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2011 2Think ouTside.
Global Market Brief & Labor Risk Index
meThodology sample reporT only
Global Market Brief & Labor Risk Index
2011
This is meThodology sample reporT only.
To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief
2
conTenTs
This material was produced by Eurasia Group in collaboration with KellyOCG. This is intended as general background research and is not intended to constitute advice on any particular commercial investment, trade matter, or issue, and should not be relied upon for such purposes. Eurasia Group is a private research and consulting firm. © 2011 KellyOCG and Eurasia Group.
3 preface: rolf kleiner, senior Vice-president, kelly ocg & ian Bremmer, president, eurasia group
4 methodology
72 about sponsors
The Americas6 overview
7 risk index
8 argentina
9 Brazil
10 canada
11 chile
12 el salvador
13 mexico
14 united states
15 Venezuela
Asia Pacific17 overview
18 risk index
19 australia
20 Bangladesh
21 china
22 hong kong
23 india
24 indonesia
25 Japan
26 malaysia
27 new Zealand
28 philippines
29 singapore
30 south korea
31 Thailand
32 Vietnam
Europe and Eurasia34 overview
35 risk index
36 Baltics
37 Belgium
38 croatia
39 czech republic
40 denmark
41 France
42 germany
43 hungary
44 ireland
45 italy
46 luxembourg
47 netherlands
48 norway
49 poland
50 portugal
51 romania
52 russia
53 spain
54 sweden
55 switzerland
56 Turkey
57 ukraine
58 united kingdom
Middle East and Africa60 overview
61 risk index
62 algeria
63 egypt
64 israel
65 kuwait
66 morocco
67 nigeria
68 Qatar
69 saudi arabia
70 south africa
71 united arab emirates
chicago city skyline © 2010 Pawel Gaul
4 | gloBal markeT BrieF & laBor risk index Q2 2011
Preface
rolf kleiner,senior Vice-president, kellyocg
ian Bremmer,president, eurasia group
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsorsIn the Middle East, a wave of
spontaneous democratization
movements that began in Tunisia
quickly spread into Egypt and
then across the region. These
revolts have overwhelmingly
focused on local conditions and a
range of complaints against home
governments from corruption to
a lack of economic opportunities
for youth. The high youth
unemployment rate in many Middle
East and North African countries
has been a structural risk factor for
years, and finally it seems to have
come to a head. It remains to be
seen exactly how governments in
the region will address these issues.
Even short of regime change, it
is clear that the unrest will affect
economic and social policymaking
in the near to medium term.
Economies are booming
throughout most of Asia and
Latin America. However, this
strong growth comes with its own
risks, as inflation concerns grip
governments, especially in Asia.
As authorities implement a range
of policies to counteract inflation,
economic performance may start
to diverge. In Europe, government
debt dynamics continue to
dominate the policymaking
environment, with Portugal being
the latest country to seek a bailout
from the EU and IMF. And in North
America, the US is continuing its
slow recovery, while Canada is still
outperforming its neighbor thanks
to high prices for its commodity
exports.
■ ■ ■
➔ In the last quarter, the world
has experienced the broadest
and most volatile political risk
environment since the collapse
of the Soviet Union. Widespread
unrest in the Middle East and an
enormous catastrophe in Japan
both have long-term implications
for the global energy mix—all of
which is set against a backdrop
of global political and economic
rebalancing.
5 | gloBal markeT BrieF & laBor risk index Q2 2011
Methodology
In addition to assessing the current risk environment, this report also takes into consideration the trajectory of risk trends.
Arrows alongside risk scores explain where risks are likely to show a very positive trend (X X), positive trend (X),
negative trend (Y), very negative trend (Y Y), or remain unchanged (blank) over the 3-month period of the report.
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
➔ The Global Market Brief &
Labor Risk Index is based on detailed
analysis of hard metrics of 30 unique
labor market, socio-economic, and
political factors, layered with localized
expertise of in-country consultants.
