q1 2011 global market brief & labor risk index
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Brief and Labor Risk Index is joint production between KellyOCG and EurasiaTRANSCRIPT
Think ouTside.
Global Market Brief & Labor Risk Index
2011 1meThodology 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
1
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 colombia
13 mexico
14 panama
15 united states
Asia Pacific17 overview
18 risk index
19 australia
20 china
21 hong kong
22 india
23 indonesia
24 Japan
25 malaysia
26 new Zealand
27 philippines
28 singapore
29 south korea
30 sri lanka
31 Thailand
32 Vietnam
Europe and Eurasia34 overview
35 risk index
36 Baltics
37 Belgium
38 Bulgaria
39 czech republic
40 denmark
41 France
42 germanu
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 kenya
66 kuwait
67 morocco
68 Qatar
69 saudi arabia
70 south africa
71 united arab emirates
cover: horseshoe Falls, niagara Falls, ontario, canada © 2006 Frank Leung
4 | gloBal markeT BrieF & laBor risk index Q1 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 sponsors
some convergence, the variation
in growth rates will lead to
different economic and labor
policy concerns.
The Asia-Pacific region, led by
China, continues to grow strongly.
In addition, most of the emerging
economies in the Americas, Middle
East, and Africa appear set for
continued growth—although
the protests in Egypt and other
countries are causing instability and
could dampen growth prospects.
As a result, labor markets in some
countries are tightening and there is
upward pressure on wages. In some
cases, such as Brazil, governments
will likely take an active role in
negotiating wage contracts in 2011.
Governments in strong-growth
countries will also be concerned
with controlling inflation—
especially if it threatens to hurt
the purchasing power of poorer
populations and possibly incite
unrest. China, for instance, has
already begun to tighten monetary
policy, and will likely continue to
do so in 2011.
In developed markets the risks
will come from weak economic
recovery or continued high
unemployment despite economic
growth. And throughout much
of Europe, austerity measures
will continue to weigh on growth
prospects. This is particularly true in
the eurozone periphery—Greece,
Ireland, Portugal, and Spain—
where austerity is likely to be the
most severe. On the bright side,
although potential labor market
reforms may spark social unrest in
the short-term, they could improve
competitiveness and prospects for
long-term growth.
■ ■ ■
➔ The coming year is likely
to see a continuation of the two-
speed economic recovery of 2010
with emerging market nations set
to again outperform developed
economies. However, growth rates
are likely to converge somewhat
in 2011, as growth in emerging
markets is likely to moderate while
the recovery in some developed
markets—such as Norway and the
US—may gain traction. Despite
5 | gloBal markeT BrieF & laBor risk index Q1 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 Q1 2011
Overview: The Americas
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
wages in Argentina, Brazil, and
Chile. In other countries, such as
Colombia, Canada, and the US,
high levels of unemployment have
continued to plague governments
that have struggled to foster more
job creation. In Argentina, Brazil,
and Colombia, governments will
likely take an active role in helping
to negotiate next year’s wage
agreements with labor unions.
Despite pressures from unions for
higher pay, most governments
will show some restraint as they
try to keep inflation and spending
pressures in check and address
concerns from the private sector.
➔ Many countries in the
Americas outperformed economic
expectations in 2010, though growth
is expected to slightly moderate
in 2011 as governments tighten
monetary policies, cut back on
spending, or manage the impact
of recent natural disasters. Strong
growth and an uptick in inflation
have led to some labor shortages
and increased demands for higher
Growth in the US and Canada is
expected to remain in the low single
digits. While Canada outperformed
the US in 2010, its growth rate is
now expected to lag as officials in
Ottawa begin to tighten fiscal policy
and tapped-out consumers start to
rein in their spending. Meanwhile,
in the US, an $858 billion tax-cut
compromise hashed out by the
White House and Republicans is
expected to boost the economy by
as much as an additional percentage
point of GDP.
■ ■ ■
7 | gloBal markeT BrieF & laBor risk index Q1 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’.
