Q3 09 Global Market Brief & Labor Risk Index

Think ouTside.

Global Market Brief & Labor Risk Index

2009

meThodology 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 colombia

13 mexico

14 panama

15 united states

Asia Pacific17 overview

18 risk index

19 australia

20 china

21 hong kong

22 india

23 indonesia

24 Japan

25 malaysia

26 new Zealand

27 pakistan

28 philippines

29 singapore

30 south korea

31 Thailand

32 Vietnam

Europe and Eurasia34 overview

35 risk index

36 Baltics

37 Belgium

38 Bulgaria

39 czech republic

40 denmark

41 France

42 germany

43 hungary

44 ireland

45 italy

46 luxembourg

47 netherlands

48 norway

49 poland

50 portugal

51 romania

52 russia

53 spain

54 sweden

55 switzerland

56 Turkey

57 ukraine

58 united kingdom

Middle East and Africa60 overview

61 risk index

62 algeria

63 egypt

64 israel

65 kenya

66 kuwait

67 morocco

68 Qatar

69 saudi arabia

70 south africa

71 united arab emirates

cover: awbari region, syria © 2007 Tobias Helbig

gloBal markeT BrieF & laBor risk index Q3 2009

Services, first explored developing

a future-oriented research tool

together, we were struck by our

ability to create something unique

in the marketplace.

Leveraging Kelly’s global labor

market knowledge, Eurasia

Group’s expertise in political and

socio-economic risk analysis has

delivered a groundbreaking new

resource for companies as they

assess investments and global labor

strategies. By applying Eurasia

Group’s renowned risk assessment

methodologies to workforces across

the globe, we have endeavoured

to both elevate Labor to its rightful

place in long-term risk assessment,

as well as provide organizations the

ability to ‘peer around the corner’

and identify potential issues

and opportunities.

Published on a quarterly basis,

the Market Insights and Labor

Risk Index report 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.

The result, we trust you will agree,

is a comprehensive overview of key

global trends and developments,

and we look forward to sharing

future editions with you. This report

represents just one aspect of the

KellyOCG / Eurasia partnership – to

find out more about how we can add

more insight to your global planning,

please contact your KellyOCG or

Eurasia representative.

■ ■ ■

➔ It is with pleasure that we

bring you the first quarterly edition of

the Global Market Brief & Labor Risk

Index. It has been the culmination

of hundreds of work hours, with the

input of dozens of individuals from

across the globe.

When Eurasia Group, the leading

political risk research and consulting

company, and KellyOCG, the

Outsourcing and Consulting Group

of human resources provider Kelly

Preface

rolf kleiner,senior Vice-president, kelly ocg

ian Bremmer,president, eurasia group

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

middle easT and aFrica

aBouT sponsors


➔ The Global Market Brief &

Labor Risk Index is based on detailed

analysis of hard metrics of 30 unique

labor market, socio-economic, and

political factors, layered with localized

expertise of in-country consultants.

The analysis aggregates the

individual factors into 9 core risk

variables: 5 macro variables and 4

labor variables that are each assigned

a score on a 10-point scale projecting

the degree of risk over the next

90 days. Each risk variable is also

assessed as to whether it is trending

negative or positive.

Methodology 4 economic

This variable captures the current

health of the macroeconomic

environment and the stability

of future economic 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

mean that labor markets are likely

to remain depressed for the rest of

the year.

A large number of governments—led

by the US, Canada, Brazil, and

Chile—have embarked on aggressive

countercyclical fiscal policies,

including infrastructure spending and

tax exemptions for labor-intensive

industries to weather the storm and

buttress economic growth. However,

other countries—such as Argentina,

Colombia, and Mexico—have been

fiscally constrained by lower-than-

expected revenues and, in some

cases, their failure to save during the

➔ Countries in the Americas

are in the midst of a severe economic

contraction that is putting significant

pressure on labor markets across

the region. While there have been

hopeful signs of an incipient recovery

during the second quarter of 2009,

depressed consumer confidence and

ongoing cost-cutting measures in the

manufacturing and services sectors

boom years. As a result, they have

not been able to provide much-

needed stimulus measures.

