South Africa joins the BRICS

Regular readers of these country risk advisory briefings will appreciate that there is substantial comparative value in many of the threats and challenges that investors should be aware of with respect to KCS’ multiple country coverage. Investor risks associated with security and governance challenges, both soft and hard in nature, are pervasive across many emerging market economies. Such markets are often rich in natural resources and have thriving albeit underdeveloped consumer sectors, which can make them exciting business opportunities for flows of international investments. Yet the risks associated with investment in such markets should not be underestimated. In particular, the BRIC country group, traditionally comprised of Brazil, Russia, India and China, and near BRIC countries, such as Indonesia, are prone to both risks and rewards from an international business perspective. KCS has given particular attention to these countries in recent writings.

In December 2010, the Republic of South Africa was officially admitted to the BRIC club of states and the Republic’s president, Jacob Zuma, attended the April 2011 BRICS Summit in Sanya, Hainan province, China, as a full member of the now five nation club. This is not, in essence, a surprising development. As many Africa watchers will appreciate, South Africa is arguably the African continent’s most sophisticated country and its largest economy. It is Africa’s largest producer and consumer of energy, with a renowned minerals sector boasting a history of investments from the world’s largest mining companies. Recent surveys indicate that in 2011 South Africa (together with Kenya and Nigeria) is rated as one of the top three countries in Africa for investment, with the country’s Trade and Industry Minister, Rob Davies, recently stating that South Africa had already confirmed new investments in excess of US$17 billion during the next 3 years.

Investments of some US$4.3 billion were recently announced in the country’s automotive sector, creating 13,000 jobs, according to the Trade and Industry Ministry. This bodes well for a country traditionally reliant on the minerals sector (the combined market capitalisation of mining companies listed on the Johannesburg Stock Market is US$270 billion), given its need for diversification of the economy and investments into many other sectors. Last year’s Football World Cup, which was hosted by South Africa, spurred new investments into the country’s construction and infrastructure sectors. South Africa’s increasing presence on the foreign direct investment (FDI) map within the BRICS context bears some resemblance to Indonesia, on which KCS recently reported as ‘almost the BRIC nation’, with high exposure to global FDI flows.

KCS Group Staff

Insurgencies remain visible part of Philippine security landscape

In a similar manner to a number of other Asian countries on which KCS has reported in recent writings, the Philippines poses no shortages of challenges to would be investors in parallel to providing an abundance of business opportunities. While the Philippines is one of Asia’s dynamic, fast growing economies (with 7.3% GDP growth recorded in 2010), the country is also riddled with governance concerns such as systematic and widespread corruption, corporate conglomerates dominating strategic sectors of the country’s economy, and security challenges such as moderate-to-high threats of kidnappings and terrorism, which are both underscored by long-standing internal conflicts between the government and a number of (Leftists and Islamist) rebel groups.

The two main insurgencies in which the Philippines are embroiled include the government’s conflict with the Communist Party of the Philippines (CPP) and its armed wing, the

New People’s Army

(NPA), and a second conflict between the government and armed groups seeking to establish an independent Muslim state on the southern island of Mindanao.

Although the Philippines, with its three centuries of Spanish colonial heritage, is predominantly a Catholic country, Mindanao’s originally dominant Muslim population was represented in armed struggle by the Moro National Liberation Front (MNLF), leading to the creation of the Autonomous Region of Muslim Mindanao in 1996.

However, the Moro Islamic Liberation Movement (MILM) splintered away from the mainstream MNLF since that time and refused to settle for autonomy within the context of the Philippine state, preferring the option of armed struggle. More recent years of the conflict have been characterised by ongoing violence and sporadic terrorism, cease-fires, stalled peace talks and resumption of hostilities.

Stuart Poole-Robb

Contemplating Indonesia as the new China

As stated in KCS’ last country paper on the subject, although an outwardly dynamic and fast growing economy, Indonesia remains every bit of a challenge from a business development angle, just as much as it provides numerous opportunities to realise new investments. As a country abundant in natural resources and availing itself of one of Asia’s largest consumer markets, analysts are now referring to Indonesia as the new China. Glancing at the country’s recent economic dynamism, this would hardly come as a surprise.

Indonesia has actively pursued vigorous growth policies during the last decade, courting foreign investment and advancing economic liberalism. Taking into account that the country is itself located geographically within the rapidly developing Asian economic network of states, this has effectively been music to the ears of many of the world’s leading multinationals. News of high profile new foreign direct investments (FDI) in the Indonesian economy almost appears to be a daily occurrence at the time of writing.

