ECR survey results Q2 2021: US, China, CEE risks recede, but Asian EMs struggle with Covid-19

Photo: iStock

No fewer than 91 out of 174 countries became safer in Q2 2021 relative to Q1, according to Euromoney’s latest quarterly survey of more than 230 experts in economic, political and financial risk from across the public and private sectors.

The rise was led by many smaller countries in sub-Saharan Africa, bouncing back from the pandemic shutdowns, as well as a number in central and eastern Europe, stretching into central Asia. They include Bosnia-Herzegovina, Czech Republic, Croatia, Estonia, Serbia and Slovakia, as well as two of the big oil producers, Azerbaijan and Kazakhstan.

Among the countries bouncing back in the Middle East are high-risk Iran, Jordan and even Syria – albeit from a very low base. Israel is benefiting from its effective pandemic control and less-political uncertainty. It has risen eight places in the survey, leapfrogging Germany and the US, to 13th in the global risk rankings, a record high.

China, the US, UK, Netherlands, Russia and Switzerland have been upgraded, largely in response to their rebounding economic fortunes.

In its latest Global Economic Prospects (released in June), the World Bank predicts 5.6% real GDP growth for 2021 – “its strongest post-recession pace in 80 years”.

Scores for the economic-GNP outlook, one of five economic risk indicators in Euromoney’s risk survey, have increased (showing less risk) for 128 countries. The scores for employment/unemployment have improved for 115 and government finances for 112 after last year’s deterioration.

Eleventh-placed Hong Kong is also turning around, with social stability and a functioning economy restored by the security law.

Although the picture is one of general improvement –as the world copes with the pandemic through improved policymaking, economic adaptation, and vaccines – there are still 75 riskier countries in Q2 2021 to make investors wary.

Slow vaccination rates and new coronavirus waves are key risks, as well as financial stresses caused by higher debt burdens creating policymaking challenges.

Among the emerging or frontier markets with increased risks are Argentina, Belarus, Lebanon, Nepal, Nigeria, Venezuela, Yemen and Zimbabwe, not to mention Brazil and South Africa.

Several of Asia’s emerging markets (EMs) are also considered riskier by analysts, including India, Indonesia, Malaysia, South Korea, Thailand and Vietnam, which are struggling to manage the pandemic, with low vaccination rates and more infectious variants spreading.

India and Japan have dived, while western European analysts have marked down Germany, France and Italy, largely – but not exclusively – for these pandemic-related reasons.

Euromoney’s country risk survey is conducted quarterly among several hundred economists and other experts, with the results compiled and aggregated along with a measure of capital access and sovereign debt statistics to provide total risk scores and rankings for 174 countries worldwide.

The crowd-sourcing approach provides a responsive guide to the changing perceptions of participating analysts in both the financial and non-financial sectors, focusing on a range of key economic, political and structural factors affecting investor returns.

All of the countries are ranked according to their total risk scores, resulting in Switzerland being classed as the world’s safest country and North Korea as the riskiest at the halfway point of the year.

Among the world’s safest countries, Norway has seen its ranking fall the most, from second to sixth during the past five years, partly reflecting its inability to diversify from hydrocarbons.

By contrast, the rise of Australia is noteworthy. Due to a long stretch of impressive economic growth, fiscal management and, more recently, efficient pandemic control, the country has leapt ahead of Denmark, Finland and Singapore into second place.

Australia has moved up eight places in the rankings during the past five years, Finland is up seven to fourth and New Zealand by five places to seventh. Estonia, Israel, Ireland, Macao and Slovenia are among the top-20 safest countries also showing the biggest improvements.

Euromoney survey expert Claire Matthews, an associate professor and director of academic quality at the Massey Business School and senior lecturer in banking at Massey University, says Australia and New Zealand have done well containing the pandemic, which has resulted in a reduced economic impact compared with other countries.

“More recently, Australia has faced challenges with new outbreaks of the delta variant, bringing further lockdowns, which may have future economic repercussions depending on how extensive the lockdowns need to be,” she says.