Some countries will also face the

difficult task of preserving jobs

while at the same time tempering

labor unions’ demands for higher

wages. The Argentine and Chilean

governments, both of which are

facing elections this year, are in the

middle of negotiations with union

movements that carry a great deal of

political clout.

■ ■ ■

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors


macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality (dis) content

Argentina 6 Y 6 7 5 Y 5 5 6 7 5 Y Y

Brazil 8 7 6 6 X 6 4 7 5 6 Y

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

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

Colombia 7 7 4 X 6 7 5 6 6 6 Y

Mexico 7 7 5 Y 5 Y 7 3 5 6 7 Y

Panama 7 6 7 6 7 3 5 6 6 Y

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

very positive trend

positive trend

negative trend

very negative trend

For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.

The americas – risk index summary TaBle – Q3 2009

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors


low risk

high risk

Lured by the prospect of Europe’s growing economic clout and nervous about “buy-American” sentiments in the US, Canada has embarked on bilateral trade talks with the EU, which could open up big opportunities for Canadian exporters. The US currently purchases about 75% of Canadian exports, but rising protectionist sentiments could cause this number to decline. A Canada-EU free trade agreement could increase trade by 20%, but removing trade barriers in the agricultural sector will prove challenging.

Canada Sharp falls in output and high

inventories are likely to spill into

jobless numbers for months.

The manufacturing sector is bearing

the brunt of unemployment, while

the services sector continues to

defy the downturn in terms of

labor numbers. But concerns about

impending job cuts in the services

sector persist because companies

could make a more concerted

effort to boost margins by trimming

employment costs.

All things considered, Canada’s future

may not be quite as bleak as the

numbers suggest. There is optimism

➔ Canada’s economy grew for

the first time in 11 months in June,

although not enough to reverse

the quarter’s negative result and

the country’s worst economy for 20

years. Fueled by a substantial drop

in business investment and a steep

decline in manufacturing, GDP is

expected to contract further in 2009.

The job market has been depressed,

with unemployment rising to 8.7% in

August, with total employment falling

by 387,000 since October 2008.

that the pace of economic decline

will slow in coming months, and

that consumer confidence may start

turning around as spending improves

and the housing market stabilizes.

One of the primary concerns now is

the strength of the Canadian dollar,

which has appreciated strongly and is

curtailing export growth at precisely

the time it is most needed.

■ ■ ■

0

1

2

3

4

5

6

7

8

9

10

Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality (Dis)content

NXÇÅ

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors


low risk

high risk

Standard & Poor’s downgraded Mexico’s credit rating from stable to negative in May, based on concerns about the country’s long-term debt. Government revenues are falling because of the economic downturn and declining oil receipts. While major fiscal reforms still face stiff opposition in congress, the government will cut spending and is likely to ramp up tax collections from existing contributors by closing loopholes and denying deductions to make up for losses. This could increase the tax bills of some corporations.

Mexico The government estimates that

the swine flu outbreak deepened

Mexico’s economic recession. The

biggest hit occurred in the services

sector, which account for about two-

thirds of GDP. Tourism (at a much

smaller 8% of GDP) was also affected.

Secretary of Finance Agustin

Carstens said the overall impact

of the outbreak could have been

0.3% GDP, or $2.3 billion, but other

economic analysts put the number

higher at 0.5%. Unemployment is

expected to remain at 5% or slightly

higher in 2009, likely fueled by further

job losses in the services, agriculture,

manufacturing, and construction

sectors. Looking ahead, it is hard

➔ The Mexican economy is

facing a prolonged slowdown that

was aggravated by the recent H1N1

virus outbreak. The government

projects that the economy will

shrink by 5.5% in 2009, a sharper

fall than was expected in the early

part of the year. Steep declines in

the manufacturing and construction

sectors, combined with a weak

services sector, are driving the current

outlook as the recession in the US,

Mexico’s largest export market,

continues to take a significant toll.

to see any signs of a bottom. The

lagged effects of the sharp decline in

the early part of 2009 and swine flu

are exacerbating Mexico’s economic

deterioration.