The analysis aggregates the
individual factors into 9 core risk
variables: 5 macro variables and 4
labor variables that are each assigned
a score on a 10-point scale projecting
the degree of risk over the next
90 days. Each risk variable is also
assessed as to whether it is trending
negative or positive.
macroeconomic environment
This indicator captures the current
health of the macroeconomic
environment through an assessment
of the stability of monetary and
fiscal policy, the stability of trade
and capital flows, and the quality of
economic performance, controlling
for historic macroeconomic stability
and the quality of official statistics.
policy environment for
foreign investment
This indicator measures how
hospitable the policy and regulatory
environment is for foreign investment
by assessing the extent to which
there are barriers to economic
activity and the degree to which
the economy is a destination for
foreign investment.
laBor risk
labor market flexibility
This indicator captures labor market
flexibility, assessing the regulatory
environment that employers face
in managing human resources,
the ability of labor to influence
policymaking, and the near-term
potential for changes in the labor
regulatory environment.
labor availability
The labor availability indicator
incorporates migration, urban
population, the size of the labor
force, the extent to which women
participate in the labor force,
and unemployment.
labor quality
The quality of labor is measured
by the education and skill level of a
labor force, the general health of the
population, and labor productivity.
labor contentment
This indicator assesses the likelihood
of labor discontent by combining the
existence or potential of near-term
labor unrest with the misery index,
which incorporates unemployment
and inflation rates.
■ ■ ■
For all variables, scores range
from 1 to 10, where 1 is ‘high risk’
and 10 is ‘low risk’.
macro-poliTical/
counTry risk
political environment
This indicator estimates the
predictability of the political
environment by measuring
regime and government stability,
government and opposition
effectiveness, and how well the
government functions.
social environment
This indicator captures the presence
and intensity of social conflict
among ethnic and other minorities,
controlling for the mitigating effects
of the socioeconomic wellbeing of
the population and the equality of
wealth distribution.
security environment
This indicator captures the issues
of personal security by incorporating
both the risk of armed conflict
(either domestic or foreign) and
criminal activity.
6 | gloBal markeT BrieF & laBor risk index Q2 2011
Overview: The Americas
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
Sustained inflationary pressures
may encourage workers to demand
higher wages.
This is the case in Argentina, Brazil,
and Chile. In Argentina, high levels
of government spending in the
run up to this October’s national
elections should boost economic
growth and the incumbent Peronist
party’s chances. It will also fuel
already high inflation and labor
unrest given concerns about
the rising cost of living. In Brazil
and Chile, inflationary pressures
fueled by strong economic growth
and a tight labor market mean
that workers should continue
to have good leverage in wage
negotiations.
➔ In general, the region’s
countries are benefitting from
high commodity prices. Most have
recovered from the economic
crisis and many governments in
the region have taken measures
to reduce their vulnerabilities to
external shocks. Strong and steady
growth, however, will depend on
stable global conditions. The rising
threat of inflation, combined with
pressure on local currencies, will
pose a challenge for policymakers.
On the other hand, the economic
recovery in some countries, such
as the US and El Salvador, is
relatively weak and governments
have struggled to reduce
unemployment. El Salvador is
struggling with a sluggish economy.
Mexico has seen good growth,
but the government is worried
about the pace of job creation.
Venezuela, meanwhile, continues
to experience economic problems.
Even though the economy should
benefit from a sustained increase in
oil prices, Venezuela continues to
suffer from shortages of goods, a
scarcity of foreign exchange, high
unemployment, and an inflation
rate that will likely hover around
30% this year.
■ ■ ■
7 | gloBal markeT BrieF & laBor risk index Q2 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Argentina 6 X 7 8 5 5 6 4 7 3 Y
Brazil 8 Y 6 6 7 Y 5 4 5 5 5
Canada 5 Y 8 10 6 7 Y 8 6 9 6 X
Chile 7 6 9 8 X 7 7 5 Y 8 5
El Salvador 6 Y 5 5 Y 4 6 6 4 4 6
Mexico 7 6 5 Y 7 X 7 6 6 7 7
United States 7 Y 8 8 7 9 8 9 8 5
Venezuela 4 4 Y 5 3 2 Y 2 4 5 2
The americas – risk index summary TaBle – Q2 2011
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
8 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Employers continue to convert defined benefit pension plans into defined contribution plans. A recent survey found that 51% of employers had already switched, while another 20% planned to do so. This is adding to concerns about the adequacy of the pension system as baby boomers reach retirement age. The Conservative government is offering to expand its tax-free savings plan so Canadians can cushion their retirement, but has rejected expanding the public pension system.