“The opening of a travel bubble between the two countries has been helpful in boosting tourism, particularly in New Zealand. However, the frequent suspensions of that bubble due to the outbreaks is creating increasing uncertainty and discouraging travel.”

She notes that both countries are experiencing better-than-expected economic performance on the back of improving commodity prices, but are also facing inflationary pressures, with some of this resulting from supply issues due to the harsher impact of the pandemic in the rest of the world.

“Key to both countries’ future economic prospects will be the vaccine rollout, which has been slow to date, but is now making progress,” says Matthews. “Achieving a high proportion of vaccination across their populations will enable the opening of borders and further boost both economies with the return of immigrant workers and international students, as well as tourists.”

Economic growth and confidence in the Biden administration are factors that have bolstered the US risk score (in 17th place) this year. It is among a select few industrialized countries improving in the survey, along with the Netherlands and the UK.

The US faces an unclear path ahead, according to Johan Krijgsman, of Krijgsman & Associates, although momentum seems to have built around president Joe Biden to allow progress.

“Presuming the [fiscal] stimulus package gets through Congress, the economy is likely to remain on a robust trajectory in the near term,” says Krijgsman.

“Lines have been drawn with respect to China, Russia and the Middle East, and the EU appears to have signed on to an American leadership role. The China relationship will remain the key focus of attention, but on balance it does seem that America is back and so are its traditional patterns of behaviour.”

However, Krijgsman mentions there are potential domestic clouds on the horizon. Besides the sizable Republican position in the Senate, they include the scale of Biden’s agenda, the left-right divisions in his party and whether the obvious current threat from inflation is seen to require a more aggressive monetary policy.

The improving US risk score contrasts with that of Canada (in 25th place), which has fallen slightly further, extending a longer-term downward trend.

“As Canada comes out of the pandemic, it will need to confront economic and societal challenges that were put on ice in the past year-and-a-half,” says Erik Henningsmoen, a research analyst at the Toronto-based Higher Education Strategy Associates.

Canada, due to its smaller size and less-fiscal capacity, does not have the ability to deal with its challenges in the same way that the US does. The country has a housing problem with prices rising sharply and there is the prospect of a snap federal election this year, with reports from the intelligence agencies that Canada’s election process will be targeted by cyberattacks and interference.

“As we saw in November 2020, in the US, even a rumour of such interference can lead large numbers of voters to – rightly or wrongly – call the legitimacy of an entire election into question and lead to significant unrest,” says Henningsmoen.

He also notes another problem that has come to light with political risk implications. Since May, searches using ground-penetrating radar have discovered more than 1,000 unmarked graves of indigenous children on the former grounds of residential schools.

“These discoveries have created shock, sadness and anger throughout Canadian society and underscore the limited progress that Canada’s reconciliation efforts have made in repairing relations between indigenous peoples, the Canadian government and Canadian society as a whole,” says Henningsmoen.

“These developments could precipitate a degree of political instability in Canada. For example, there have been numerous instances of vandalism and arson to Churches that may be linked to anger over the discovery of the unmarked graves.”

He adds: “It is worth remembering that back in early 2020, prior to the pandemic, there was a widespread blockade of railway traffic in Canada over pipeline development and indigenous land claims. This incident was highly disruptive to Canada’s domestic and international supply chains, and was thus an effective tactic for the indigenous people and activists who carried out the blockade.”

Another concern relates to the weaknesses in the current Canada-US relationship. The values of the Trudeau government and the Biden-Harris administration are “seemingly congruent with one another”, says Henningsmoen, but there have been notable policy challenges between the two countries since Biden was elected.

This includes the cancellation of the Keystone XL pipeline, disputes with the state of Michigan over the operation of the Enbridge Line 5 pipeline and most recently a lack of reciprocity by the Biden-Harris administration re-opening the Canada-US border for regular travel.

Krijgsman mentions similar concerns, including the indigenous peoples issue as well as delays to the vaccination programme and the lack of capability to manufacture vaccines and stockpile protective equipment. He mentions the overpriced housing market, Canada’s growing public and private sector debts, and inflation.

He also mentions climate change.