A recovery is most likely to begin in

the second quarter of 2010, as US

stimulus measures take hold and flow

through to the broader economy. But

the Mexican labor market is expected

to remain weak for the foreseeable

future, and job losses will continue

through 2009.

■ ■ ■

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

overview

risk index

argentina

Brazil

canada

chile

colombia

mexico

panama

united states

asia paciFic

europe and eurasia


aBouT sponsors


Overview: Asia Pacific

In response, China, Japan, Malaysia,

South Korea, and other regional

governments have drawn on

resources accumulated in recent

years and embarked on large-scale

stimulus efforts, which appear to

have mitigated some of the pain

these economies would otherwise

have experienced. In addition to

planned stimulus programs,

elections in India and Indonesia

have injected substantial money

into those economies, with positive

short-term results.

The economic downturn may also

be catalyzing longer-term structural

changes. In China, the sharp decline

in exports has intensified the policy

debate over rebalancing China’s

economy away from its heavy

➔ As a whole, Asia-Pacific

economies remain competitive

and dynamic, and the region is not

experiencing the worst effects of the

global economic slowdown. But the

region has not been entirely immune,

and labor markets in this part of the

world are undoubtedly suffering.

The economies that previously

experienced the fastest export-led

growth are now undergoing the most

serious contractions.

reliance on trade. In Japan, the

upcoming election could move Tokyo

to increase its focus on consumer

interests relative to business interests.

Asia’s long-term prospects remain

bright, but still-rising unemployment

may present political challenges in

the short term. Countries like China

and Indonesia need to maintain high

levels of growth to produce jobs for

the large numbers of young workers

entering their workforces each year.

The developed countries in the

Asia-Pacific region also face

employment challenges that will

create key political issues in Australia,

New Zealand, and Hong Kong

throughout 2009.

■ ■ ■

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors





Australia 9 8 Y 9 8 8 X 6 7 8 9 Y

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

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

India 8 5 5 6 5 X 4 5 2 X 9 Y

Indonesia 6 X 6 6 5 X 5 3 6 5 6 X Y

Japan 8 8 10 7 8 7 6 9 9 Y

Malaysia 7 Y 6 Y 8 6 Y 7 7 5 6 8 Y

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

Pakistan 3 Y 4 2 Y 3 5 2 4 2 4 Y Y

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

Singapore 9 8 9 8 Y 9 10 7 8 9 Y Y

South Korea 7 7 6 Y 7 X 7 2 6 7 6 Y

Thailand 5 Y 5 7 5 6 Y 6 6 6 8 Y

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

very positive trend

positive trend

negative trend

very negative trend


asia paciFic – risk index summary TaBle – Q3 2009

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors


low risk

high risk

The first meeting of a modified US and China Strategic and Economic Dialogue will be held in Washington in late July. The Obama administration hopes to discuss both geopolitical and economic policies with the Chinese, but economic issues will take center stage during this round. The two sides will likely consider new mutual trade and investment opportunities, and environmental and financial regulations will also be major topics for discussion.

China on-year was 6.1%. The government

has encouraged a surge in new bank

lending and is spending money on

infrastructure, education, and health

and social services. This will likely

boost jobs in the immediate term,

particularly in the infrastructure and

construction sectors. But more than

six million college graduates enter

the job market every year in China.

This year, employment opportunities

are decreasing and competition is

fierce. Many graduates are fleeing

to the US to enter universities or are

being pushed toward rural areas to

find work.

Policymakers expect that bolstering

the economy through direct fiscal

stimulus measures and expanding

➔ As one of the largest

producers of manufactured goods,

China’s export sector has suffered

greatly from the global economic

downturn. The ensuing domestic

slowdown has raised concerns about

the return of international demand

and the worrisome prospect of rising

unemployment.