Canada
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
policy uncertainty, but will have little
near-term impact on the economy.
High commodity prices, notably
for oil, wheat, copper, and gold,
continue to underpin Canada’s
growth. Heading into the summer,
growth should slow, even as the
labor market continues to swell. The
economy has now replaced all of
the jobs lost during the recession.
Gains have been fairly broad-based
with hours worked and average
hourly wages up by more than 2.5%.
However, federal and provincial
governments have shifted into
austerity mode, and restrained
public-sector spending will slow the
pace of overall employment growth.
➔ The Canadian economy is
expected to moderate its stellar
first-quarter growth of 5.2% as
restrained government spending,
a stronger currency, and possible
interest rate increases begin to bite
in the second and third quarters.
Canada will benefit from the
powerful momentum built up in
the first quarter: the OECD expects
3.8% year-on-year growth in the
second quarter, a slightly more
bullish figure than private sector
forecasters predict. A 2 May federal
election heightens long-term fiscal
Heavily-indebted Canadian
consumers are facing some
headwinds. Though moderating,
the increase in household debt
continues to outpace income
growth. As the Bank of Canada
begins to raise interest rates,
as is likely by the early summer,
consumers are expected to rein
in their spending and reduce
borrowing. The rate increase
will reduce monetary stimulus to
the economy, but will also ease
pressure on the elevated Canadian
dollar. Households will benefit
from the strengthening job market,
fueled by strong exports.
■ ■ ■
9 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
El Salvador is heavily dependent on imported oil and food, and higher prices for basic commodities may lead labor calls for wage hikes in coming months. The government negotiated with teachers earlier this year and granted them a 10% salary increase. Inflation has remained relatively low at just 2.38% year-on-year in February, but a prolonged increase in the prices of imports could lead to wage pressures.
El Salvador
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
overview
risk index
argentina
Brazil
canada
chile
el salvador
mexico
united states
Venezuela
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
Mauricio Funes’ administration has
set a fiscal deficit target of 3.5% of
GDP and is trying to keep public
debt at less than 52% of GDP
throughout 2011.
The health of public finances looks
to be increasingly under pressure
and the Funes administration may
struggle to meet its revenue goals.
The administration has reiterated
that it plans to raise government
revenues from 14% of GDP to
17% of GDP by the end of its term
in 2014, but the government is
facing increasing resistance from
the opposition and the private
sector to any new tax reforms.
➔ El Salvador has struggled
to recover from the global financial
crisis and the downturn of the US
economy, which it depends on
for remittances, exports, and FDI.
Economic growth in 2010 barely
reached 1%, while the government
projects that the economy will
grow by 2.5% in 2011. Under the
auspices of a precautionary standby
agreement with the IMF and
continued budgetary and technical
assistance from other multilateral
financial institutions, President
Opponents of higher taxes say
the government should not raise
taxes until the economy improves.
Government officials have hinted
at potential changes to corporate
income taxes, and the introduction
of a security tax, and a property
tax, but vehement criticism looks
to have delayed these changes.
Furthermore, the government’s
reluctance to make good on
promises to improve the targeting of
subsidies—which will only increase
as legislative and municipal elections
approach in March 2012—means
that government debt may continue
to increase in the medium term.
■ ■ ■
10 | gloBal markeT BrieF & laBor risk index Q2 2011
Overview: Asia Pacific
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
consumers tighten their belts and
shift toward lower-cost products.
For governments in the region, the
general goal will be to normalize
monetary policies that were primed
for growth during the financial crisis,
but this is happening only slowly.
The risk is that inflation has already
become too pervasive, and that
governments around the region
could be facing more persistent
price rises in coming months.