“In the background is the conflict over how to manage environmental good intentions and concerns – for example, the tragic forest fires in the west – with the country’s economic base of energy-intensive extraction of raw material, transporting goods over vast distances and living in air-conditioned or well-heated homes and offices, depending on the season,” says Krijgsman.

Political stability, the opening-up of the UK economy and easing of Brexit-related issues – notwithstanding the Northern Ireland conundrum – are all factors making the UK a safer option.

The risks of investing in the core eurozone countries by contrast have increased, with analysts marking down Germany, France, Italy and Spain, as economic growth is seen losing momentum, with more difficulty coping with Covid-19 variants due to a slower pace of vaccinations.

“The pandemic situation and rising infection rates in many western European countries have increased uncertainty,” says survey expert Roberto Cervelló Royo, associate professor at the Universidad Politécnica de Valencia. “European financial markets have dropped, and future GDP growth and rebound forecasts have frozen.”

As well as the economic and healthcare infrastructure problems caused by the pandemic, German investors must also contemplate an election later this year, which looks to be fought on climate-change issues, given the rise of the Greens, the recent flooding problems and chancellor Angela Merkel stepping down.

Norbert Gaillard, of NG Consulting, says the vaccination campaign has not enabled leading eurozone countries to reach herd immunity.

“The percentage of fully vaccinated people ranges from 40% (France) to 44% (Italy), 46% (Germany), and 50% (Spain),” he says.

“The main problem is that the delta variant is spreading fast and may affect Spain and, to a lesser extent, France dramatically. In these two countries, the number of cases per 100,000 inhabitants has already exceeded 50 and will go on rising. Tourism receipts will be lower than expected, which will reduce economic growth.”

Gaillard also mentions that economic recovery is slower in Europe and that, as a result, the “capacity to tap capital markets must be scrutinized”.

“French, German, Italian and Spanish 10-year government bond yields have declined for four weeks,” he says. “Considering the present borrowing needs, this remains positive. Any significant divergence in yields – as happened in Q2 2018 and Q3 2018 to the detriment of Italy – in the next weeks and months would be a source of concern.”

Gaillard adds that while short-term political risk remains rather negligible in countries such as France, Germany, Italy and Spain, anti-vaccine movements and possible social unrest driven by persistent unemployment and financial problems in specific sectors – for example, independent hotels and restaurants – should not be overlooked.

“I consider that political stability in Spain is more fragile than in other major eurozone economies, especially after the recent regional elections”, he adds.

Although the survey scores for a few countries across central and eastern Europe deteriorated – namely Latvia, Lithuania, Hungary and most notably Slovenia – most of the region improved.

Scores were raised for Croatia, Czech Republic, Estonia, Poland, Romania, Serbia and Slovakia. They have also improved for higher risk Albania, Bosnia-Herzegovina, Montenegro, North Macedonia and even Turkey, bouncing back somewhat from its low towards the end of last year.

“After a very uncertain year, the economies of the western Balkans are seeing sunnier days,” says Milos Vulanovic, associate professor of finance at EDHEC Business School.

Two main reasons for the improvements and decline in immediate risk are increasing revenues from tourism and steady foreign direct investment (FDI).

“Croatia and Montenegro, both being heavily dependent on the inflows from tourism, are benefiting as the visits are almost reaching record 2019 levels,” says Vulanovic. “The reasons are the positive reaction of authorities in providing free Covid-19 tests and opening-up the borders fully.

“In addition, Montenegro has repackaged infrastructure loans to China, thus significantly lowering the interest rate.”

As for Serbia, the past few years has seen it receive large inflows of FDI. Car supply factories of European carmakers have opened up. In addition, the region is integrating thanks to the mini-Schengen economic initiative.

Clearly, the rise in vaccination rates has a positive factor improving perceptions, too, with the IMF noting in its latest World Economic Outlook that Serbia is a lead indicator of recovery.

The country’s impressive start on vaccinations – even vaccinating citizens of neighbouring countries who went to Serbian vaccination centres – has given it an uplift in terms of perceptions, states another contributor in a private capacity.