The americas – risk index summary TaBle – Q1 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Argentina 6 X 7 8 4 X 5 5 4 7 4
Brazil 8 6 6 X 7 5 X 4 5 5 6
Canada 7 8 10 5 Y 8 7 7 9 5
Chile 7 6 9 7 X 7 7 5 8 6 Y
Colombia 8 5 3 6 Y 6 7 6 X 6 5
Mexico 6 6 5 Y 6 X 7 5 5 6 7
Panama 8 Y 6 7 6 7 4 4 5 4
United States 8 X 8 9 8 X 9 8 9 9 7
8 | gloBal markeT BrieF & laBor risk index Q1 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
In an effort to control the pace of current expenditure growth, Rousseff will push for approval of a reform that would limit the real rate of public servant salary increases to 2.5% per year. Wages for public servants have risen at an unsustainable pace in recent years, and Rousseff ’s economic team believes restraining such growth is crucial to its efforts to roll back the pace of spending and executing other government priorities such as increasing public investment.
Brazil
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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
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
in the first quarter of 2011. But
more moderate growth projections
of 4.5% for 2011, coupled with
President Dilma Rousseff’s
commitment to more austere fiscal
policies for this year, could detract
from labor’s negotiating power.
A key policy decision that will affect
wage pressure is the debate over
the minimum wage. Government
economists view the minimum wage
as a driver for inflation in service
sector wages. Despite the fact
that fewer workers in the country’s
more prosperous southern region
are actually paid the minimum
wage, any increases have a ripple
effect at the higher end of the
➔ Economic growth in
2010 likely exceeded earlier GDP
growth forecasts of 7.5%, while the
central bank increased its inflation
expectations for the year from 5.85%
to 5.88% in a survey released on
17 December. Sectors as varied
as finance, engineering, and
construction are experiencing labor
shortages, helping push down the
unemployment rate in November
to a record low of 5.7%, from 6.1%
in October. All of these factors
will contribute to labor pressure
for significant real wage increases
pay scale. Rousseff will likely
restrain the minimum wage hike
for 2011, or grant a small real
increase in exchange for a smaller
amount in 2012.
Nonetheless, the overall context of
high growth and labor shortages
will favor labor in wage negotiations
during Rousseff’s first year in office.
Private companies will continue
to struggle to find adequate labor
supply, while the government
will move forward with ambitious
infrastructure projects, potentially
further strengthening labor’s hand.
■ ■ ■
9 | gloBal markeT BrieF & laBor risk index Q1 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
The federal deficit—around 9% of GDP—will constrain the ability of the government to provide additional stimulus in 2011. Republicans won control of the House of Representatives in part by pledging to cut spending; both sides are wary of adding to the deficit given public concern. As a result, Congress is unlikely to pass additional stimulus—and may begin to cut programs—given political concern about the US fiscal position.
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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
colombia
mexico
panama
united states
asia paciFic
europe and eurasia
middle easT and aFrica
aBouT sponsors
United States forecasts. Before the tax deal was
reached, the consensus forecast was
for 2.6% growth and it is now firmly
over 3%.
The unemployment insurance
extension ($56 billion) and payroll
tax cut ($112 billion) will provide
an immediate infusion of cash to
consumers. The unemployed tend
to spend their money right away
on basic goods, while workers
will see more money in their
paychecks as a result of reduced
Social Security withholding. A
worker earning $50,000 could see
as much as $1,000 more this year,
while someone earning twice that
much would see around $2,000.
➔ Congress’s approval of an
$858 billion tax-cut compromise
negotiated between President
Barack Obama and Republicans
in December spurred the upward
revision of forecasts for 2011
economic growth. In return for a
two-year extension of the Bush-era
tax cuts, Obama secured 13 extra
months of unemployment insurance
as well as a one-year payroll tax cut
for workers, from 6.2% to 4.2%. Both
measures were unexpected and
their stimulative nature resulted in
most economists upping their 2011
This provision makes an incremental
difference in each paycheck, which
makes it more likely to be spent
right away.
On other indicators, forecasts are
holding steady. Unemployment
dropped to 9.4% in December 2010
and is expected to fall slightly in
2011. The Federal Reserve is likely
to keep its Federal Funds target rate
between zero and 0.25%, and it
said in a 14 December statement
that the recovery has been
disappointingly slow. Inflation is
projected to stay below 2%.
