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  • July 24, 2012 4:18 PM | Deleted user
    Political Crisis in Romania (2012-08-01)
    While President Traian Basescu survived last weekend’s referendum on whether or not he should be ousted from office, the political crisis in Romania shows no signs of abating and could jeopardize that country’s efforts to restore its struggling economy. Moreover, his political opponents have indicated that they will not abandon their efforts to remove the unpopular president from office, despite their setback in the recent referendum. As such, Romania faces a political crisis that could lead to a much worse economic crisis in the coming months.

    In last weekend’s referendum on whether or not to allow for President Basescu to be impeached, 88% of the people who voted supported the impeachment of the president. However, Romania’s Constitutional Court required a 50% voter turnout for the referendum to be valid and only 46% of Romanian voters took part in the referendum as supporters of the president boycotted the vote and many Romanians were away on summer holiday. Due to the failure to meet the 50% voter turnout requirement, President Basescu indicated that he would remain in office for the rest of his term. Meanwhile, the leader of the political opposition, Prime Minister Victor Ponta, called on the president to resign.

    For Romania, this political showdown that has paralyzed the country’s political system could not have come at a worse time, for the country is in the midst of a serious economic crisis that could take a turn for the worse due to the lack of political leadership in the country. Romania was one of the first countries in Europe to face a serious debt crisis in recent years and this forced the government to enact dramatic austerity measures that have severely reduced a wide array of public services. Moreover, Romania remains dependent upon European export markets for much of its economic growth and these countries are in the midst of a serious economic slowdown, reducing Romania’s growth potential and possibly leading to a much more serious recession in Romania.

    The Lackluster United States Economy (2012-07-30)
    The United States economy slowed slightly in the second quarter of 2012, exactly as had been forecast. While the US economy is outperforming most other developed economies at this time and is forecast to continuing outpacing most other developed economies over the course of this year, the pace of the recovery has failed to match up to previous economic recoveries in the US. As such, the United States heads into the final four months of its presidential campaign with an economy that is far from fully recovering from the collapse of the US housing market and the financial crisis that led to a severe recession in 2008 and 2009. 

    GDP growth in the United States slowed to 1.5% on an annualized basis in the second quarter of this year, down from the 2.0% GDP growth recorded in the first quarter of 2012. This slowdown was the result of weakening consumer demand on the US market as well as the pace of import growth outpacing export growth during that period. Looking ahead, the US economy is forecast to pick up steam in the second half of the year, although the earlier forecast for 3.0% GDP growth in that period is now looking optimistic. As a result, the persistently high rate of unemployment in the US (currently at 8.2%) is likely to remain in place well into 2013.

    This sluggish performance by the world’s largest economy is worrying news for the Obama Administration as the campaign for November 2012’s presidential election in the US heats up. President Obama’s economic team had been confident that the economy recovery in the United States would have been more robust in recent months and would have pushed the country’s unemployment rate much lower than it currently stands. As such, the performance of the US economy in the third quarter could play a decisive result in this election, as that quarter’s GDP results will be released just over a week before the presidential election. If the economy remains sluggish and unemployment remains high, Republican candidate Mitt Romney could close the gap with President Obama in a number of key swing states that will decide this election.

    Dark Days in Spain (2012-07-25)
    Spain’s economy is facing its greatest challenge in modern times as its prospects both over the near-term and the long-term are dire. Over the near-term, Spain’s deteriorating financial situation will almost certainly force the Spanish government to seek an international bailout that will result in even more austerity measures being imposed on Spain. Over the longer-term, Spain’s economic competitiveness is unlikely to improve enough to offset the dramatic reductions in public spending that will continue to be implemented in Spain, consigning Spain to a long period of economic stagnation.

    Spain’s immediate concern is the worsening financial crisis facing the country. Across Spain, regional and local governments are in dire need of financial assistance after years of over-spending. Fears that Spain’s regional and local governments will need huge amounts of financial support have driven Spanish bond yields to unsustainable levels and this has made it almost certain that Spain will need an international bailout no later than the end of this year. Moreover, delays in implementing a plan to provide funds for struggling banks within the Eurozone have further increased the pressure on Spain’s beleaguered financial sector, even as Spanish banks have already been granted a $120 billion (100 billion euro) loan package by the EU.