A major inflation driver Asian
governments are struggling to
address is higher international
energy and commodity prices—a
result of recent unrest in the Middle
East, plus a rebounding global
recovery. Policy differentiation over
how to manage inflation will mean
more volatility in exchange rates,
growth rates, and manufacturing
➔ Inflation is the preeminent
challenge for most Asian
governments this quarter, the result
of years of expansionary monetary
policies, government initiatives to
limit currency appreciation, upward
wage pressures, higher international
energy and commodity prices,
and food shortages. Resulting
higher prices for a range of goods
like fuel, basic commodities, and
housing will likely shift job growth
away from higher-end and luxury
sectors in coming months, as
costs across Asia. Today, many Asian
governments intervene in energy
prices to protect households and
industry from price volatility. But as
resource prices rise, the costs of this
intervention will grow.
In some countries, such as the
Philippines and Indonesia, where
budget constraints are real and
affect economic volatility, the
government’s capacity to continue
these interventions is limited,
meaning higher input prices,
manufacturing costs for industry,
and potentially less discretionary
incomes for consumers there.
Other countries, including China,
Malaysia, Singapore, and Thailand,
will likely allow some more gradual
currency appreciation to offset
higher energy import costs.
■ ■ ■
11 | gloBal markeT BrieF & laBor risk index Q2 2011
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
sri lanka
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
asia paciFic – risk index summary TaBle – Q2 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Australia 8 Y 9 9 8 9 8 6 8 8
Bangladesh 4 Y 4 6 3 3 Y 5 5 1 2 YChina 7 Y 5 Y 9 6 6 Y 4 5 7 4
Hong Kong 9 8 10 7 Y 10 6 6 8 7 YIndia 7 Y 4 7 6 XX 5 5 5 1 3
Indonesia 6 6 8 4 3 Y 4 5 3 4
Japan 4 Y 9 10 5 7 5 4 8 Y 7
Malaysia 7 4 9 5 X 7 7 4 7 X 7
New Zealand 8 8 10 6 Y 9 8 6 8 7
Philippines 6 X 3 7 5 X 4 5 5 4 6 YSingapore 9 X 8 8 8 Y 10 7 5 Y 8 9
South Korea 7 8 6 7 8 4 5 Y 8 6 YThailand 5 X 4 Y 7 6 7 7 5 Y 5 7
Vietnam 7 6 8 4 6 6 5 Y 4 5
12 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Under public pressure to alleviate income inequality, the Hong Kong government in mid-March passed an interim budget that authorized $5.2 billion in tax and cash rebates, including $770 payments for all citizens. The populist measure, which received final approval on 15 April, is expected to increase consumption by 1.4 percentage points but will also stoke inflation and increase public demands for more such moves in the future.
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
Hong Kong A large property bubble is an
added concern on this front.
House prices are up nearly 50% in
the past two years.
On the labor front, Hong Kong
remains a bright spot. Seasonally
adjusted unemployment dropped
to 3.6% in the three months ending
in February 2011, a two-year low
and a significant improvement
from the already-low 4.3% average
unemployment rate for 2010. Job
growth continues in finance and
financial services, consumer retail,
tourism, and hospitality. Meanwhile,
there were 36 million tourists in
2010, a 22% increase from the
➔ The Hong Kong economy
continues to grow rapidly, driven by
a rebounding financial sector and
strong economic performance in
mainland China. The government
still expects growth of 4%–5%
in 2011. Policymakers, however,
face an immediate challenge in
cooling inflation. City officials
expect 4.5% inflation in 2011, with
private estimates of above 5% for
the year. Near-term concerns are
driven by a mixture of rising energy
and commodity import prices and
higher labor and food costs.
year before. Retail sales also
rose 18.3% in 2010.
For employers, recent changes
in Hong Kong labor laws bear
monitoring. On 1 May, Hong
Kong’s first-ever mandatory
minimum wage law will go into
effect, with the wage rate set at
$3.60/hour. The move—which has
been politically contentious in Hong
Kong for months—also carries near-
term economic risk. Specifically,
higher mandatory wages will raise
labor and manufacturing costs,
further amplifying inflation concerns
over coming months.