Some early indicators, however,

suggest that the economy may be

improving. Beijing’s 4 trillion yuan

stimulus package seems to be

encouraging stabilization this year:

In the first quarter, GDP growth year-

credit is likely to avert any further

downturn in the short term. But

without serious reform, China’s

reliance on large, developed

countries for economic growth

threatens to remain a long-term

hindrance. Beijing is clearly putting

increased resources toward

strengthening the domestic market

and encouraging the rural citizenry

to spend, but the full extent of the

leadership’s success in pursuing this

reform is uncertain. For now, China

will continue to turn to its major

trading partners for export demand.

■ ■ ■

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors


low risk

high risk

The government recently announced it would suspend payments into the New Zealand Superannuation Fund, the country’s pension fund, for up to a decade, spurring a heated debate. Experts were predicting that the goods and services tax (GST) would have to be raised from 12.5% to 15% unless the pension entitlement age was increased, but Prime Minister John Key remains adamantly opposed to raising the age requirement. On a positive note, the fund earned a profit in May because of the recent rebound in equities markets, which provides temporary relief.

New Zealand historically low, but more recent

countercyclical fiscal spending is

expected to cause a ballooning of

debt levels that could threaten the

government’s credit rating. As a

result, the government submitted a

more modest 2009–2010 budget that

focused on curbing new spending

and postponed planned tax cuts for

2010 and 2011. Nevertheless, deficit

spending is expected to persist for

the next decade.

While consumer and business

confidence continues to be weak,

deleveraging by heavily indebted

households would be a positive

macroeconomic trend. There are also

recent indications that income tax

cuts from April and lowered interest

➔ New Zealand was an early

casualty in the global downturn,

entering a recession in the first

quarter of 2008. The IMF expects

real GDP to contract by 2% in

2009, although a gradual recovery

is expected to start in 2010. The

export sector, in particular, has been

in a five-year recession because of a

strong currency and high domestic

costs. With heavy reliance on short-

term external debt by private banks,

the country’s sizable current account

deficit is considered problematic,

especially in a weak global credit

environment. Public debt has been

rates since last July are causing a

gradual uptick in retail spending

and property sales. Unemployment,

however, remains a top concern; the

government expects it to reach 8% in

2010, up from 5% in April, with ethnic

minorities having a disproportionately

higher rate of unemployment.

Foreign workers, who were in high

demand during boom times, are now

being replaced by local workers. The

strict conditions on work permits for

foreigners, combined with difficulties

renewing visas, mean that the

hundreds of thousands of migrants

living in New Zealand are likely to

face employment challenges.

■ ■ ■

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

overview

risk index

australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors


Overview:Europe and Eurasia

countries with more sustainable

fiscal outlooks, such as Germany,

Norway, the Netherlands, and even

Russia, which is capable of covering

its budget deficit with rainy-day

reserve funds.

The labor implications of this situation

could be important. In countries like

Italy, Spain, Portugal, and Ireland—

which at some point will be forced

to undertake austerity measures—

policy tools may be insufficient to

mitigate unemployment. Over the

longer term, though, successful

restructuring efforts might actually

lead to gains in competitiveness.

Political objection to belt-tightening

is likely to be an important feature

of the political landscape, and will

further contribute to what is likely to

be a very uneven process.

➔ With varying fiscal outlooks

and demand pictures across

countries, Europe is likely to

see an uneven recovery. Several

European countries have seen

their sovereign debt downgraded,

resulting in increasing fears of bond

defaults and higher interest rates as

investors demand compensation for

heightened risk. As a result, many

governments may need to undertake

fiscal consolidation measures, limiting

the extent of their policy actions to

support demand. This suggests an

advantage in terms of recovery for

Economic slowdown and rising

unemployment will likely lead to

tension with migrant communities,

with some instances (in Italy,

Spain, and potentially Russia,

for example) already in evidence.