 New investments appear frequently in the country

Food giant Nestle and South Korean car maker, Hyundai, have both announced investments worth hundreds of millions of dollars in Indonesia recently, while the British energy multinational, BP, has pledged to boost its investments in the country by more than US$10 billion during the next decade. Last month (June 12-13), Indonesia was host to the first World Economic Forum (WEF) East Asia, the well known conference brand hosted annually at the Swiss ski resort of Davos, which attracts leading international business leaders and political elites. Last month’s inaugural WEF East Asia attracted more than 600 participants from some of the world’s most well known international corporations (including Microsoft, Cisco Systems, Chevron, Unilever to name just a few) and resulted in the Indonesian government announcing a further US$20 billion in FDI.

Many foreign brands are highly visible in the country, which is an attractive destination for Western business both due to the export potential that cheap labour and an abundance of resources allows, as well as the prospect of catering to Indonesia’s sprawling domestic market. Indonesia has the world’s fourth largest population, much of which is under 35 (years of age) and is consumer oriented (Indonesia has one of the highest rates of BlackBerry mobile phone users in the world for example, as well as reportedly the second highest number of facebook users).

KCS Group Staff

 

Investor friendly government engulfed by drug violence

In the last report on Mexico, KCS commented that ‘Drug related violence is continuing relentlessly (in several parts of Mexico) at the present time, posing a major concern for the authorities in a country already struggling to cope with the implications of global recession and a major outbreak of swine flew epidemic.’ At that time, security experts were commenting about the drug violence in Mexico to the effect that, “you’ve got more cartels, in more diverse activities. They’re in more states. They’re killing more people. They’re kidnapping more people and getting more attention for the savagery of their acts.” Sadly, the situation only seems to have deteriorated further since that time.

President Felipe Calderon

By the end of 2010, four years after Mexican President Felipe Calderon declared war on the country’s drug cartels, more than 34,000 people had lost their lives in the conflict – 15,000 in 2010 alone. However, the federal government has persisted with the crackdown on the drugs groups, arguing that the spurt in violence only shows that the cartels are losing control of their networks and territories.

Friends of Mexico and allies of President Calderon argue that too much attention is accorded to Mexico’s drug violence in the international media, which would be wiser to acknowledge the strides that Mexico has taken to become an attractive destination for foreign investment. Mexico is now ranked by international agencies as the 35th most investment-friendly country in the world and has overtaken ‘investor friendly’ Columbia as a leading market for inward investment in Latin America.

KCS Group Staff

Brazilian state security operations against gang violence on-going

Readers of KCS’ previous reports on Brazil will recall the cautious optimism used in assessing the country’s domestic security landscape, which has been underscored by the noteworthy absence of gang-related violence incidents in recent months. Last autumn, the abduction of 35 people from a luxury hotel in Rio de Janeiro by a group of armed men came as a shock to many and resulted in some analysts suggesting that the country might be dragged into a wave of unrest comparable to the Central American drug cartel insurgencies. However, for the moment such scenarios appear highly unlikely. In fact the Brazilian state is undertaking preventative measures to curb the growth of drug cartels before they attain sufficient power to pose a credible threat to domestic security. Brazil seems to have learned from the mistakes of Mexico, where the war against the cartels was evidently launched too late – after the phenomenon had already slipped out of control. KCS reported on Mexico’s drug violence in some depth in a recent paper.

Street violence in Rio

While drug gangs are active within Brazil’s borders and appear to enjoy covert support from some police officers and government officials who take bribes in exchange for intelligence information, the Brazilian authorities have already launched preventative operations to counter gang infiltration of the security forces before the malaise has a chance to spread.  There has been a heavy crackdown on corrupt officials in Rio de Janeiro in recent months, which led to the arrest of more than 30 police officers. Along with with the clean up operation, which has been taking place within the government forces, an equally severe law enforcement strategy directly targeting drug gangs was put in place. The government has also been seeking to re-establish state control over urban slums (where crime has been evident) by sending in special operations forces into such areas in Brazil’s larger cities. Furthermore, a military presence is being maintained in the sensitive area of Complexo do Alemão (in northern Rio de Janeiro) in order to prevent the return of the expelled gangs. Brasilia is also seeking to launch an inter-governmental framework to counter the expansion of drug networks at the regional level in Latin America. Brazil has signed an agreement with Bolivia and the two countries are now seeking to persuade more Latin American states to join their initiative. Overall, Brazil seems to be keeping a tight leash on drug cartel violence.