    While Spain’s near-term problems dominate the headlines, it is the dire long-term outlook for the Spanish economy that is most worrying for the people of Spain. Economic growth in Spain, once the highest among Europe’s larger economies, has ground to a halt and is unlikely to rebound at any time in the coming years. This economic growth allowed Spain to narrow the wealth gap with richer developed economies, but now, Spain is likely to fall further behind most other developed economies. Furthermore, Spain’s unemployment rate is near 25% and will remain high for the foreseeable future, dampening domestic demand. Without a major increase in export competitiveness, Spain’s economy will have little opportunity for growth and it will take a long time, and major changes in economic policy, for Spain to improve its export competitiveness.

    Syria's Teetering Government (2012-07-24)
    As fighting in Syria’s intensifying civil war spread to that country’s two largest cities, it has become clear that Syrian President Bashar al-Assad and his government are losing their grip on power. Moreover, defections and attacks from within have raised the possibility of an internal coup that sweeps President Assad from power. Finally, rebel forces are making larger territorial gains, a development that will allow the rebels to establish bases of power within the country that they can use to rearm and regroup, a development that is likely to turn the tide against the Assad regime.

    Until recently, the fighting that has escalated into a full-scale civil war in Syria had not reached that country’s two leading cities, Damascus and Aleppo. However, that has now changed as rebel forces have launched major attacks against government targets in both cities and have taken control of some quarters close to the heart of both of Syria’s largest cities. Moreover, the recent assassination of high-ranking government and military leaders in Damascus has highlighted the growing rebel infiltration of the highest levels of power in Syria, a development that may convince President Assad that his time in power is coming to an end.

    Despite the recent gains by the rebels in Syria, the Assad regime still has a number of powerful tools at its disposal. Until recently, Syria’s armed forces have refrained from using the country’s substantial air power against the rebels out of fear that this could provoke intervention by foreign military forces. Furthermore, Syria has large stockpiles of chemical weapons, a fact that concerns both the rebels and foreign powers with a stake in Syria. Nevertheless, recent developments have shown that the momentum is firmly behind the rebels and, if they can maintain their unity, they stand a strong chance of ousting President Assad before too long. However, the fighting is likely to grow much more intense, and the death toll is likely to rise much further, before the Assad regime can be once and for all driven from power.

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    Reprinted from ISA Report published July 24, 2012 (updated August 6, 2012), International Strategic Analysis,http://www.isa-world.com/main.php  
  • July 03, 2012 4:17 PM | Deleted user
    Syria's Teetering Government (2012-07-24)
    As fighting in Syria’s intensifying civil war spread to that country’s two largest cities, it has become clear that Syrian President Bashar al-Assad and his government are losing their grip on power. Moreover, defections and attacks from within have raised the possibility of an internal coup that sweeps President Assad from power. Finally, rebel forces are making larger territorial gains, a development that will allow the rebels to establish bases of power within the country that they can use to rearm and regroup, a development that is likely to turn the tide against the Assad regime.

    Until recently, the fighting that has escalated into a full-scale civil war in Syria had not reached that country’s two leading cities, Damascus and Aleppo. However, that has now changed as rebel forces have launched major attacks against government targets in both cities and have taken control of some quarters close to the heart of both of Syria’s largest cities. Moreover, the recent assassination of high-ranking government and military leaders in Damascus has highlighted the growing rebel infiltration of the highest levels of power in Syria, a development that may convince President Assad that his time in power is coming to an end.

    Despite the recent gains by the rebels in Syria, the Assad regime still has a number of powerful tools at its disposal. Until recently, Syria’s armed forces have refrained from using the country’s substantial air power against the rebels out of fear that this could provoke intervention by foreign military forces. Furthermore, Syria has large stockpiles of chemical weapons, a fact that concerns both the rebels and foreign powers with a stake in Syria. Nevertheless, recent developments have shown that the momentum is firmly behind the rebels and, if they can maintain their unity, they stand a strong chance of ousting President Assad before too long. However, the fighting is likely to grow much more intense, and the death toll is likely to rise much further, before the Assad regime can be once and for all driven from power.

    Democracy in Jeopardy in Central and Eastern Europe (2012-07-18)
    Following the collapse of communism in Central and Eastern Europe more than two decades ago, democracy swept across the region until nearly all of the countries in that region could be described as full democracies. However, apart from the wealthier countries of Central Europe or the Baltic region, democracy has struggled to fully take root and, in many countries, has been rolled back by rising authoritarianism and unrest. With the region’s economic future looking increasingly worrisome, the fate of democracy in this region is in severe jeopardy.