While immigration policy may be

slow to shift, migrants, particularly

those from eastern Europe, may

opt to abandon increasingly hostile

environments. This could hinder

labor competitiveness in certain

western European countries.

Migrants returning to eastern

Europe might alleviate labor

shortages there, benefitting

recovery in eastern Europe.

■ ■ ■

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

Bulgaria

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors


conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

Bulgaria

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors




Baltics 8 6 7.5 4 8 4 5.5 X 6 4.5

Belgium 9 Y 7 8 6 9 5 6 X 8 6

Bulgaria 8 7 6 4 Y 7 4 6 X 6 6 YCroatia 8 7 8 5 7 4 6 X 6 6

Czech Republic 8 X 8 8 6 6 4 6 X 7 7

Denmark 10 8 8 7 9 6 6 X 8 8

Estonia 9 X 7 8 5 8 4 6 X 6 6

France 9 7 7 7 8 4 7 X 8 6 YGermany 9 Y 8 8 7 8 4 7 X 9 6 YHungary 6 Y 8 9 6 Y 8 5 6 7 6 YIreland 9 Y 8 9 6 9 6 7 X 8 7 YItaly 8 Y 7 Y 7 5 6 3 6 X 7 5 YLatvia 8 6 7 3 8 4 5 X 6 3

Lithuania 8 6 8 5 8 4 6 X 6 6

Luxembourg 9 8 9 8 7 4 5 X 9 8

Netherlands 9 7 7 7 8 5 6 X 8 8

Norway 9 9 8 8 9 5 6 X 9 8

Poland 8 X 8 9 6 Y 8 4 6 7 5 YPortugal 9 7 8 5 8 4 6 X 7 5 YRomania 8 Y 6 Y 8 4 Y 8 4 6 X 6 4 YRussia 4 Y 6 Y 7 5 5 5 8 5 7 YSerbia 7 6 8 4 6 3 5 X 6 4

Spain 9 Y 7 Y 7 6 7 4 X 7 X 7 5 Y YSweden 9 9 8 7 8 5 6 X 9 8

Switzerland 10 7 8 7 8 6 6 X 9 10 YTurkey 6 6 Y 7 6 Y 7 5 6 5 6 YUkraine 4 Y 6 8 3 6 5 7 5 6

United Kingdom 9 Y 8 8 6 9 7 7 X 8 8

very positive trend

positive trend

negative trend

very negative trend


europe and eurasia – risk index summary TaBle – Q3 2009


low risk

high risk

Controlling inflation has been the most difficult of the Maastricht criteria for the Baltic countries to meet. As small, open economies, they are highly sensitive to energy price pass-through, and high oil prices have bolstered inflationary pressures. Estonia, however, has recently begun to show significant progress. There is a strong chance that it will come into compliance on inflation, and it could adopt the euro in 2011.

Baltics Latvia, that the currency pegs might

be abandoned. Such a move would

initially make Latvian products

and exports cheaper, but it would

precipitate a major credit and

liquidity crisis because almost all

private sector debt is denominated

in euros. A devaluation would

dramatically increase the borrowing

costs for firms and households, as

well as increase the risk of inflation as

imports become more expensive.

Cognizant of these risks, particularly

the effect they could have on

firms and households, the Baltic

governments are seeking to

maintain their currency pegs. They

are supported by the European

Commission and the European

➔ All three Baltic countries

are expected to eventually adopt

the euro, but they must first meet

the Maastricht criteria, which set

tests for a variety of macroeconomic

indicators.

As one requirement, Estonia, Latvia,

and Lithuania must participate in the

exchange rate mechanism (ERM-2),

a structure through which their

domestic currency is pegged to the

euro at a fixed rate. Under significant

pressure in terms of their foreign

reserves, however, speculation has

arisen in each country, particularly

Central Bank, which are eager to

avoid currency crises and keep the

process of expanding the eurozone

moving forward.

The EU has already provided financial

support to Latvia, and it may do

the same for Lithuania and Estonia.

