Cho Hyun-ah will not be spending Seollal – the upcoming Korean lunar New Year, which this year falls on February 19 – with her husband and their 20 month old twins. On February 12 a Seoul court sentenced the former vice-president of Korean Air to one year in jail (she already spent a month in custody) for her now notorious ‘nut rage’ outburst in December: specifically for impeding aviation safety, one of the five counts she was charged with. Prosecutors had sought three years in prison. Cho promptly appealed against both the verdict and sentence.
This week’s tragic events in Sydney underline that the terrorist threat is evolving. It is therefore worth pausing to consider whether terrorism insurance is meeting the changing environment.
Two and a half months after the Sewol ferry disaster, South Korea has finally returned to normal. June 4’s local elections, which despite predictions saw hardly any backlash against the ruling party for the system-faults exposed by this accident, were a turning-point that will let the country move on. Yet many challenges remain for President Park Geun-hye and her conservative Saenuri (New Frontier) ruling party. This article surveys the current political and policy scene in Seoul. (It does not deal with foreign policy or security issues. Here as ever an unpredictable North Korea remains the major threat, but relations with Japan (icy) and China – surprisingly warm, as seen in President Xi Jinping’s visit to Seoul – are also in some flux.) Continue reading ->
The US Federal Reserve Bank is set to signal on Wednesday that it will commence a painstaking multi-year effort to dramatically reduce its bloated multi trillion dollar balance sheet. The historic move will trigger a sustained 2014-2016 monetary policy effort to raise long-term US interest rates towards their recent historic average of 4%, and with it, raise the entire term structure of interest rates globally. However all regions of the world will not be affected equally by the Fed tapering. Some economies are more sensitive to US interest rate changes than others. Using 2000-2012 statistical data we examine the correlative relationships between changes in the 10-Year US Treasury bond and GDP growth across all regions of the world – with a particular focus on Africa. Our regressions indicate that economies in Europe (especially Southern Europe), the Caribbean, Central Asia and Southern Africa which benefited the most from the ultra-low interest rate regime are the most vulnerable to the tapering. Surprisingly, East and West Africa, of all the regions examined had the least GDP growth sensitivity to changes in the US 10YR over the thirteen year period. Their economies may be the most endogenously resilient of all the regions examined over the thirteen year period.
Despite the optimism which the regression engenders, Africa is still likely to suffer some of the spillover effects of tapering through the transmission mechanism of commodity prices. Africa’s relatively illiquid domestic capital markets also remain vulnerable. As the tapering begins, the US dollar will accelerate its strengthening trend and almost all US dollar denominated commodities, including oil and gold will see price declines. African economies that depend heavily on commodity exports such as: South Africa, Zambia, Angola, Algeria, Nigeria, Ghana, Mali, Botswana, Guinea, Gabon, Equatorial Guinea, Chad, Sudan and DR Congo among others may come in for a shock as commodity prices drop amidst a liquidation of many multibillion dollar commodity trade positions held by hedge funds and banks. The flight to quality and the return of the US as the safe haven for global investors, rather than gold or other precious minerals like diamonds and platinum, will also hit the Southern African countries hard. New African Eurobond issuances will also have to offer higher premiums to remain attractive to foreign investors who may now be flocking back to the US. African countries with weakening FX positions such as Nigeria could see speculative attacks on their currencies.
North Korea’s sudden and very public purge of Kim Jong-un’s uncle-in-law and mentor Jang Song-thaek, who was executed on 12 December, is an extraordinary turn of events. It seems a stretch to regard this as positive for stability – although some do argue so, as discussed below.
Purges are of course routine in a regime originally created by and modelled on Stalin’s USSR. Fought out publicly in the early days when North Korea’s founding leader Kim Il-sung – the grandfather of Kim Jong-un – liquidated rival communist factions (pro-Soviet, pro-Chinese, South Korean – in the 1950s, and then in the 1960s got rid of those who dared to oppose his dynastic succession plans, in more recent decades such processes had become more discreet. Individuals simply disappeared sans explanation, or were retired on the pretext of ill-health. Jang himself vanished thus in mid-2003, reappearing only in early 2006. The likeliest reason is that Kim Jong-il feared his brother-in-law and his networks were becoming too powerful – but then needed him back to smooth the succession of the young and untried Kim Jong-un.