■ ■ ■
10 | gloBal markeT BrieF & laBor risk index Q1 2011
Overview: Asia Pacific
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
countries such as Indonesia and the
Philippines are still contemplating
action, while Thailand maintains
price caps on certain food
essentials and commodities.
This bout of inflation is the
consequence of robust growth
in much of the region last year.
Healthy domestic demand, rising
commodity prices, and stimulus
initiatives buoyed regional growth.
China continues to lead the way,
but countries ranging from South
Korea to Australia also put up solid
growth numbers in 2010. Although
countries are projecting lower
growth rates for 2011, the slowdown
so far seems modest. The question
for this year, then, is whether Asia
will remain a global growth engine.
➔ With the notable exceptions
of Japan and New Zealand,
numerous Asia-Pacific countries are
beset by inflationary pressures and
expectations at the outset of 2011.
As a result, the policy emphasis—at
least in the first quarter—will
focus more intensively on taming
inflation, especially in countries
that have large, poor populations.
While China has already hiked
interest rates twice, Southeast Asian
A bright spot for growth appears
to be continued investment
and upgrading of infrastructure,
particularly in Southeast Asia,
China, and India. Malaysia and
Indonesia, for instance, want to
vigorously jumpstart investment
in infrastructure, as their current
deficiencies could eventually limit
economic activity. For Beijing, its
massive investment in rail projects,
including high-speed lines, will
proceed apace, with an estimated
$100 billion in 2011. These projects
will provide a new source of jobs
at a time when some countries are
facing upward wage pressures in
traditional manufacturing sectors.
■ ■ ■
11 | gloBal markeT BrieF & laBor risk index Q1 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 – Q1 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Australia 7 Y 9 9 8 9 8 7 9 8
China 7 5 8 7 Y 6 4 X 6 Y 6 5
Hong Kong 8 7 10 7 Y 10 7 6 Y 8 7
India 7 4 7 6 XX 5 5 5 1 3
Indonesia 7 6 7 5 4 3 5 3 4 YJapan 6 9 9 Y 5 7 5 6 8 Y 7
Malaysia 6 Y 4 9 6 7 6 4 6 6
New Zealand 7 9 10 6 8 7 7 8 7 YPhilippines 6 X 4 7 5 X 4 4 5 4 6
Singapore 9 8 9 8 10 6 5 Y 8 8
South Korea 7 9 6 Y 7 7 3 5 7 6 XSri Lanka 7 X 4 8 5 X 5 6 4 5 5 YThailand 5 Y 4 7 5 7 7 5 4 8
Vietnam 7 X 5 8 4 5 6 5 4 6 Y
12 | gloBal markeT BrieF & laBor risk index Q1 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Tax policy will receive considerable attention in 2011. A five-percentage-point reduction in the top corporate tax rate is highly likely, along with reductions in some corporate tax breaks. Additionally, tax hikes on oil and coal are likely. Longer term, a taxpayer ID system to reduce tax avoidance and a consumption tax hike to shore up social spending are likely to be discussed in 2011, but the government probably will not move on these issues until 2012 at the earliest.
0
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3
4
5
6
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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
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
Japan of measures that will promote
domestic growth. Unemployment
rose slightly in October to 5.1%,
but a mild downward trend is likely
in 2011, with consensus projections
well below 5%. Prices declined
0.5% in the fourth quarter of 2010
year-on-year and deflation could
persist through 2011, while slowly
fading. The Bank of Japan is
adopting more aggressive policies
to stave off government legislation
that would mandate such policies.
Prime Minister Naoto Kan faces
ongoing political challenges. He
must perform an intricate political
dance in 2011 in order to avoid a
DPJ schism and make the necessary
cross-party appeals to push bills
➔ Growth in 2011 is projected
to slow to 1.5% or below, in
contrast to 2010 growth that should
exceed 3.5% once final numbers
are released. The economy is
also projected to contract 1.5% in
the fourth quarter, reflecting the
expiration of various tax incentives
that brought consumer spending
forward into the third quarter, when
it registered higher than expected
growth of 4.5%.
