protests and demonstrations when thinking about political risk, usually including them among the factors that can influence government behaviour towards the business sector but factoring them into the political violence risk only when necessary. For example, several Latin American countries in the Index, including Colombia, Ecuador and Peru, have long experience of protests against mining operations by local communities, and these can affect government attitudes to the mining sector. Sometimes, although it is relatively rare, demonstrations of sufficient scale can precipitate changes in government. As we saw in the last edition of the Index, a largely spontaneous mass protest movement in Algeria succeeded in getting the president to step down and continues to frustrate the military’s efforts to engineer the outcome of a new presidential election.
In political risk terms, the greatest danger to stability associated with most demonstrations comes not from the protesters but from the potential response by the security forces. Harsh treatment of demonstrators can trigger a backlash that brings more people onto the street to protest the actions of police, creating a vicious circle of protest and repression while undermining the legitimacy of the governing authorities.
Two of the largest countries in the Index have experienced protests in recent months that have posed particular problems for their governments. The first is Russia, where a refusal to let opposition candidates stand in a relatively obscure municipal election in Moscow ended up with mass arrests as security personnel attacked the demonstrators. While three protests about the election went ahead with approval during July and August, each attracting 50-60,000 people, other unauthorised gatherings were met by a heavy-handed response which produced more than 2,000 arrests, half of them on one day.
However, observers noted that the police, which answer to the mayor’s office and the interior ministry, were reluctant to engage physically with the protesters. Instead, it was members of the National Guard, which reports directly to the Kremlin, who used brutal baton charges to break up the largely peaceful demonstration. This suggests different attitudes at senior levels in Russia over how to respond to demonstrations. Should they be tolerated as means of venting pent-up frustration or displaying genuine opposition to a specific policy, as was the case with the demonstrations last year against raising the pensionable age that resulted in changes to policy? Or should they be harshly broken in a display of state power that shows protesters the futility of trying to impact government?
The debate about how to balance conciliation and force when responding to protests has the potential to become a major dividing line among the leadership in Russia, and it may need to be settled sooner than many might think. Two of the main lessons of this summer’s protests were, first, that apparently minor events such as the status of candidates for a municipal election can become triggers for large-scale mobilisation and, second, that many of the demonstrators were young and seemed less intimidated by the use of police violence and detention than would have been the case as recently as the last significant protests in Russia during 2011-12.
Since 2018, protests have become more common in Russia. They are usually centred on local or regional issues and will often have an environmental focus. It appears that, as more young people participate in demonstrations about the treatment of the environment, or know someone who has, they become more prepared to participate in more overtly political protests. How should the authorities respond?
The other large country struggling to find an effective response to continuing student-led protests is, of course, China. The original protests in the spring were against the Hong Kong legislature’s consideration of a bill that would allow extradition to mainland China. However, by the time that Beijing allowed the bill to be withdrawn, the main issue had become the way in which police had used violence against demonstrators who posed no threat. The main demand had now become an independent inquiry into police conduct. The result was that protests still continue at weekends, given a new lease of life by those who see in the police conduct a reason to demonstrate that the extradition bill by itself did not provide.
In political risk terms, these demonstrations, both showing a heavy percentage of youth involvement and both raising concerns about the appropriate nature of the police response, suggest the difficulty that even countries like Russia and China may increasingly have as they search for the most appropriate response to political protest.
The Willis Towers Watson Political Risk Index contains 40 countries, and recent editions have exhibited a clear trend in which more countries have a rising overall risk score, indicating an increase in political risk, than a falling score. In mid-2018, we still had 20 countries whose scores were falling, denoting less risk, compared to 14 whose scores were rising. But by the final edition of 2018, the Index had moved firmly into negative territory as 18 countries posted a rising score while only 13 saw their overall scores go down. In our first edition of 2019, the number of countries with rising scores had risen to 25.
The previous edition of the Index, the second for 2019, showed something of a pull-back from this negative trend, with only 17 countries posting a rising score compared to 19 with lower risk scores. The question then was whether this represented merely a lull before a continuation of the negative trend or, instead, signalled a more fundamental change of direction.
The scores in the current Index provide something of an answer. Countries with rising risk (18) once again outnumber those with falling risk (15), while a relatively high number of countries (seven) have scores that are unchanged. The previous results do indeed look like a pause for breath before the concern about political risk resumes. While there are fewer countries with a rising score than at the start of the year, the fact that rising scores again outnumber falling ones means that political risk continues to rise across the Index as a whole. As we approach the end of 2019, it is hard to envision a major shift away from this trend during 2020.
As long-time readers will know, the overall score for each country is derived from the ratings for five individual risk categories: expropriation, political violence, terrorism, exchange transfer and trade sanctions, and sovereign default. It is also worth noting here that it is rare to find a country that has all of its sub-categories moving in the same direction, with most posting a mix of rising, falling, and stable numbers. In this edition, no country managed to have all five categories moving in unison, although Indonesia, Tanzania and Ukraine each came close.
These internal dynamics tend to reduce the instances of large or sudden movements once we have applied the algorithm that converts these individual category scores into a single overall number for each country. As a result, movements of country scores by one or two points in either direction may appear small but represent a considerable degree of change.
A headline overview of the country scores in this edition would note that Venezuela, with a score of 90, again tops the Index as the only country in the Extreme Risk category. However, its score has fallen back from 92 as both sides in the long-running clash between a beleaguered government and a fragmented opposition appear to tire and compromise becomes marginally more likely. Zimbabwe is the only other country to have a score above 80, remaining on 81, but with the expectation of a higher score next time. Of the three countries with scores in the 70s, making them High Risk, Zambia is the most worrying. With an expropriation score up by three points to 72 as the government squeezes the crucial mining sector and a sovereign default score of 86, the future looks grim as the governing Patriotic Front attempts to push through changes to the constitution. Argentina is also a concern, with an overall country score that is also up by three points.