Readers of the drearily hagiographic party daily Rodong Sinmun are not used to subjects like gambling and orgies, much less talk of inciting a military coup on grounds of mass poverty. Yet the supposedly unthinkable in North Korea was plastered all over the Pyongyang media, not once but twice, in the two rambling, ferocious and eye-opening screeds that accompanied Jang’s denunciation and purge on 8 December and his trial and execution four days later.
It is risky to air such matters: telling a shocked public in graphic detail that even such a pillar of the system was in fact a thrice-cursed traitor. Two questions arise: who had it in for Jang, and what this all portends for stability. It may not have been simply the nephew disposing of an uncle-mentor who had outlived his usefulness and might pose a threat. Just as likely, hard-liners in the Party and military saw Jang and his gang as simply too powerful; and perhaps also too keen, as the charge-sheet suggests, on economic opening and reform. (Jang’s widow Kim Kyong-hui, the younger sister of Kim Jong-il, whose own fate was at first unclear, was spared and remains powerful: she was named to a state committee on 15 December. She and Jang may have been estranged; there is now speculation that she had a hand in his demise.)
Purging Jang so publicly is an act of state terror pour encourager les autres, warning elite and masses alike to stay in line. But it could backfire. If top nomenklatura figures must now fear for their lives, as they mostly need not have before, they may consider options thus far off the table, such as defection. Despite many fissures, the DPRK elite has been remarkably cohesive hitherto, on the basis that if they did not hang together they risked hanging separately; but all that could now unravel. Time will soon tell, if further purges – besides Jang’s people, already in the firing line – follow in 2014. If however the dust settles and all is stable, then Kim Jong-un’s cruel chutzpah and gamble might just pay off and allow him to consolidate his rule.
And then do what? The US scholar and quondam policy maker Victor Cha sees Jang’s ouster as confirming “the regime’s turn to a hardline, fundamentalist ideology by the young Kim, not one of opening and reform.” That is too simple, and also a misplaced either/or. On the contrary, Kim Jong-un’s Byungjin line is a both/and: declaring that North Korea will keep its nuclear weapons while also seeking economic development. Guns and butter, in a word.
To be sure, Kim may well be deluded in supposing he can (to mix the metaphor) both have his nuclear cake and eat the fruits of inward FDI. Capital shortages, UN sanctions and an as yet unreformed economy – where blind loyalty trumps and squelches enterprise any day, as the young Marshal has just bloodily emphasised – all militate against this amalgam of chalk and cheese actually working. Byungjin may even be less a coherent policy than a stalemate between hard-liners and modernisers at the time it was promulgated, on 31 March.
And yet the regime seems serious about economic opening. Pursuant to a law passed in May, on 21 November the DPRK proclaimed nine new Economic Development Zones (EDZs), all around the country, with incentives for foreign investors. Wasting no time, on the very day (9 December) Jang’s purge was revealed, the Chinese city of Tumen in Jilin province signed a deal to develop one such EDZ: a nearby site in the small DPRK city of Onsong, just across the eponymous Tumen river which forms the border. A Chinese source says this is to be “a high-class foreign tourists’ resort with a golf course, swimming pool and horse racing;” suggesting a closed enclave, alas, rather than an engine of wider national development.
Global Times, the Chinese paper that broke this story, in the same article quoted a South Korean opposition law-maker as claiming far bigger joint ventures are in the works. By this account, on 8 December (the day of Jang’s purge) China and North Korea agreed to build a 380 km high-speed railway – other reports add a motorway alongside it – all the way from Sinuiju on the border to Pyongyang and on to Kaesong, on the border with South Korea.
And further, to Seoul? Cross border North-South rail links already exist from the sunshine era (1998-2007) of cautious inter-Korean detente, but the North has refused to let them be used. Kim Jong-un may be more confident than his late father, especially if (to great chagrin in Seoul) it is China, not South Korea, that will be doing the construction and footing the bills.