Exports are driving the economic
recovery, but the ruling Democratic
Party of Japan (DPJ) plans a variety
through the opposition-controlled
upper house of parliament. Kan’s
legislative agenda will remain close
to the DPJ’s consumer-oriented
social objectives and growth
strategy. That strategy seeks to
bolster welfare spending, end
deflation, rationalize the regulatory
and tax system, promote trade,
promote fiscal consolidation, and
support strategic sectors. For now,
the welfare goals and sectoral
support are being held in check
by fiscal constraints. Progress is
more likely in four areas: deflation,
deregulation, tax policy, and,
though slowly, trade.
■ ■ ■
13 | gloBal markeT BrieF & laBor risk index Q1 2011
very positive trend
positive trend
negative trend
very negative trend
current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
General elections scheduled for 2011 may reignite political turmoil. If allies of former prime minister Thaksin Shinawatra poll well ahead of the election, then speculation will mount about the military’s reaction. It may, with the help of the current civilian government, find a way to maneuver an election defeat for Thaksin’s allies or even prevent the election from taking place. Any sense that the government was undermining the elections would likely bring the opposition out into the streets in large numbers.
Thailand
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4
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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
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
higher inflation in the first quarter.
First, a tight labor market led to
wage hikes in early December,
when the government granted
an increase in the daily minimum
wage by an average of 6.7%
nationwide to 176.30 baht ($5.84).
The move, which was largely
politically motivated, will further
add to investor complaints of
rising labor costs in Thailand.
Second, manufacturers in industries
such as auto batteries, electrical
wires, steel, chemical fertilizer,
palm oil for cooking, and pork,
submitted applications for price
hikes ranging from 3% to 25%.
The government sets price caps
for several types of basic goods
➔ Thailand’s exports surged
in November, raising expectations
that exports for 2010 could reach
$90 billion, about 27% more than
2009 and almost 10% more than
2008, before the financial crisis
fully hit Western demand. The
export sector’s strong performance
will help Thailand reach 8%
growth for 2010. With economic
expansion remaining robust, the
government’s attention is likely to
turn to rising prices.
Two factors could contribute to
and commodities, so these firms
need administrative approval to
raise them. The government, facing
possible elections and worried
that rising inflation might force it
to raise interest rates (which would
further strengthen the baht), will
likely freeze the prices of several
products (or allow for only minimal
increases). But the manufacturers’
requests reflect the wider price
pressures in the economy. The
higher prices may eventually cause
Thai authorities to raise interest
rates, which could slow demand in
the industrial sector and weaken the
outlook for manufacturing jobs.
■ ■ ■
14 | gloBal markeT BrieF & laBor risk index Q1 2011
Overview:Europe and Eurasia
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
likely increase social unrest
and political instability in the
European periphery (Greece,
Ireland, Spain, and Portugal).
Meanwhile, Germany’s export-
based growth will continue to
make it the economic locomotive
of the continent, with some help
from the Nordic nations. Eastern
Europe presents a mixed outlook.
While economic prospects are
positive for almost all countries,
these are dependent upon the
wider eurozone. Therefore, poor
performance in some western
European economies might
undermine growth momentum
in the entire region. Moreover,
unemployment will remain
elevated and economic measures
taken by countries such as
➔ The situation in Europe
will remain complicated. Many
countries will enact austerity
measures that will not support
growth and employment.
Furthermore, several governments
will likely face funding constraints
in financial markets, which might
prompt the activation of additional
EU/IMF rescue packages, requiring
further cuts.
The implementation of structural
reforms in areas such as labor
regulations and pensions will
Hungary might undermine
investor confidence.
In contrast, steady growth will likely
boost political stability in Eurasian
countries. In the case of Russia,
the government will face minimal
internal frictions, as the risk of
social unrest that rose following
the financial crisis recedes. Stability
will be also the norm for Turkey
because the government will
try to avoid any move that may
undermine its popularity ahead of
parliamentary election to be held
in June. Finally, Ukraine will likely
also profit from a continued surge
in domestic demand, although a
reform of the labor code might
cause social instability.
■ ■ ■
15 | gloBal markeT BrieF & laBor risk index Q1 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
europe and eurasia – risk index summary TaBle – Q1 2011
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’.