Greece, which is still improving in Euromoney’s risk survey, is also ahead on vaccinations. Despite the recent surge in cases linked to the delta variant, the economy is opening up, with more people going out and on holiday.

Turkey, similarly, has picked up on the vaccination and tourism front, according to the statistics.

In Romania, infection rates are low, as are hospitalization and death rates, and the economy is opening up. Although Romanian politics often proves quite volatile, the state has demonstrated that it can function even without a stable government, one analyst mentioned.

In central Asia, the survey scores for Tajikistan and, to a lesser extent, Uzbekistan are worse off. However, the region has generally improved in response to Covid restrictions easing, relative political stability and, importantly, the boost from improved commodity prices supporting fiscal revenue and GDP growth.

Scores have improved for Azerbaijan, Kazakhstan, Georgia, Moldova and, to a smaller extent, Russia. However, Ukraine’s score has worsened slightly, with the president and his government’s commitment to reforms wavering, the economy recovering fitfully and ongoing tensions with Russia an issue for longer-term security and stability.

China and Hong Kong improved in the survey in Q2 2021, partly because of continuing strong growth and policymaking choices in China.

All of China’s economic indicator scores were raised, and all bar the government finances for Hong Kong, with the economic-GNP outlook and employment/unemployment indicators improving the most.

“China is clearly benefiting from the rebound in global demand,” says Iikka Korhonen, head of research at the Bank of Finland Institute for Emerging Economies (BOFIT). “At the same time, China’s domestic demand continues to increase. Manufacturing is already clearly above pre-pandemic level, but there is ample room for growth in many service sectors.

“It is also significant that the Chinese authorities in recent months have taken a clearly more restrictive policy stance towards increasing debt levels. While the Covid-19 crisis meant more debt in practically all countries, China is ahead of many others trying to rein in excessive lending.”

This, according to Korhonen, is reflected in investor risk perceptions.

The first half-year figures for manufacturing, exports, fixed asset investment and the housing market show that China’s economy is on track to full recovery to its pre-pandemic levels of 2019, according to Friedrich Wu, a professor at the Nanyang Technological University.

“While retail sales and other services industries still lag, the evident progress in controlling the spread of Covid-19 will help these industries recover in the second half of 2021 and next year,” he says.

Wu also notes that despite continuous US tariffs and bilateral political tensions, Chinese exports to the US have remained strong. The share of US imports of manufactured goods from China were at an historic high of 22% in 2020, despite the pandemic. Surveys by the American Chamber of Commerce in China also reveal that few US companies have plans to relocate all or part of their operations out of China, with the Chinese consumer market proving to be too big a magnet for multinationals.

Despite this positive outlook, he mentions two medium-term risks.

“First, the government’s recent crackdowns on tech companies send a chilling message to the private sector and could have a dampening effect on the innovative spirit of entrepreneurs,” says Wu.

“Second, the high unemployment and under-employment of university graduates – Chinese universities churn out nine million-plus graduates every year – could ignite discontent or even social unrest if the slowing Chinese economy cannot create enough meaningful and adequately paid jobs.”

As for Hong Kong, Wu notes that while the western media and governments continue to criticise the national security law (NSL) imposed by the Chinese government, “both the business community – foreign and local – and ordinary folks actually welcome the restoration of law and order after a full year of violent and chaotic riots and street battles provoked by the so-called ‘democracy activists’ in 2019. This is evidenced by survey results of various international and local chambers of commerce.

“The property market and the financial services sector are holding up well. Even the logistics industry is reviving, thanks to China’s strong export performance.”

He adds: “The only sector that remains moribund is tourism, due to the Covid-19 pandemic and many Hong Kongers’ irrational resistance to vaccination. Ironically, Washington’s pressure on the New York Stock Exchange to de-list Chinese companies would most likely benefit Hong Kong’s stock market and investment banks, as these companies would eye the HKSE for listings.”

Wu says the so-called exodus of Hong Kong talent due to the alleged fear of the NSL would quickly be replaced by tens of thousands – if not millions – of mainland Chinese talent. For companies that also have operations in China and are familiar with that restrictive legal and regulatory environment, the NSL in Hong Kong presents “minimum risk”, in his opinion.