In sum, the dust from Jang Song-thaek’s purge has yet to settle and will not do so for several months, as the mopping-up continues. Publicly liquidating his uncle is a high-risk strategy for Kim Jong-un, which may incite rather than prevent further ructions within the elite.
Yet analysis must avoid essentialism and false antitheses. It does not follow from this brutal act that Kim is benighted and reactionary on all fronts. On the contrary, rather than opposing economic opening (market reforms are another matter) he seems to favour it in some degree. Jang Song-thaek may have been purged not for doing the wrong thing, but for doing the right thing too well and independently; forcing his nephew to bump him off and steal his clothes.
If from next year the massive new bridge already rising over the Yalu river does indeed link China’s own modern road and rail networks with new ones beginning to be built across the DPRK– and what is the point of it otherwise? – then perhaps North Koreans, though cowed and surely worried by Jang’s purge, may not yet abandon hope that their headstrong young leader will deliver them, if not glasnost, then at least a modicum of perestroika. At all events no one is asking them, so unless insanely brave they have little choice but to wait and see.
Former South African President Nelson Mandela comfortably sits among the pantheon of 20th century immortals. Only in Plutarch, Aeschylus, The Talmud, Thucydides, and Gibbon or in Machiavelli’s writings do we get glimpses of ancient heroes and heroines equal in rank, stature and political stamina to Madiba. Yet, with eyes our glazed from mourning, we are tempted to conclude that the red soil of South Africa no longer births radical leaders of Mandela’s ilk to confront the socio-politico-economic ills of our times. However a brave night’s stroll through the poverty-stricken townships of Umlazi, Soweto, Khayelitsha or Guguletu will invariably set one on a collision course with the stark but oft-hushed reality – millions of nameless unemployed youth curdling in sweaty powerlessness and dreaming of freedom – economic freedom – a simple job! They ironically also cry, Mandela’s cry, ‘Amandla’ ‘Awethu’ (power to us). They yearn for a job and not ballots. They argue over how to change ‘The ‘System.’ Mandela’s, Mbeki’s and Zuma’s “system.”
Since 1994, each election cycle has widened the distance between the pocket and the mouth. Each ballot cast has seemingly increased the price of food and basic amenities. Each election has made jobs scarcer. With some of the highest unemployment rates in the world for 20 years running, many youth quietly question the choice of the ballot over bread which Mandela and his generation made. As Mandela, himself an avowed Marxist, would have perfectly understood, the sharpening socio-economic and class contradictions in South African life have today created an environment rife with the requisite incendiary factors to inevitably produce a proletarian economic revolt against the ruling African National Congress (ANC).
The children of 1994, now almost 20 years old, and mostly unemployed, may within this decade launch a revolt against the ANC. This revolt will not be aimed at economically privileged (and politically marginalized) whites – but at the increasingly distant and unrecognizable ruling Africa National Congress (ANC), its obese corrupt leadership, the out-of-touch black ‘empowerment’ billionaire elites, and the haughty nouveau riche middle class who coddle the party. The public boos hurled at President Jacob Zuma and his billionaire deputy, Cyril Ramaphosa, at Tuesday’s memorial service for Mandela in Johannesburg, the rise of a radical redistributionist party under former ANC Youth League President Julius Malema, and the recent launch by Steve Biko’s widow of an alternate black led political party to the ANC, are all dark and ominous clouds hovering over the future of the ANC and Mandela’s legacy. Unless the ANC formulates an economic and jobs program as radical as those which Malema offers, and yet as equitable and as wise as those which Mamphela Ramphele proffers, the party may be marching slowly towards irrelevancy and ultimate death. While Thabo Mbeki, Mandela’s technocratic successor, oversaw an honest, dramatic and often under-appreciated effort to redress the gargantuan structural socio-economic legacy of apartheid (a controversial task which Mandela, for all his enormous political capital, did not spearhead during his presidency), the country still remains today a veritable class paradox; an economic oxymoron, a-tale-of-two-cities, two-nations, one rich and one still very poor, a house still divided against itself — which ultimately cannot stand.