This support included conditions

on fiscal consolidation, including

significant wage restraint. While this

limitation is widely unpopular, it is

viewed as a less-worse outcome

than a major devaluation. It increases

the likelihood of government

compliance, and suggests a

significant decline in wages in the

Baltics in the near term.

■ ■ ■

0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

Bulgaria

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors


low risk

high risk 0

1

2

3

4

5

6

7

8

9

10





NXÇÅ

Dutch and Danish electricity authorities have signed a cooperation agreement for a new direct connection between the Netherlands and Denmark, marking a significant step in enhancing energy competition across northwest European power markets. The Cobra cable project is planned to be commissioned by 2016–2017 and is in line with the EU’s ambition of creating more interconnections between European countries.

Netherlands led to a drop in fixed business

investment. Household consumption

has fallen due to the deterioration

of the Dutch labor market and tight

credit. Unemployment has been on

an upward trend since December

2008, and is expected to continue

rising considerably. Given the export

sector and the integration of the

Dutch and German economies,

global demand is a critical factor that

will shape the timing and nature of

recovery. This forecasting uncertainty

leaves the Dutch government likely

to favor fiscal consolidation over

dramatic stimulatory spending.

On the upside, business surveys

➔ The contraction in the

Netherlands economy quickened in

the first half of 2009, with GDP falling

4.5% compared to 12 months prior.

Private consumption fell early in the

year, while government consumption

grew and imports dropped

noticeably.

The largest falls in the economy have

been in exports, fixed investment,

and household consumption

spending. Slimming profit margins

and tight credit conditions have

express confidence that the fall

in Dutch GDP will moderate

and the government seems to

be competently addressing the

financial crisis. Its stimulus package

provides for a spending boost

in 2009–2010, assistance for the

struggling construction industry, and

fiscal austerity measures for when

the economy improves. The budget

balance is expected to drop into a

deficit in 2009, as revenue is cut, and

not to return to surplus until 2013.

But even with cautionary fiscal policy,

the Dutch government has relatively

more room to maneuver than many

other EU countries.

■ ■ ■

very positive trend

positive trend

negative trend

very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

Bulgaria

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors


Overview:Middle East and Africa

some anxiety, allowing countries

engaged in large-scale infrastructure

development to continue work in the

construction sector, major projects

could still be cancelled or put on

hold. As a result, job security for both

native and foreign workers will remain

extremely fragile in the medium term,

particularly in countries like Saudi

Arabia, Kuwait, and the UAE.

Declining remittances, foreign

investments, and export revenues

will hurt the entire region. Israel’s

export-oriented sectors have already

been hard hit by the downturn. A

sharp decline of migrant workers’

remittances will have significant

consequences on countries such as

➔ Countries in the Middle

East and Africa are facing serious

challenges, including commodity

price volatility, political instability,

social discontent, labor risks, and

budgetary pressures. Natural

resources dependent countries such

as Algeria, Qatar, Saudi Arabia,

and South Africa are reevaluating

their budgetary assumptions and

spending patterns. While a recent

rebound in oil prices has soothed

Morocco and Egypt, where large

segments of society depend on these

sources of income. Meanwhile, there

is the risk of social unrest stemming

from higher unemployment and

inflationary pressures, particularly in

Egypt, Kenya, and South Africa, if the

downturn persists.

The key political challenge for

many Middle Eastern and African

countries with critical socioeconomic

uncertainties in the short term will

center on budget pressures, and the

need for painful cuts. But over time,

the regional objective, especially in

Africa, will be to avoid falling into

the debt trap.