On the positive side, Indonesia, a country which we have been watching closely for some time now, is down by three points as the extraordinary undertaking of holding presidential, legislative, regional and local elections on the same day passed off largely without incident or subsequent disruptive protests. Of the countries whose scores fell by two points, Ukraine has been helped by falls in a number of risk categories including political violence, where it now has one of the lowest scores in the Index, while Gabon has been helped by the return of its president from medical treatment abroad. A few countries, including Kenya and the Philippines are now posting falling scores after rising last time.
Turning to the first of the five individual risk categories that make up each country’s overall score, expropriation risk maintains the near equality between countries with rising scores (16) and those with falling scores (15). This time, however, we have four countries showing a rise of four points in this category. In Algeria, the problem is the extent to which corporate operations are being caught up in a wave of corruption allegations against leading businessmen with apparent links to former president Abdelaziz Bouteflika. In Argentina, investors already dealing with a contracting economy and a limited price freeze are now bracing for the expected return to power of former president Cristina Fernández de Kirchner. We have noted before the Peruvian government’s hesitancy to support mining companies in the face of local environmental concerns, but the rescinding of earlier approval for operations to start at a long-delayed copper mine in Arequipa contributed to Peru’s rising score.
In terms of falls in expropriation scores, Venezuela is in a class of its own with a fall of six points as the Maduro administration proves unable to bear the cost of further expropriations amid protests from nationalised industries about the lack of government support. Zimbabwe is down by three points as the government continues to pull back from its indigenisation policy, and Gabon is also down by three following the amicable settlement of an expropriation case in the utilities sector. Honourable mentions go to Ecuador, India, and Nigeria, all down by two points.
The gap between rising and falling countries has narrowed in the political violence category, with the gap of seven seen last time now reduced to just two as 15 countries go up and 13 go down. Algeria headlined this category last time with a rise of eight points and adds another four points this time to share top place with China and Russia. The Chinese score was pushed up by the continuing situation in Hong Kong while, as we have seen above, the harsh crackdown on protests related to local elections in Moscow in late summer suggests splits at the highest levels of the Russian leadership over how to deal with expressions of dissent. The risk of political violence in Brazil and Turkey continues to rise, while Thailand is up for the first time in 2019 as a popular opposition politician faces the prospect of a trial. Among countries with falling scores, Indonesia and Venezuela are down for the ‘right’ reason as tensions fall, albeit from high levels, as is Senegal, but Tanzania and Egypt are down primarily because the strength of government security forces reduces the opportunities for expressing opposition.
Unlike the previous two categories, the current scores for terrorism show falling countries (11) outnumbering rising ones (eight), and, somewhat unusually, a majority of countries have scores that are unchanged from the previous edition. Two countries are up by three points, India as a result of the government’s new approach to Kashmir and Thailand on the possibility that the insurgency in the country’s southernmost provinces will bring further attacks in Bangkok. Six countries see their scores in this category fall by two points. In most cases, their scores were already relatively low, but it is worth noting Kenya’s efforts to strengthen its security infrastructure at the regional level.
It is in the category covering exchange transfer and trade sanctions that we find the greatest contrast with results from the previous edition of the Index. Last time, 22 countries posted in a rising score in this category, with only ten falling. That difference of 12 countries has been almost eliminated in the current edition, where we find 16 countries up and 15 down, in part because of the ability of some countries to resist pressure on their currencies. Argentina is up by three points this time following the latest efforts to defend the currency and concern that the candidate expected to win October’s presidential election will bring back capital and currency controls. Turkey and Turkmenistan are both up by two points having risen by the same amount last time, and other countries up by two points include Colombia, Ghana, Vietnam and Zambia.
On the positive side, Indonesia is down by three points as the rupiah stabilised after the election. Among the countries down by two points are India, where the rupee has strengthened on Prime Minister Modi’s re-election, Mexico, where the peso is also showing resilience, and Nigeria, where President Buhari has eased some of the pressure on the central bank by reappointing its governor.
The final category is sovereign default risk and this also shows this same levelling trend, with the previous result of 14 countries up and just nine down not only narrowed but this time reversed to show 13 countries up but 15 down. As is usual in this category, the number of non-moving countries (12) stays in double figures.
The headline here is clearly Argentina, where a somewhat semantic debate over whether delayed payment on treasury notes amounts to a selective default has failed to obscure the dire situation for the next government, which is facing 80 billion dollars in debt payments before the end of next year. It is also worth noting that Mexico is up by four points as the administration’s plans to restructure state energy giant Pemex, whose debt now exceeds 100 billion dollars, threatens the government’s own credit rating. And neither of these should overshadow the perilous situation in South Africa, up three points this time, as the drag from electricity utility Eskom and the lack of growth appear to be bringing talks with the IMF nearer. We rarely see downward movements on a similar scale in this category, but among the handful of countries down by two points are Bangladesh, Ecuador and Ukraine.
Finally, 2019 has already proved to be an extraordinary year for elections. India, the world’s largest democracy, took five weeks to complete its voting, Indonesia managed to elect its president, legislature, and regional governments all in one day, and Ukrainians chose a distinctly novice, and indeed novel, president. The final three months of the year offer the prospect of a reversal of political direction in Argentina, a referendum on self-determination in Ethiopia, and local elections in Hong Kong, followed by freer than usual legislative elections in Uzbekistan at the end of the year. In the coming weeks, we will continue to monitor the factors that affect political risk in these countries as well as all the others in the Willis Towers Watson Political Risk Index, and we look forward to bringing you the next edition.