Archive for marzo, 2014

The governance agenda

Mystery still surrounds the disappearance of Malaysia Airlines flight MH370, but the incident has thrown unwelcome light on the capability and transparency of the Malaysian authorities. Questions are being asked, firstly about how an off-course flight could travel unnoticed through Malaysian airspace. This has worrying implications about the exposure of the country to terrorism as well as its desire to become a regional aviation hub. Secondly, while any country would undoubtedly have also faced criticism, the opacity of officials has caused concern in many quarters. »» The governance agenda

A new story for the Middle East

The Gulf states have long been synonymous with two things: instability and oil. This is now changing, and not just in showy Dubai. The six states of the Gulf Co-operation Council (GCC) are all looking seriously at strategies for economic diversification. This is partly about planning for a time when oil might not provide the money it does now, but also about smoothing out the economic cycle and providing employment. EIU analysis shows that the GCC is in fact a good place to do business: our measure of operational risk is notably lower in the GCC states than in the surrounding areas of South Asia, North Africa and Sub-Saharan Africa. Their quest to become global hubs for manufacturing, services and trade might not be that far-fetched.
I spent last week in Oman, discussing that country’s diversification strategy with government and business leaders. Changing global supply chains will open up new opportunities, and it is critical for business and policymakers to understand these trends in order to be able to capitalise on them. The planned 1,200km long Etihad railway will link the region, resulting in a boost for trade and a reduction in operating costs. This kind of regional integration will be critical.

 

Simon Baptist
Chief Economist and Asia Regional Director

Ukraine: The Energy Impacts

March 5th 2014| Multiple countries | Oil and gas | Gazprom

Europe does not face a gas crunch, but Russian actions in Ukraine could hasten efforts to shore up EU energy security.

Russia’s intervention in Crimea has sent countless economic indicators hurtling downwards—the Moscow stock market, for instance, and the Russian rouble’s value against the US dollar. Others have shot skywards. Oil prices, ever sensitive to political risk, fall in the latter category: the threat of conflict has escalated. So too do natural-gas prices, the upwards forces on which were compounded by a threat on March 1st by the Russian state gas-export giant, Gazprom, to raise the price it charges Ukraine. Yesterday Russia’s president, Vladimir Putin, confirmed Gazprom will end the discount granted to Ukraine’s now ousted president, Viktor Yanukovych, in December.

The apparent willingness on Russia’s part to use its control over gas supplies as a political tool rings alarm bells throughout Europe. One-half of Russian supplies to the EU, which looks to Russia as a key gas supplier but has sided with Ukraine’s new government, flowed through Ukraine in 2013. Memories have been awakened of episodes in 2006 and 2009 when, amid pricing disputes, Russia cut off supplies to Ukraine at the height of winter, causing European gas prices to spike. But this time, while the threat of military clashes is higher, the energy risks for Europe are not. »» Ukraine: The Energy Impacts

Ukraine’s uncertain future

Thursday, 27 February, 2014
by Simon Baptist

Markets this week have been fixated by Ukraine, where long-simmering economic problems have turned into a political crisis. There is a real risk of a disorderly devaluation of the currency, with a resulting spiral driven by the subsequent increase in the foreign-currency denominated debts of local banks and companies. Ukraine’s weak external position has been a concern for some time now, but the collapse of the government has increased outflows of already scarce foreign capital. The sequence of events highlights the tight nexus between politics and economics, and why it is important for investors to understand both. Fundamentally, Ukraine’s political divisions are driven by unresolved questions about national identity – east or west - and institutional location of power – parliament or presidency. Ukraine is not the only country with such divisions, with Thailand and Nigeria other obvious examples, both with a rich south chafing against supporting a poorer north.