The argument over whether to sequence economic or political freedom first in decolonization has divided honest intellectuals since the noisy debates between Booker T. Washington and W.E.B. Dubois at the turn of the 20th century. It divided Mandela from Steve Biko; Elijah Muhammad and Malcolm X from Martin Luther King. That same argument now divides Winnie Mandela, Mangosuthu Buthelezi and Julius Malema from Jacob Zuma and the ANC leadership. W.E.B Dubois, Thurgood Marshall, Mandela and Martin Luther King won the first round in the 1960s, the ghosts of Steve Biko, Malcolm X, Marcus Garvey, Booker T. Washington and Julius Malema look poised to win the upcoming round.
By contrast, the dramatic improvement in the socio-economic status of the average Chinese over the past three decades, albeit without political freedom, casts a long shadow and amplifies the abysmal failure of the ANC and most of de-colonized ‘free’ African states to deliver basic economic freedom (i.e. jobs). As Karl Marx, the intellectual idol of Mandela would have recognized, South Africa, being the most industrialized African state and containing within it the sharpest socio-economic contradictions on the continent is a veritable crucible for a looming mass revolt against the status quo.
Risk of new Argentina bond default threatens African frontier capital markets and could stall Kenya’s USD1.5bn Eurobond issue
In 1989 at the time of the Tiananmen Square protests the sovereign capital markets risk perceptions of Brazil, India, China and Russia (BRIC countries) were uncorrelated as they are today. In much the same way, the underlying risks of the world’s last frontier capital markets (many of them in Africa), are only gradually becoming correlated with each other. It is against this dynamic background that a recent New York court ruling against Argentina ordering it to pay over USD1.3bn to foreign bond holdouts, and Argentina’s threat to not pay the amount, threatens to wreck havoc in Africa’s frontier capital markets. Kenya’s planned USD1.5bn Eurobond scheduled for November could be stalled. Other existing bond issues may see steep yield spikes.
The verdict on the hearing of the Supreme Court in Ghana is due to be delivered tomorrow, on Thursday 29th August 2013. For 48 days, Ghanaians have been exposed to a litigation process like no other, in which three petitioners from the opposition New Patriotic Party (NPP) including the party’s flagbearer for the December 2012 elections, are calling for the annulment of close to 4 million votes. Continue reading ->
On 29 August Ghana’s Supreme Court will deliver its landmark verdict on the legal challenge to President John Mahama’s disputed December 2012 election. Continue reading ->
The on-going bloody struggle between Egypt’s Muslim Brotherhood (MB) and the country’s military forces may soon be transported from the streets of Cairo to the sidewalks of major western capitals. Continue reading ->
This week’s tragic events in Sydney underline that the terrorist threat is evolving. It is therefore worth pausing to consider whether terrorism insurance is meeting the changing environment.
The death of President Hugo Chavez will have significant implications within Venezuela and internationally. A range of possible scenarios may play out which investors should consider.
On the domestic side three scenarios seem possible at the moment of writing:
- Chavez’s party – the United Socialist Party of Venezuela – rallies behind Maduro, the Vice-President and successor designated by Chavez. On the wake of the emotional wave prompted by the death of the Bolivarian leader, Maduro wins the election and is able to maintain the ruling party united. Continuity of policy with the past few years is to be expected. The opposition will remain unlikely to have a significant impact on the Bolivarian revolution and organisation of the state.
- Maduro and Cabello, President of the National Assembly, fight for the leadership of the party, which results weakened and fractioned. In this case the government camp can still win elections led by either candidate – still most probably Maduro – but will be unable to keep a clear and consistent political line. This is perhaps the least desirable scenario for Venezuela as the Bolivarian movement and policies would be caught between internal and external opposition.