■ ■ ■

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors





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

Egypt 7 Y 8 Y 8 Y 5 5 6 5 4 4 Y

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

Kenya 4 2 5 3 5 6 5 2 7 Y

Kuwait 5 Y Y 5 6 7 5 Y Y 5 7 7 8 Y Y

Morocco 4 Y 5 Y 8 5 Y 6 3 4 3 6 Y

Qatar 8 8 6 9 8 5 8 7 Y 8

Saudi Arabia 7 4 Y 4 7 5 5 7 7 8

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

UAE 7 7 7 7 Y 7 5 7 Y 7 9

very positive trend

positive trend

negative trend

very negative trend


middle easT and aFrica – risk index summary TaBle – Q3 2009

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors


low risk

high risk

The government has denied rumors that it was planning to raise high octane gasoline prices in order to relieve the subsidies burden and boost revenues. It could still happen during the summer months, as authorities are weighing the impact of increased oil prices on the cost of subsidies versus the inflationary pressure of raising prices. Many officials do not think the impact would be as burdensome as last year’s gasoline price hike.

Egypt for the average consumer and they

will only increase during Ramadan,

which starts on 22 August. Sustained

high prices will likely cause public

anger, including sporadic protests

against the government, though the

authorities will quickly quell them.

Meanwhile, the government will try

to play up the positive news that first

quarter 2009 GDP growth at 4.3%

was slightly higher than anticipated.

Over the past three fiscal years,

however, the economy has grown in

the 7% range. Without such growth,

economists assert that the market

will be unable to accommodate

the nearly 700,000 annual new job

➔ Egypt has navigated the

global economic crisis better

than most emerging markets. But

unemployment, officially reaching

9.4% in the first quarter of 2009

(though the actual number is

probably much higher), coupled

with an expected rise in food prices

in August could present temporary

problems for political leaders in

the next quarter. While overall

inflation—which was a serious

problem in 2008—is down, food

prices have remained stubbornly high

seekers and improve unemployment

numbers. If unemployed workers

begin to organize or engage in

protests, President Hosni Mubarak

and the government will be

concerned about social tension, but

they will probably not change policy.

The government has the resources

to muddle through 2009 without

facing destabilization. Net reserves

remain healthy, and another round of

economic stimulus remains possible.

If the global economy does not soon

begin to show signs of a recovery,

Egypt will face more serious trouble

in 2010.

■ ■ ■

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

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


low risk

high risk

Despite the government’s efforts to manage sectarian relations and ensure proper representation of the Shia community in government institutions, Sunni-Shia relations remain a source of long-term risk. The Shia community represents close to 25% of Kuwait’s population, and it is increasingly sensitive to events affecting its coreligionists in Iraq. Many Shias have maintained strong family ties in Iran as well, which has raised suspicion among Sunni Kuwaitis about their political loyalty.

Kuwait about Emir Sabah’s intentions,

especially his decision to reappoint

the same unpopular and ineffective

prime minister. The feeling in Kuwait

City is that the emir’s decision

stems from his desire to create

enough political instability to justify

dissolution of parliament. He wants

to suspend it long enough to institute

needed economic reforms without

parliamentary interference. However,

the emir appears unable to garner

enough support from Kuwait’s main

tribal and religious leaders for such a

drastic move.

The current financial turmoil and its

impact on Kuwaiti banks, along with

the prime minister’s appointment,

➔ Emir Sabah al Sabah’s

decision to reappoint Sheikh Nasser

al Sabah as prime minister following

the 16 May parliamentary elections

does not bode well for political

stability and the local business

environment will remain unattractive

to international corporations. Despite

additional pro-cabinet lawmakers

being elected, the prime minister

remains a controversial figure and

his management style will continue

to be questioned. For the past few

months, there has been a great deal

of incomprehension among Kuwaitis

will cause further delays in the

implementation of much-needed

economic reforms and slow the

country’s long-term infrastructure

development program. Despite

stable oil prices, the newly elected

parliament will likely remain very strict

about the government’s spending

strategy and will oppose any moves

to revive high-cost and controversial

projects. The same parliamentary

forces that have opposed the prime

minister so vehemently in the past

are still in place, and more political

friction is likely to occur. A number of

controversial debates are expected

to resurface.

■ ■ ■

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

israel

kenya

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

very positive trend

positive trend

negative trend

very negative trend


exiT

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]


kellyocg.com/marketbrief

www.kellyocg.com/marketbrief