In addition to hitting the gym, maybe another of your New Year’s resolutions is to be concerned about geopolitics and global economic. Lucky for you, our friends at the Eurasia Group, the political-risk consulting firm, have compiled a report on the top risks for 2013. Here’s a look at what’s on Eurasia’s expensive, proprietary radar screens.
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Weird, right? For years the countries outside the U.S.-Europe-Japan axis of high wealth and low growth have been a respite for investors and businessmen looking for vibrant economies. But with the U.S. economy growing steadily and the worst of Europe’s crisis behind it, all the normal pathologies of emerging markets may suddenly be thrown into sharp relief: weak governance, political volatility, and simmering social discontent.
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The Chinese leadership has always put a priority on controlling information: both what comes into the country from abroad and what its citizens know about China itself. But barriers to sharing data fall and the Chinese populace becomes more aware of the great riches and corruption of their rulers, the government may respond in two ways. The first would be to embrace caution, meaning a slowdown of any further political or economic liberalization. Or it may channel domestic discontent into nationalism—ratcheting up tensions with its neighbors like Japan.
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Has the “Arab Spring” turned into the “Arab Winter”? No, it may be turning into an “Arab Summer” where radical movements, of the Islamist and secular stripe, are gaining political influence. The best example is Syria’s ongoing multidimensional conflict with the government and their Shia allies going up against a broad protest and military movement that also includes Sunni jihadists. “Syria’s descent into chaos is spreading insecurity into Iraq, Jordan and Turkey, and threatens to unhinge the entire map of the greater Levant,” the top risks report says.
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The U.S. should be set for a banner year, with the domestic energy sector expanding and the housing market turning into a driver of economic growth. But as we saw at the end of 2012, the political system can always find a way to resolve its differences in the most ad-hoc, shambolic, and confidence-weakening ways. Eurasia expects “political uncertainty around corporate taxes and a series of very noisy brinksmanship episodes [to] generate a modest but real drag on growth.”
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What do these three countries have in common? They’re on the losing end of “three global trends that fundamentally matter: China is rising, the Middle East is exploding, and Europe is muddling through.” Also, all three countries are lynchpins of America’s foreign policy in three key regions. If Eurasia is right and “relations with the United States that no longer carry quite the importance, or centrality, that they used to,” then the JIBs might be left out in the cold. Japan’s relationship with China isn’t getting any better, the U.K.’s place on the margins of the euro zone isn’t doing it any economic favors, and Israel is caught up in massive upheaval in the Middle East with little ability to influence it.
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Just because the euro zone appears to be muddling through its economic difficulties and has successfully avoided crisis and panic, that doesn’t mean it has created a European Union that will work for all its members. As Eurasia puts it, the biggest risk in 2013 is “a loss of momentum in creating the institutional and policy frameworks for eurozone 2.0.” Upcoming elections in Italy and Germany are not expected to produce results that will lead to particularly constructive economic problem solving, and “until Europe finds a formula for restoring economic growth more broadly the risks around the eurozone cannot be put in the rear-view mirror.”
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Traditionally the two big geopolitical risks in East Asia were the North Korean nuclear program and the possibility that the conflict over the Taiwan Strait turn into something other than cold issues that “were well-defined, and coexisted with a broad regional environment marked by increasing commercial integration and shared economic growth.” But now China and Japan are getting into each other’s faces. China has become more aggressive about claiming disputed islands between it and Japan and has turned a blind eye toward attacks on Japanese businesses in China. Meanwhile Japan has just elected a nationalistic prime minister, Shinzo Abe. What does this mean in 2013? “Another period of heightened tension in the Japan-China relationship.”
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The risk is not so much that Iran completes development on a nuclear weapon or that Israel will attack in the upcoming year. Instead “we are likely to see a sharp escalation of the shadow war between Iran and Israel and the United States” with all the attendant risks, like a spike in oil.
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India was supposed to be the next great Asian success story, with massive growth every year. Not so fast, says the Eurasia Group: the ruling Congress party has an election to win and a coalition that is not on board for Manmohan Singh’s reform agenda. What it faces instead in 2013 is a ruling Congress party that’s seen as corrupt and that will likely go for short-term popular policies that might come at the expense of fundamental reform of India’s economy.
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With elections coming up in 2014, expect populist leader Jacob Zuma and the ruling ANC to do more land reform and extract more money from South Africa’s massive mining industry. Speaking of which, the tensions that led to the deadly mining strike in 2012 haven’t abated one bit. Instead, Eurasia cautions, look for labor unrest in the rural mining sector to spread to the service economy in South Africa’s cities.
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