■ ■ ■
13 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Progress on labor reforms will remain slow because of competing pressures on the government. Industry requires a larger and more flexible skilled work force, and is calling for changes, particularly on more flexible working hours. Labor unions, however, fear that reforms will lead to exploitation and weaken their position. Large union-led protests were held in early-February in New Delhi. Further isolated unrest is likely, particularly if the government pursues labor reforms without first building political consensus. 0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
conTenTs
preFace
meThodology
The americas
asia paciFic
overview
risk index
australia
Bangladesh
china
hong kong
india
indonesia
Japan
malaysia
new Zealand
philippines
singapore
south korea
Thailand
Vietnam
europe and eurasia
middle easT and aFrica
aBouT sponsors
India likely increase and a delay in the
implementation of subsidy reforms
is also likely. Meanwhile, the budget
fails to provide specifics on major
fiscal and economic reforms—
notably, it does not establish a
timeline for the delayed goods and
services tax (GST) or a roadmap
for disinvestment in state owned
companies. Finally, the budget
does not propose any effective
measures to tackle high food prices.
The 2011–2012 budget will likely
boost employment in priority
sectors: education, healthcare,
real estate and housing,
infrastructure development,
logistics, telecommunications, and
manufacturing. High spending on
projects in these sectors, including
➔ The United Progressive
Alliance (UPA) government’s
2011–2012 budget—announced
on 28 February—is marked by
the continuation of the political
and economic priorities seen in
the previous two budgets. The
budget, which presumes a 9% GDP
growth rate, emphasizes spending
on infrastructure and social
programs. These sectors account
for nearly 90% of all spending. The
government expects a fiscal deficit
of 4.6% of GDP but this is probably
unrealistically small. Subsidy
allocations, particularly for fuel, will
on R&D projects, will likely trickle
down in the form of increased
skilled and non-skilled job creation.
Moreover, the government plans
to allocate more funding to
the National Skill Development
Fund, which promotes vocational
skills building, a step that should
improve workers’ access to skilled
jobs. Finance Minister Shri Pranab
Mukherjee has pledged 5 billion
rupees ($112 million) to the Fund
during 2011–2012. The government
aims to create a skilled work force
numbering 500 million by 2022.
According to government statistics,
during 2010–2011, the program
provided training to 20,000 people,
75% of whom were able to find
skilled jobs.
■ ■ ■
14 | gloBal markeT BrieF & laBor risk index Q2 2011
Overview:Europe and Eurasia
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
and French economies will likely
continue to grow slowly, even with
spending cuts. Both are likely to
see persistent and relatively high
unemployment, however. The
peripheral EU nations are also
consolidating their finances. In
Ireland, sovereign debt problems
helped force out the previous
government. Portugal also will
likely vote out the incumbent
government, and Spanish Prime
Minister Jose Luis Rodriguez
Zapatero will not seek reelection
in 2012. Though challenges
remain, the three Baltic countries
and those of central and eastern
Europe are pressing ahead with
reforms, and some are posting
encouraging growth figures.
➔ Economic recovery will
slowly gain pace in Europe as
governments rationalize their
finances. Portugal will soon join
Ireland and Greece in accepting
an EU bailout, while non-EU
countries seem to be recovering
at different speeds.
The German economy continues
to perform well, despite concerns
about the banking sector, while
the Nordic countries enjoy
steady growth and improving
labor market conditions. The UK
Russia, Turkey, and Ukraine
continue to enjoy economic
growth and political stability. Rising
commodity prices may lead to
greater inflation, but central banks
are moving to control it. Russia’s
flat tax on personal income may be
altered in coming months, which
carries the risk of heightened
tax avoidance. Turkey will hold
parliamentary elections in June;
the main uncertainty is whether the
ruling party will secure a two-thirds
majority, which would exacerbate
social and political tension. In
Ukraine, protests have already
begun over pension reform, but
the government will nevertheless
likely pass changes by July.