Despite this, BOFIT’s Korhonen adds a note of caution. Although it seems that various demonstrations have been suppressed, at least for now, “the ongoing trade war between China and the US, the US sanctions against high-ranking HK officials and warnings to US companies operating in Hong Kong all point to increasing risks in the future”.

Other countries in the region have fared less well, with Asian countries becoming the most concerning for rising cases of Covid-19 variants due to their low vaccination rates necessitating ongoing restrictions.

This has seen risk scores worsen for Indonesia, Malaysia, South Korea, Taiwan, Thailand and Vietnam. Higher-risk Myanmar and Nepal are also downgraded.

The effects of new variants of Covid-19 on healthcare systems, and public policies limiting mobility through lockdowns, have highlighted that earlier expectations for growth were overly optimistic, says Reid Click, associate professor of international business and international affairs at George Washington University.

“The Philippines and Thailand are still suffering the most, and previous forecasts of strong growth during 2021 with full recovery in 2022 are going to be much more challenging to achieve,” he says.

“Malaysia is still on track for full economic recovery during 2021, but political risk has risen because the surge in Covid-19 cases has resulted in anger directed at the government and withdrawal of support for prime minister Muhyiddin Yassin.”

Click adds: “In Indonesia, where the surge in Covid-19 deaths has been the highest in the region, the government’s weak financial situation – and resulting dependence on foreign creditors – is limiting the support it can provide to the economy.”

As for Japan, Kenji Sekiguchi, chief analyst at Rating and Investment Information, says that while the country has confronted the pandemic well from a medical and human-life perspective – reflected in the absence of excess mortality from the beginning of 2020 through to Q1 2021 – it is not exceptional in terms of the social and economic damages emanating from the pandemic.

“The contraction in real GDP was the worst in its post-war history and the fiscal deficit widened drastically,” says Sekiguchi. “To be fair, these were not unique to Japan, and it has ample domestic financial resources and institutional capacity to weather such a sudden deterioration in economic and fiscal environment. Japan’s real challenges are more structural and long-term in nature.”

The fourth declaration of a state of emergency in mid-July for Tokyo and similar measures being implemented in the surrounding prefectures are likely to dampen the recovery of business sentiments, directly or indirectly, by reducing the economic and psychological benefits of hosting the Olympic Games, he says.

“The economic outlook will depend on how well this is countered by positive developments in exports and the acceleration of vaccinations in the second half of the year.”

Sekiguchi also says the most deteriorated aspect has been the mindset concerning the government and its policymaking.

“This is epitomized by recent opinion polls, most of which suggest that more than half of the respondents are rather sceptical about the effectiveness of the declaration of a state of emergency as a Covid-19 containment measure,” he says.

“Besides, with no legal enforcement, that scepticism could be self-fulfilling, further undermining the effectiveness of the measure. The level of confidence of the private sector in government’s policies is a very important factor in a country’s economic outlook, and that is exactly the case in Japan today, where progress of vaccination is extremely important."

It was a mixed picture for Latin America in Q2 2021. Guatemala, Paraguay and Uruguay were among several countries bouncing back.

Mexico has stabilized, although its score is still below its year-earlier level, but there are deteriorating risk scores for low-risk copper producers Chile and Peru, Colombia and some of the region’s higher-risk options. They include Argentina, El Salvador and Venezuela, plus Ecuador and Brazil.

Independent economic adviser and consultant Gabriela Nudel says Paraguay and Uruguay have suffered from the pandemic. However, Uruguay has handled its vaccinations effectively and both countries have sound macroeconomic policies, and an institutional and investment framework that is stable and predictable.

As for countries such as Argentina, Ecuador, Colombia, Peru and Venezuela, she says: “They all have political, social and economic problems, and they have been on this path for a long time now. Covid-19 just reinforced it.

“Social distress and poverty are on the rise in all these countries and vaccination rates are advancing slowly – a dangerous combination.”