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Baltics 7 7 8 5 X 7 5 6 7 4
Belgium 4 6 8 5 Y 7 5 6 7 4
Bulgaria 6 7 7 4 7 6 X 5 6 4
Czech Republic 7 7 Y 9 7 6 8 X 7 7 5
Denmark 7 Y 9 8 6 9 6 5 8 5
France 7 8 7 6 8 4 6 8 3 YGermany 6 Y 9 8 6 8 3 6 9 5
Hungary 5 6 9 4 Y Y 6 Y Y 6 6 7 5
Ireland 4 Y 8 8 4 8 6 7 8 2
Italy 5 Y 8 8 5 6 4 6 7 4
Luxembourg 7 9 8 6 X 9 4 5 9 6
Netherlands 5 7 8 6 8 3 5 Y 7 5
Norway 8 9 8 7 X 8 3 5 8 7
Poland 8 8 9 5 Y 6 Y 6 6 8 5
Portugal 5 Y 8 8 4 Y 7 4 X 6 6 3
Romania 5 6 6 5 X 7 5 5 7 4
Russia 6 5 Y 5 5 6 5 7 5 6
Spain 6 6 7 X 5 7 4 X 7 7 2
Sweden 6 8 8 7 8 4 6 8 6 XSwitzerland 8 9 9 7 Y 8 6 5 9 8
Turkey 6 5 7 7 X 6 5 5 X 5 6
Ukraine 6 5 8 4 X 6 5 6 5 4
United Kingdom 9 8 Y 8 6 9 7 6 Y 9 6 Y
16 | gloBal markeT BrieF & laBor risk index Q1 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
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
The reforms agreed under the EU/IMF bailout will likely spark more protests from trade unions. The government is expected to adopt new legislation in May to reduce the national minimum wage by €1.00 per hour and reform unemployment and welfare benefits systems. Furthermore, it will also have to present plans to increase state pension eligibility to 66 years in 2014, 67 in 2021, and 68 in 2028.
Ireland
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
of an economic and financial
adjustment package to correct
Ireland’s significant fiscal deficit of
14.4% of GDP.
These conditions are reflected in
the budget for 2011, which the
parliament is currently discussing
and which will likely be passed
in the first quarter. The four-year
austerity plan includes €15 billion
of budget cuts by 2014, of which
€6 billion (equivalent to about 4%
of GDP) will be implemented as
early as 2011.
The country will probably undergo
a major political shift in 2011.
The ruling Fianna Fail could face
➔ The Irish economy
expanded only 0.5% in the third
quarter of 2010 compared to the
previous quarter after contracting
1% in the previous quarter, and it
continued to have the third highest
unemployment rate in the eurozone
at 14.1% in October. Moreover,
concerns about the solvency of Irish
banks led the government to apply
for external financial assistance in
November. The approval of an €85
billion bailout by the EU and the
IMF was subject to the adoption
a virtual wipeout in this year’s
early elections (which will take
place in late February), while
opposition parties Fine Gael and
Labor will very likely form the next
government. These two parties
have backed the radical fiscal
retrenchment, but insist that they
will not be bound by the strict
terms and conditions attached
to the EU/IMF bailout. A more
significant risk will be the ability
of the new coalition government
to implement the reforms that the
IMF and EU have asked for. The
public backlash against the rescue
package could break the unity of
the incoming government.
■ ■ ■
17 | gloBal markeT BrieF & laBor risk index Q1 2011
very positive trend
positive trend
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current quarter
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current quarter
prior quarter
low risk
high risk
There are many reservations about the government’s proposed labor code, unveiled this fall. Unions argue the law weakens their rights and those of employees and does not meet ILO standards; meanwhile some businesses claim the law expands the rights of employees at their expense. Fears of demonstrations were likely behind the decision to delay consideration until this year. Regardless of whether officials revise the bill in response to the complaints, a vote is likely in the first half of 2011.
Ukraine
0
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2
3
4
5
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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
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
Natural gas tariff increases in the
spring and fall will be one of the
main factors to affect prices. The
IMF will require the National Bank
of Ukraine to further liberalize its
exchange rate policy as part of its
$15 billion loan program with the
government. This will make the
hryvnia potentially more vulnerable
to exchange rate fluctuations.