■ ■ ■
15 | gloBal markeT BrieF & laBor risk index Q2 2011
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
Bulgaria
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
europe and eurasia – risk index summary TaBle – Q2 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Baltics 6 7 9 4 8 X 5 6 8 4
Belgium 4 Y 6 9 6 8 6 6 8 4
Croatia 6 Y 7 8 5 8 X 4 6 7 3
Czech Republic 6 Y 7 Y 9 7 7 8 6 8 6
Denmark 6 9 8 6 9 Y 6 5 8 5
France 7 Y 8 8 6 8 4 6 8 2
Germany 5 9 8 6 8 3 6 X 9 5
Hungary 6 6 X 9 4 X 6 X 6 6 8 5
Ireland 5 7 Y 9 5 X 8 Y 7 7 9 2
Italy 6 8 Y 9 5 6 5 6 Y 7 4
Luxembourg 7 9 8 7 X 9 4 5 9 6
Netherlands 5 7 8 6 X 8 4 4 7 5
Norway 8 9 9 8 X 8 4 5 Y 8 7 XPoland 8 7 9 5 Y 6 Y 6 6 8 5
Portugal 4 7 9 4 Y 7 5 6 7 2 YRomania 6 7 7 6 X 7 7 5 7 5
Russia 5 Y 5 6 4 5 Y 4 7 6 5
Spain 7 6 Y 8 6 X 7 5 8 6 2 YSweden 6 X 8 8 7 8 4 X 6 8 7
Switzerland 9 Y 9 Y 9 7 8 6 5 9 8
Turkey 7 6 7 7 X 6 4 5 X 6 6
Ukraine 6 6 8 4 X 6 5 6 6 3
United Kingdom 9 8 Y 8 6 9 7 6 Y 9 6 Y
16 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
Following the crisis in Japan, Germany’s government announced a three-month closure of several nuclear reactors. This will take approximately 6% of Germany’s electricity production off line. As demand rises during the summer, Germany will require greater use of existing coal and gas plants, and will increase energy imports as well. Utility companies have warned that there could be power shortages, which would disrupt business activity this summer, should some of the reactors stay off line.
Germany
0
1
2
3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
The government and the
opposition negotiated a reform
of social security benefits and a
set of minimum wages that will go
into effect on 1 May. The standard
social security rate will increase
by €5 to €364 ($521) per month
for the 4.7 million recipients,
with an additional increase of
€3 that will go into effect in
2012. The new minimum wages
apply to the security and education
sectors, as well as to temporary
workers. Unskilled temporary
workers will receive a minimum
wage of €7.60 ($10.88) per hour
in western German states and
➔ Germany’s economy
continues to expand on the back
of exports and rising domestic
demand. The economy grew
0.4% quarter-on-quarter in the
fourth quarter of 2010, and the
unemployment rate has decreased
marginally, from 6.5% in January to
6.3% in February. But the banking
sector continues to be a point of
vulnerability. The European bank
stress tests will signal the health of
Germany’s banks by June.
€6.65 ($9.52) per hour in eastern
German states—the rates that
were agreed on by employers
and trade unions under the
collective agreement.
An additional challenge is that
Germany will now be open
to workers from central and
eastern European. Many western
European EU members negotiated
restrictions on such migration in
2004 because of fears that cheaper
workers would inundate their
labor markets.
■ ■ ■
17 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
overview
risk index
Baltics
Belgium
croatia
czech republic
denmark
France
germany
hungary
ireland
italy
luxembourg
netherlands
norway
poland
portugal
romania
russia
spain
sweden
switzerland
Turkey
ukraine
united kingdom
middle easT and aFrica
aBouT sponsors
The government recently approved several decrees with significant implications for business. For example, Italy will halt plans for resuming nuclear production and building new nuclear power plants for one year. Energy costs will remain elevated, especially considering the developments in Libya. Another decree has been drafted, which is designed to prevent foreign takeovers of strategically important Italian companies. The latter measure was taken in response to a spate of high-profile French buyouts.
Italy
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3
4
5
6
7
8
9
10
Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
NXÇÅ
Istat, suggests that recovery in
the labor market remains slow.