- In spite of the emotion and affection of the masses for Chavez, Capriles, the defeated candidate in last November’s elections, leads the opposition to a win by a whisker. Polarisation will continue. The new government is likely to try and reverse most of the centrepieces of the Bolivarian project, opening the economy to much needed foreign capital, reducing the role of the state and undertaking a radical or gradual redirection of Venezuelan foreign policy. Social and political tensions are to be expected, their extent is impossible to predict.
On the international plane interesting developments may occur too:
- If the Bolivarian candidate wins, a general continuity with Chavez’line may be expected. However, oil generosity towards smaller neighbours may be tempered and the ALBA regional project may lose both momentum and appeal. The “dangerous relations” with international partners such as Iran or Syria may experience acceleration or a slow-down depending on both domestic power struggles and US position towards the new regime.
- If Capriles succeeds in his second presidential bid, he is likely to restore more friendly relations with the US and cool off ties with the Bolivarian countries. Indeed the whole Bolivarian regional project may come to a halt or be significantly redesigned. This may lead to smoother Latin American relations. However, habit to power and influence dies hard and the new administration may be tempted to mould the ALBA initiative according to its own vision without renouncing activism and/or verbal prominence.
- In any case the whole Bolivarian project at the regional level will necessarily have to go through a phase of adjustment and perhaps will have to search for a new leader or form of leadership. In this context it is not inconceivable that Bolivarianism, or a revised version of it, may continue under the leadership of President Correa of Ecuador, whose pragmatism and domestic approval rates of over 80% make him a regional force potentially palatable to Bolivarians and pragmatists of different sorts.
The legacy of Hugo Chavez for better or for worse will be at the centre of the Venezuelan domestic debate and regional discussion for the near future. Regardless of whether or not chavismo without Chavez is possible, Bolivarianism, its ideals and aspirations - without Bolivar or Chavez – have a quite high chance of survival and continuing relevance in Venezuelan and Latin American politics.
Libya’s transitional government has begun a process reviewing oil and gas contracts signed under the Ghadaffi regime. While it is not yet clear what principles will guide the new transitional regime in this work, the current political chaos and continued bouts of insecurity imply that the contract review process is likely to be chaotic, subjective, unsystematic, non-transparent and nepotistic. Continue reading ->
The weekend’s G20 summit held in Russia released a lengthy communiqué after the event that avoided saying very much at all. Continue reading ->
Identifying and Managing Political Risk in Pipeline Projects
Warnings abound that the biggest threat to gas supply disruption this winter comes from oil & gas pipeline attacks. This vulnerability derives from a number of factors:
- Different contracting parties, often with competing objectives, are involved.
- Long term investments during which time government priorities and commercial imperatives may change, impacting on the viability of the pipeline.
- Incompatible legal and regulatory regimes between signatory states and the absence of an overarching legal regime that can be used to police and regulate activities and contracts.
- Long, unprotected lengths of pipe are prone to acts of terrorism and sabotage and other forms of political violence. Continue reading ->
Including: Country Economic Risk, Currency Inconvertibility & Transfer Risk, Sovereign Credit Risk Continue reading ->
Including: Expropriation, Contract Agreement Repudiation, Legal & Regulatory Risk Continue reading ->
While investors in oil & gas pipeline projects will always be among the most vulnerable to political risk due to the nature of the industry, steps can be taken to minimise the risk. Continue reading ->
Structural flaws and political corruption epitomise the challenges confronting India’s mining sector and the obstacles to foreign investment. Continue reading ->
Kenya: Country hurdling towards major political crisis regardless of who wins today’s presidential vote..
Regardless of which major Kenyan presidential candidate wins today’s presidential vote, the once eerily peaceful major East African economy is headed towards a major national political crisis. The consensus view held by many analysts and western diplomats that, it is only a win by Uhuru Kenyatta and VP candidate William Ruto, (both indicted by the International Criminal Court (ICC)), that will trigger a major political crisis, is false. A win by Odinga, and a refusal by Ruto and Kenyatta to go back voluntarily to the ICC will also trigger a crisis. Continue reading ->
India’s power shortages and its government’s nationalist tendencies should give foreign investors and mining companies much cause for concern – the political risk environment will remain unresolved in the medium term. Continue reading ->