KCS Group Staff

Dubai

There has been little sign of anti-government street protests and demonstrations in the Emirate of Dubai (one of seven emirates which together comprise the United Arab Emirates), during 2011. Unlike the case in Bahrain, anti-government protests are extremely rare in Dubai (and in the UAE as a whole), an emirate that is more associated with its bourgeoning trade and tourism sectors than for public criticism of its rulers.

Despite some concerns over recent anti-government protests in Saudi Arabia, Saudis revere their King, Abdullah II. Reverence of the ruler, however, is no less felt in Dubai among Emirati nationals than it is by Saudis in the Saudi Kingdom. Governance experts in the UAE currently observing the trend of social and political disturbances in neighbouring Gulf monarchies and elsewhere in the region, tend to dismiss the prospect of any major anti-regime demonstrations taking place in Dubai, citing the depth of appreciation that Emiratis feel towards their government.

With a substantially smaller population than Saudi Arabia and some 10% of the world’s oil reserves, the UAE rulers have developed an even tighter social contract by which to manage state/society relations than in Saudi Arabia – the Gulf’s grand bargain of doling out high volumes of state budgetary patronage in return for acquiescence from potentially restless segments of the population.

Ever since the UAE’s late-ruler, Sheikh Zayed, unified the UAE’s seven emirates into one federal state, Emiratis in Dubai and elsewhere in the country have largely associated their government with the provision of numerous free public goods such as healthcare and education, but also housing and even interest free loans at state banking institutions.

KCS Group Staff

Cote d’Ivoire’s political and security crisis deepens in 2011

The former-French West African colony of Cote d’Ivoire (Ivory Coast in English) is on the verge of slipping back into civil war in the early part of 2011. In KCS’ last report on the country, concern was expressed about the likelihood of a fresh outbreak of violence, given that both government and rebel factions (which respectively control the southern and northern parts of this divided nation) were reportedly rearming in defiance of a UN arms embargo.

A moment of hope appeared on the horizon for the country in late 2010, when Cote d’Ivoire’s long anticipated presidential elections were finally held. While many had hoped that the elections would lead to the long-awaited unification of this war-torn West African nation, a security crisis emerged instead as Cote d’Ivoire’s incumbent president, Laurent Gbagbo, refused to accept the apparent electoral victory of his main rival, Alassane Ouattara.

Laurent Gbagbo

The disputed election result sparked clashes between supporters of the two men, both of whom claimed victory in the poll. Furthermore, Gbagno’s defiance of widespread international recognition of Ouattara’s apparent victory in the presidential poll is particularly worrying, given that Gbagno’s brinkmanship has been supported by the threat of force and intimidation directed against UN peacekeepers and other international groups present in the country.

While having commented in previous writings that Cote d’Ivoire’s post-conflict domestic stability remains highly shaky, all of KCS’ previous concerns relating to the country are emerging rather explicitly in early 2011. Multiple deaths sparked by political clashes are presently gripping the country. Hints of ethnic cleansing are likewise starting to reveal themselves through Cote d’Ivoire’s new landscape of political violence, while the presence of a 12,000 strong UN peacekeeping contingent does not seem to bear any weight on dissuading the combatant parties from applying the use of force.

KCS Group Staff

 

Venezuela – Cybercrime Issues

Venezuela is a special country in that they have non-extradition rights as far as the US is concerned. Cybercrime is illegal in country, but is actually (under the table) encouraged.

The government is happy to support criminal groups acting in the US (And the UK and AU) from Ve. Basically, as long as nothing is done against the citizens of Ve, not criminal sanctions come against the cartels.

Caracas

One major aspect is rape videos from abduced foreign nationals and the other is child porn videos.

These cartels manage many and many US, UK and AU “clients”. Once they get bank or credit card details, they move to an extortion model. One that lasts many years. Those who buy the videos and other child porn/rape videos are extorted. The cartels use the information they obtain to collect evidence of the crime.

These groups are current and moving to more former drug cartels. Interestingly, cybercrime is earning more than cocaine. The US market for coke is depressed and cybercrime has been turning more money for some of the groups.

KCS Group Staff