Unemployment was estimated
at 8.4% at the end of February, a
decrease of 0.2 percentage points
from January but an increase of 0.1
percentage points from February
2010. The number of people
employed also decreased by 0.3
percentage points year-on-year,
suggesting that some workers
have left the labor force. Youth
unemployment remains particularly
high, at 28.1%.
A more comprehensive industrial
and labor policy could boost the
recovery, but the government is
currently focused on other issues.
The tenure of Prime Minister Silvio
➔ The Italian economy
is recovering slowly. Growth is
projected at 1.1% in 2011 by the
IMF, and inflation is estimated to
be 1.6%. The government deficit
is projected at 4.3% of GDP as the
current administration continues to
tighten fiscal policy. Nevertheless,
significant challenges remain.
The government debt burden is
elevated, at 119% of GDP, and the
IMF projects 2011 unemployment
at 8.9%.
The most recent data from
the national statistics agency,
Berlusconi’s center-right government
seems stronger now than a few
months ago. After surviving several
confidence votes precipitated by
rival Gianfranco Fini, Berlusconi has
secured a narrow but workable lower
house majority. The government
is contemplating some changes
to the cabinet in order to appease
the newcomers to its parliamentary
bloc. The cabinet may also move
to extend the deadline for enacting
fiscal federalism to November,
ensuring the support of the
Northern League—a crucial coalition
partner. Berlusconi’s legal battles,
though embarrassing, are unlikely to
threaten stability in the near term.
■ ■ ■
18 | gloBal markeT BrieF & laBor risk index Q2 2011
Overview:Middle East and Africa
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
the region and fatally weakening
regimes in Libya and Yemen, while
driving unprecedented unrest in
Bahrain, Jordan, and Syria. But
as the Arab countries emerge
from a seemingly unifying
historical moment, regimes in
the Middle East will become
more politically diverse in the
short and medium term.
The Algerian regime has so far
avoided the fate of its eastern
neighbors, despite extensive
rioting in January. Morocco’s
relatively popular king has
attempted to get ahead of unrest
by announcing potentially wide-
reaching reforms. Saudi Arabia and
the rest of the Gulf Cooperation
Council (GCC) countries, with
the exception of Bahrain, have
➔ The Middle East and North
Africa dominated the headlines
in the first quarter of 2011. The
self-immolation of a young street
vendor set off a wave of protests
that led to the fall of Tunisian
President Zine el Abidine Ben Ali
in January and sent reverberations
across the region. On 11 February,
extensive demonstrations inspired
by Tunisia’s “Jasmine Revolution”
brought down Egypt’s longtime
president, Hosni Mubarak.
Mubarak’s fall was a catalyst
emboldening protesters across
also seen limited unrest. They
are currently in better shape
politically than many of their
non-oil-producing counterparts.
Nevertheless, regional unrest
will have implications for policy,
politics, and labor markets across
the Middle East and North Africa.
Elsewhere on the African continent,
Nigeria is poised for strong
GDP growth in 2011, but heavy
government spending makes
its medium-term fiscal outlook
less certain. South Africa will also
experience higher GDP growth
but remains vulnerable to rising
international food and oil prices.
Unemployment and public sector
wages will remain key political
challenges in both countries.
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19 | gloBal markeT BrieF & laBor risk index Q2 2011
conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
very positive trend
positive trend
negative trend
very negative trend
For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.
middle easT and aFrica – risk index summary TaBle – Q2 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Algeria 4 Y 3 3 3 X 3 2 5 5 1 Y
Egypt 3 Y 5 8 Y 3 5 Y 3 4 4 2
Israel 7 6 6 Y 7 7 Y 6 6 8 7
Kuwait 5 Y 5 Y 7 5 4 8 Y 4 8 7
Morocco 6 Y 5 8 5 Y 6 3 4 3 5 Y
Nigeria 4 Y 2 Y 3 Y 4 4 4 5 2 3
Qatar 7 7 9 8 X 6 X 6 4 8 6
Saudi Arabia 6 Y 5 7 6 X 5 6 4 5 5 Y
South Africa 6 Y 3 6 6 X 7 4 7 4 2
United Arab Emirates 7 8 7 7 X 6 X 6 5 8 8
20 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
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current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
After years of persecution under Mubarak, the Muslim Brotherhood has assumed a prominent public role and formed a relationship with the military. The military selected some pro-Brotherhood jurists for the committee that is crafting constitutional amendments. In turn, the Brotherhood mobilized its supporters in favor of the amendments, which will allow the military a more rapid departure from the political spotlight. But their understanding is not likely a long-term partnership.
