The Week Ahead

The Week Ahead

China hosts BRICS Summit. South Africa’s parliament considers calls for early election. Kenya’s markets respond to nullified election. Baltic Prime Ministers meet in Poland. All in The Week Ahead. 

BRICS summit in China after India and China resolve border dispute

Concluding on Monday, the BRICS countries (Brazil, Russia, India, China and South Africa) will meet in Xiamen, Fujian Province to discuss economic ties and development, including invitees Mexico, Thailand, Egypt, Kenya, and Tajikistan. The summit follows several weeks of tense relations between China and India ove the Doklam Plateau in the contested border between China and Bhutan, which places its foreign policy jurisdiction under India.

The summit represents an interesting time for the economies: although Brazil’s political economy remains in flux, the government still plans on moving forward with economic reforms. India’s growth has slowed for the past year to the concern of economists, driven in part recently by a confusing sales tax. Russia’s growth has improved as consumption has risen, pulling the country out of its 2-year recession — though the prospect of an oil price decline won’t help matters. South Africa may have the least optimistic outlook of the five due to persistent structural problems and policy uncertainty constraining investment that have led several ratings agencies to place the country’s bonds in junk categories.

The political and economic heft of BRICS, as a result of these challenges, appears to be dimming on the international stage. With divergent interests, wildly conflicting economic trajectories, and frequently substantial domestic political challenges, the BRICS countries appear to be increasingly pursuing their own paths. Market attention, too, has begun to shift away from the large, frequently sluggish BRIC nations and more towards other groups and nation clusters.

South Africa’s parliament to discuss calls for early election

After increasingly closer and closer calls to President Jacob Zuma’s career by members of his own ANC party, the South African parliament will discuss calls for early elections with parliamentary consideration for a bill offered by the opposition DA. Earlier last month, President Zuma narrowly survived a 177-198 vote of no confidence with 9 abstentions and over 264 seats held by the ANC. The President’s corruption allegations and erratic behavior in his cabinet choices, particularly his finance ministers, have led to economic uncertainty and depressed investment.

Although the vote of confidence in early August was fairly close, the bill now introduced by the DA is likely to be defeated. However, the discussions are likely to continue even if the bill is defeated. With the current term slated to go to May 2019, a further economic slide for South Africa or a major event could prompt greater divisions within the ANC.

This could also lead to pressures on the ANC old guard ahead of the December ANC leadership elections. The Zuma camp is hoping to replace Jacob Zuma, who is leaving the position as ANC leader, with his ex-wife Nkosazana Dlamini-Zuma vying to take up the role. Others, including deputy president Cyril Ramaphosa, have entered the contest, though some suspect a substantial number of candidates could split the anti-Zuma vote and lead to Dlamini-Zuma’s election.

Kenya’s markets respond to court ruling nullifying election

Late last week the Kenyan Supreme Court nullified presidential election results and called for a new round of voting. Uhuru Kenyatta had won 54% of the vote. This week, market analysts are now watching closely to see where the Kenyan shilling goes in response to this unexpected rise in political risk. Concerns had already been high that a decision in Kenyatta’s favor would lead to rioting from Odinga supporters, who in previous elections claimed fraud and violence ensued. Immediately following the ruling last week, the shilling depreciated slightly against the dollar before stabilizing again.

However, there will be several factors that can go into the strength of Kenyan markets in the weeks ahead. The most important will be when the new election will be held — the Supreme Court ruling requires it within 60 days. Also important will be the actions of Kenyatta and Odinga. President Kenyatta has already lashed out at the Supreme Court, leading the court to rebuke the president directly, and Odinga supporters are already pointing to possible problems with another election.

Baltic Prime Ministers to meet in Poland

The Prime Ministers of the three Baltic states as well as Polish Prime Minister Beata Szydlo will be meeting in Warsaw to discuss regional relations and the European Union. With the continued aggression from Russia, the Eastern EU states have increasingly worked together to forge a united front both against Russia and within the European Union. The Lithuanian Prime Minister’s foreign policy advisor Deividas Matulionis recently highlighted these dynamics noting that sour relations between Poland and Lithuania would only benefit Russia.

The four countries will also likely discuss areas of agreement on Brexit negotiations: Poland and to a lesser extent the Baltic states have substantial worker populations in the UK, and will make securing the rights of their citizens in the post-Brexit UK a top priority. This will give Brexit negotiators on the UK side headaches as one of the principal arguments used to support Brexit was increased control over immigration. Should Poland and the Baltic states emerge truly unified on both Russia and Brexit, which increasingly appears to be the case, it could make Russia’s diplomatic position in Europe worse and further complicate Brexit.

The Week Ahead provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, The Week Ahead presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This edition of The Week Ahead was written by GRI Senior Analyst Brian Daigle.

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