As for Chile, it has one of the best healthcare systems in Latin America and the pandemic has been managed much better than in any other country in the region, but there is substantial risk when a new constitution is written, says Pablo Guerron, a professor at Boston College.

“The bright light is that it has strong institutions and a professional public sector,” he says. “Importantly, the current president is not aligned with the majority of the assembly, so the risk of total powers going to the executive branch is reduced.”

Odalis Francisco Marte, deputy director of the Central American Monetary Council, says that divisions in Chilean society will remain in the medium term, as the adaptation process to the new political reality takes place.

“The probability of the occurrence of some sort of social unrest remains moderate over that time horizon,” he says. “But I expect Chile to remain an investment-grade country as the economy improves along with its political system.”

In the Caribbean, analysts are more confident about prospects for commodity producers and tourism-dependent islands, such as Barbados, Dominican Republic and Jamaica, as economic conditions improve, but not for Antigua & Barbuda, Bermuda, St Lucia or Trinidad & Tobago, as the effects of the crisis rumble on, while increasing the region’s debt burdens.

The survey shows Kuwait and Saudi Arabia slipping along with Algeria, Egypt, Iraq, Tunisia – especially ahead of the recent turmoil – Lebanon and Yemen, the latter two having their own acute domestic problems to contend with.

However, there are also some improvements to mention, not least for high-risk Iran after the resolution of political uncertainty following the elections and negotiations revived to try to reach a nuclear deal. Libya and Syria have improved as well as Morocco; plus, the region’s safest country Israel has climbed 10 places in the global rankings to 13th.

Survey expert Richard Abdallah believes that in H2 2021, the Gulf region will see stronger economic activity as global commodity demand increases and lockdown restrictions ease.

“There is also an increased urgency for GCC [Gulf Cooperation Council] countries to enact both economic and social reforms to counteract their exacerbated debt levels and to reverse the loss of expatriate labour caused by the pandemic,” he says.

“This is especially true for countries like the UAE, Kuwait and Qatar, where the workforces are heavily dependent on expat-labour and the proportion of foreigners in the total population is the highest globally – at over 70%.”

Abdallah also believes that rapprochement between Israel and softer Arab states is a positive risk factor for the region.

“2021 might be the year that Saudi Arabia [which became a little riskier in Q2] steps forward to set a normalization deal with Israel,” he says. “In fact, the Saudi foreign minister was quoted in April saying that this would bring “tremendous benefit” to the region, but that would depend on progress in the Israeli-Palestinian peace process.”

The key reason that Saudi Arabia’s risk score has deteriorated, however, is due to rising tensions with its GCC rival, the UAE.

“This was on full display at the most recent Opec+ meeting this month, where the UAE’s demand for a 700k barrel per day increase in oil production resulted in a breakdown in negotiations,” says Abdallah.

“This goes against Opec policy of controlling supply in order to raise oil prices that are more favourable for GCC fiscal budgets. However, the UAE is currently adopting a strategy that maximizes production to gain market share and they can afford to do it at low oil prices because the UAE already has a diversified economy owing to prudent investments by Dubai in sectors such as tourism, finance and real estate.”

The escalation between the two countries does not stop at oil, he says. It also spans other issues such as the crisis in Yemen, the situation in Syria and the relationship with Qatar since the three-and-a-half-year blockade came to an end in January 2021.

“It is also worth noting that as the Saudi Arabia-UAE axis deteriorates, so does the hard line against Iran,” says Abdallah. This is primarily driven by the UAE’s significant commercial interests with Iran and the large Persian community in Dubai.”

A mixed response to the crisis and the various domestic political, economic and social problems afflicting different countries have delivered mixed fortunes to African countries.

Analysts have marked down Angola, Botswana, Ghana, Nigeria, South Africa and highest-risk Zimbabwe, among others.

Isaac Matshego, an economist in sovereign risk at Nedbank, describes short-term economic prospects for the region as “generally lacklustre”. In his view, the effects of the pandemic will persist for longer than in other regions due to the slow pace of vaccinations.

“At the same time, underlying political and economic fault lines remain rating-negative factors for some of the sovereign borrowers,” he says.