Egypt
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8
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10
Political Social Security
MACRO RISKS LABOR RISKS
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conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
the 6% expected in 2011 prior
to the political turmoil. However,
Egypt will receive financial
assistance from the US, Europe, and
Gulf states including Saudi Arabia
and the United Arab Emirates.
Egypt is likely on a very bumpy
path to limited democracy with the
military maintaining a dominant
political role. Political tension will
rise considerably in the coming
months, particularly in the lead-
up to September parliamentary
elections. Frictions will be driven
by worsening relations between
the military and the activists—now
the two most powerful actors in
➔ Largely as a result of the
Egyptian uprising, which began on
25 January, the country’s economy
will remain in a precarious position
in the short term. Tourism revenue
is down and remittances will be
hurt by the return of hundreds of
thousands of Egyptian laborers
from neighboring Libya, which is
also experiencing political turmoil.
In addition, foreign investment
will soften considerably. Egypt’s
economy will likely grow by less
than 3% in 2011—as opposed to
the country. The military does
not want dramatic changes, while
the activists, whose protests in
large part drove former president
Mubarak from power, want a
complete break with the former era.
After some waffling, the military
will likely give in to many remaining
activist demands, including that
senior figures in the Mubarak
regime be held accountable for
misdeeds. In the less likely scenario
that the military does not give in to
most activist demands, the chances
of instability will rise.
■ ■ ■
21 | gloBal markeT BrieF & laBor risk index Q2 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Under heavy pressure from unions and labor-oriented political parties, including the threat of strikes, President Jonathan approved a large hike in the minimum wage in March. The 64% increase, to about $116 per month, is backdated to 1 January 2011. The raise is disproportionately above the annualized inflation rate (at about 11%), but unions argue, with some justification, that the minimum wage had fallen far behind per capita GDP growth in the last decade.
0
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2
3
4
5
6
7
8
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conTenTs
preFace
meThodology
The americas
asia paciFic
europe and eurasia
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kuwait
morocco
nigeria
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
Nigeria billion ceiling set by
President Goodluck Jonathan.
Despite government promises to
cut fuel subsidies and enact a new
utilities tariff, the budget approval
signals continued spending
growth in Nigeria.
As long as fiscal policy remains
expansionary, the Central Bank
of Nigeria (CBN) will struggle
to maintain monetary and price
stability. But CBN governor Lamido
Sanusi, a technocrat and ally of
Aganga, has increased benchmark
interest rates by one percentage
point to 7.5% as a preemptive
move to counter election-related
➔ Nigeria’s economy is
expected to expand by 7.1% this
year. Challenges include spending
and revenue management. Political
tension will persist after elections—
governors, members of parliament,
and the president will be chosen
on three consecutive weekends
from 9–26 April. Already, Minister
of Finance Olusegun Aganga has
denounced as “unimplementable”
the $31.8 billion budget approved
by the senate in defiance of the $30
spending. Although the naira
is under pressure because of
speculation about the likelihood of
political violence, it remains highly
unlikely that it will be devalued in
the short to medium term. Sanusi
will continue to reject IMF calls
for devaluation because he does
not believe that a weaker naira
will counteract Nigeria’s poor
economic policies, either by
improving the country’s balance
of payment crisis, bolstering
foreign exchange reserves, or
strengthening key growth sectors
such as agriculture and textiles.
■ ■ ■
22 | gloBal markeT BrieF & laBor risk index Q2 2011
About this Report
The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,
Kelly Services and Eurasia Group, the global political risk consultancy. The report, a proprietary blend leveraging Kelly’s labor market knowledge with
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and the Middle East and Africa, with detailed insights for 55 of the world’s most important economies.
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