The government will engage in
a series of reforms in 2011 that
will affect all employers. Tax
reform, which went into effect
on 1 January, is generally
positive for Ukraine’s largest
employers, who will enjoy
lower tax rates, while it is mixed
➔ There is little concern
among outside observers that
Ukraine’s economic recovery will
slow this year. Estimates of GDP
growth range from 3.7% to above
4%. A revival in domestic demand
is expected to continue, a factor
that may help the government
address unemployment
that remains around 9% by
International Labor Organization
(ILO) standards. Inflation will be
lower than before the financial
crisis, but estimates for 2011 are
generally between 10% and 11%.
for small- and medium-sized
enterprises. Protests against the
tax code in November caught
the government by surprise, and
will affect how it approaches
upcoming changes to the pension
system and the labor code.
Nevertheless, these developments
are considered necessary—pension
reform is a requirement of the
IMF loan—and likely will be
implemented in early 2011. Large
and small businesses alike will
be affected by the restructuring,
though the full impact will not
be clear until the cabinet and
parliament finalize the proposals.
■ ■ ■
18 | gloBal markeT BrieF & laBor risk index Q1 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
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
countries will benefit from more
robust hydrocarbon exports given
the more stable outlook of the
global economy.
Across Africa and the Middle East,
domestic politics and policies will
drive growth. For instance, Qatar’s
winning bid to host the 2022
FIFA World Cup will help spur the
construction and infrastructure
sectors, as well as the tourism
industry. And in Kenya, effective
monetary policies have supported
economic growth.
But, as recent events have shown,
politics can also delay and even
derail the limited successes that
many of these emerging markets
have achieved. It is unlikely that
➔ The Middle East and
Africa entered 2011 in a profound
state of disarray as protests shook
the region and long-entrenched
dictators wobbled and fell.
Despite this, the two regions are
broadly poised for growth barring
further dislocation. Many of the
energy-dependent economies are
diversifying in order to address
longer-term socioeconomic
concerns such as unemployment.
And in the short term, these
many countries in the Middle
East and Africa will succeed in
addressing structural problems in
2011, such as corruption and the
lack of democracy, and most also
have difficult policy choices to
make. Egypt had weathered the
global financial crisis relatively well,
and was poised to benefit from
the global recovery. But the mid-
January fall of the Tunisian president
pushed rising social discontent
to the fore as protests shook the
regime of President Hosni Mubarak;
the Egyptian stock market tanked
as the military nervously stood
between protesters and the regime.
If Mubarak falls, it will have serious
consequences for Egypt and for the
broader Middle East.
■ ■ ■
19 | gloBal markeT BrieF & laBor risk index Q1 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 – Q1 2011
macro risks laBor risks
political social security economicForeign
investmentFlexibility availability Quality contentment
Algeria 4 Y 4 YY 4 Y 3 3 2 5 5 1 Y
Egypt 6 Y 6 YY 8 Y 5 5 4 4 2 2
Israel 7 6 Y 7 7 Y 8 5 6 Y 8 7
Kenya 6 2 X 6 5 X 6 X 6 5 4 4
Kuwait 6 X 6 Y 7 6 5 8 4 7 7 X
Morocco 6 5 Y 8 4 5 3 4 2 4
Qatar 8 X 6 8 7 XX 6 7 5 7 6 Y
Saudi Arabia 7 6 Y 7 6 X 6 7 4 5 5
South Africa 6 Y 3 6 6 X 7 4 Y 7 4 2
United Arab Emirates 8 7 6 7 X 6 X 6 6 7 7 X
20 | gloBal markeT BrieF & laBor risk index Q1 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
middle easT and aFrica
overview
risk index
algeria
egypt
israel
kenya
kuwait
morocco
Qatar
saudi arabia
south africa
united arab emirates
aBouT sponsors
The Netanyahu government is relatively stable. While coalition politics are an ongoing source of policy volatility, a government collapse is unlikely in the near term. Authorities are likely to use this stability to focus on the economy, while avoiding serious engagement in the peace process. If the government does run into trouble, Netanyahu could look to the centrist Kadima party for support, though such a move would necessitate greater engagement in the peace process.