The oil-dependent sovereigns remain under pressure, adds Matshego, as oil prices are still well below levels necessary to strengthen their fiscal and external liquidity accounts.

“Angola and Nigeria will not take full advantage of higher production quotas due to their capacity constraints,” he says. “Angola has made some progress in stabilizing the domestic economy, but its weak external position remains a critical impediment.

In Nigeria, he notes firmer growth of non-oil activity remains hindered by restrictions on imports and hard currency supply, which has also widened the exchange-rate misalignment.

Matshego expects Botswana’s challenging fiscal situation to persist for longer than anticipated, as the rebound of diamond-mining earnings remains subdued.

In Ghana, he says: “A high stock of external debt against the backdrop of weak export earnings is weakening the sovereign’s debt service capability. The country will likely probably need debt rescheduling to improve its debt sustainability.”

Matshego notes that political risk is higher in South Africa and Zambia.

“In South Africa, socio-political and socio-economic risks had risen even before the outbreak of unrest in the two largest provinces in the second week of July. The economic effects of Covid-19 have been severe, leading to many small businesses going under and job losses among the low-skilled in particular,” he says.

“The damage to infrastructure has disrupted supply chains in some industries, and significant job losses are likely in the areas that bore the brunt of the destruction. The fiscal consolidation drive will be slower than planned due to the less-favourable economic growth prospects.”

Rafiq Raji, a non-resident senior associate with the Africa programme at the Centre for Strategic and International Studies (CSIS), Washington DC, says the riots and entrenched inequalities will weigh on economic recovery in South Africa, as affected businesses struggle to recover amid resurgent Covid-19 restrictions.

“Short-term increases in prices of goods are also expected, as the supply gaps – owing to the likely brief closure of the Durban port – are filled,” he says.

Raji sees potential upside from the successful incarceration of former president Jacob Zuma, as rule of law is seen to prevail and the Ramaphosa administration’s anti-corruption fight bears fruit.

He also says that what was hitherto a scarily high unemployment problem in the country has now become “more exigent”.

“Social welfare mechanisms would probably be re-examined and strengthened in the aftermath of the riots, as many poor South Africans have reportedly not benefited from the government’s welfare payments as planned,” says Raji.

As for Zambia, there are elections in less than a month and incidents of violence have been reported across the country, notes Nedbank’s Matshego.

“The next government faces the difficult challenge of committing to a stabilization and macroeconomic reform programme with the multilateral agencies and resolving the debt default impasse with commercial creditors,” he says.

Despite these problem areas, Côte d’Ivoire, Kenya and Rwanda are among several countries in the region improving in the survey.

Kenya holds general elections in 2022. There is a consensus the main contest would likely be between veteran opposition politician Raila Odinga and deputy president William Ruto, says CSIS’s Raji.

“Thus far, political competition remains relatively civil, albeit worries remain about potential violence down the line if the populist Ruto maintains his early edge over Odinga, the establishment candidate,” he says.

“Otherwise, a smooth post-Covid economic recovery continues to be a robust expectation, with the IMF continuing to provide much-needed fiscal support. Economic growth would probably be about 5% to 6% in 2021. Inflation expectations continue to be within range, with monetary policy decidedly appropriate and likely to remain accommodative.”

Raji adds: “Even as Kenya’s fiscal authorities remain determinedly on a reform path despite Covid-19 exigencies, the debt burden continues to be concerning. The IMF projects public debt could be about 71% of GDP in 2021, from an estimated 66% in 2020.”

As for Côte d’Ivoire, Matshego describes it as encouraging.

“Election-related instability was relatively contained and the return of [former president] Laurent Gbagbo has so far been a low-key, peaceful phase,” he says. “The government’s conciliatory stance is a crucial factor in improving the country’s political environment. The solid global trade momentum supports the economy, while the authorities’ commitment to the economic stabilization and recovery programme is another rating-supportive factor.”

For more information, go to: https://www.euromoney.com/country-risk, and https://www.euromoney.com/research-and-awards/research for the latest on country risk.