Israel
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MACRO RISKS LABOR RISKS
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could stoke inflation and will likely
push the Bank of Israel to raise
interest rates.
Housing prices have soared
dramatically over the last five
years, spurring concerns about a
possible real estate bubble. Prime
Minister Benjamin Netanyahu
recently highlighted the issue,
linking the hike in prices to the
limited supply of land for residential
construction and low interest rates.
The central bank, however, says
there are signs that the housing
boom is slowing. Officials will watch
late 2010 and early 2011 housing
numbers carefully.
➔ Israel’s economic outlook
remains relatively strong, though
growth is expected to be weaker
in 2011 than had been previously
expected. Recent estimates put
GDP growth at 3.2%, more than
one percentage point down from
the 4.5% estimated for 2010.
There are two causes for the
moderate slowdown: Slower
growth of the global economy is
adversely affecting export growth (a
principal driver of Israel’s economy),
while a developing housing bubble
Illegal immigration will remain an
important political issue, with the
number of Africans crossing into
Israel from Egypt likely to increase
beyond the current 13,000 per
year. These illegal laborers are
needed in the southern resorts and
in construction work, but the calls
for curbing migrants will grow as
the unemployment rate is at 6.6%,
high by Israeli standards. Efforts
in 2010 to reform employment
and labor laws will continue in
2011, but will remain contentious.
Nevertheless, the central bank
expects unemployment to return to
the 5%–6% range in 2011.
■ ■ ■
21 | gloBal markeT BrieF & laBor risk index Q1 2011
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current quarter
prior quarter
current quarter
prior quarter
low risk
high risk
Qatar will spend about $57 billion over the next decade for infrastructure developments related to the 2022 World Cup. Project work in preparation for the event presents a lucrative investment opportunity for large-scale multinationals. The infrastructure, hospitality, and real estate sectors are expected to be the biggest beneficiaries. Over the next few years there will be an incremental rise in the number of migrant construction workers. Market research and financial feasibility studies for pipeline projects are expected to begin in 2011.
Qatar
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8
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Political Social Security
MACRO RISKS LABOR RISKS
Economic Foreign Investment
Flexibility Availability Quality Contentment
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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
State spending for the fiscal
year 2010–2011, which started
in April, is expected to increase
to $32.4 billion. Expenditure on
infrastructure projects is projected
to account for 40% of the budget
through 2016.
Human capital development will
likely be a central theme in the
government’s future economic
and social development policy. In
the first quarter of 2011, Qatar is
expected to accelerate the rollout
of its National Development
Strategy (2011–2016). Building
domestic labor capacity, expanding
the private sector’s role in the
economy, and facilitating the
growth of entrepreneurship
➔ Qatar’s economic prosperity
continues to exceed market
expectations. GDP is projected
to grow 18.5% in 2010 and 20%
in 2011. Natural gas continues to
play a critical role in the country’s
economic plans with LNG
production capacity reaching
77 million tons per year. In 2011,
the government will likely expand
economic diversification projects
to enlarge the non-oil and gas
sector share of GDP (particularly
in finance, industry, construction,
and real estate).
and small- and medium-sized
enterprises will represent tangible
challenges. Government policy
will continue to emphasize the
expansion of educational and
research institutions along with on-
the-job training programs.
Labor laws are currently under
review, but no change is expected
in 2011. The sponsorship system,
which restricts job transfers
without consent of the current
employer, remains the foundation
for employment contracts. Qatar’s
successful 2022 soccer World
Cup bid will heighten pressure to
modernize the legal code, although
no changes are anticipated in 2011.
■ ■ ■
22 | gloBal markeT BrieF & laBor risk index Q1 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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Published on a quarterly basis, the Global Market Brief & Labor Risk Index is segmented by four geographies: the Americas, Asia-Pacific, Europe and Eurasia,
and the Middle East and Africa, with detailed insights for 55 of the world’s most important economies.
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Eurasia Group is the world’s leading global political risk research and consulting firm. Since 1998, it has helped clients make informed business decisions in
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