    In the late 1990s and the early 2000s, almost all countries in Central and Eastern Europe could be described as having fully democratic political systems. However, many countries in Southeastern Europe and in the European areas of the former Soviet Union have seen their democracies weakened in recent years as power as been concentrated in the hands of national strongmen or as political turmoil has weakened many political systems. In countries such as Russia, Ukraine, Belarus and even Hungary, power is now concentrated in the hands of a dominant political leader. Meanwhile, political unrest in countries such as Bosnia, Albania and now Romania has weakened the desire for democracy in those countries.

    There are many factors that threaten the future of democracy in Central and Eastern Europe. First, much of the region is in the midst of a severe economic downturn and much of the popular blame for this downturn has been placed on the governments of the region. Second, as the European Union has failed to deal with its own economic crisis, its ability to enforce or support democratic reforms in the region has been severely reduced. Finally, many of the region’s democracies themselves are severely flawed due to an unwieldy number of ever-changing political parties or the domination of a single political party. As a result, apart from a few countries (such as Poland), democracy in the region is likely to suffer more setbacks in the years ahead.

    The Implications of China's Slowing Economy (2012-07-17)
    China’s economy has continued to slow in recent months, raising fears that this key engine of growth for the global economy will experience even lower rates of growth in the second half of 2012. Much of this slowdown was the result of a weakening of key export markets, particularly in crisis-hit Europe. However, China’s fast-growing domestic market has also recorded lower rates of growth in recent months and this has the potential to cause major problems for the global economy and for exporters counting on China for a large share of their growth in the coming months and years.

    GDP growth in China slowed to 7.6% on an annualized basis in the second quarter of 2012, the lowest rate of economic growth in China since early 2009. With export growth slowing sharply in recent months, and with China’s real estate market slowing more signs of weakening, it was no surprise that economic growth in China continued to fall. Growth would have been even lower had it not been for higher levels of investment growth as the Chinese government began to enact a new round of stimulus projects designed to bolster the flagging Chinese economy. Nevertheless, growth could continue to slow in the second half of this year, with major implications of the global economy.

    As China has become a vital cog in the integrated global economy, it is increasingly exposed to external economic risks, while China itself plays a greater role in the economic performance of countries around the world. It was this exposure to global economic risks that contributed heavily to the recent slowdown in China, with export markets weakening in Europe and in other regions. However, it is China’s weakening domestic market that poses the greatest threat to the global economy, as China is now a leading destination for exports from economies in all regions of the world. Should China’s domestic market downturn continue, an already-struggling global economy could experience a much sharper fall in growth than has been forecast.

    Political Islam Ascendant (2012-07-11)
    The greatest beneficiaries of the Arab Spring have been Islamic political parties that have used to spread of democracy across the Middle East and North Africa to gain power in a number of countries in the region. Moreover, with the political situation in many countries in the region remaining highly unstable, there is a potential for more Islamist political parties to rise to power in the region in the coming years. From the outside, this may appear to be an Islamist tide sweeping the region, but deep divisions within the ranks of the Islamist movement must be overcome for this to lead to more unity for the region.

    Since the start of the Arab Spring in late 2010, long-ruling governments have been ousted in four countries in the Middle East (Tunisia, Egypt, Yemen and Libya). In the Egypt and Tunisia, moderate Islamists parties associated with the Muslim Brotherhood have gained power, although they currently share power with other parties or the armed forces. Moderate Islamists are also in power in Turkey, where the AKP-led government has been used as a model by many of the region’s nascent Islamist movements. Furthermore, Islamist movements are active in many other countries in the region, most notably Syria, where they are playing a key role in the battle to remove President Bashar al-Assad from power.

    As democracy spreads across the region, it appears increasingly likely that the religious-secular divide that has come to dominate Turkish politics in recent years will emerge in the region’s other democracies as well. However, the deep rift among Islamist movements in the region between the relative moderate groups (such as the Muslim Brotherhood) and the more radical elements (such as the Salafists) could prevent Islamists from consolidating power in the region. However, should the new Islamist-led governments in the region prove successful, they could serve as a model (like Turkey) for countries such as Algeria, Morocco, Jordan and the countries of the Arabian Peninsula, where democracy has yet to fully take hold.

    What ASEAN Can Learn from Europe's Crisis (2012-07-10)
    No other group of countries have thus far reached the level of political and economic integration as the European Union, but one group of countries, Southeast Asia’s ASEAN group, is widely considered to be the next in line. However, the ongoing debt crisis in the European Union has raised questions about the desirability of such deep integration in ASEAN. Moreover, in many ways the disparities between the member states of ASEAN are even greater than those of the European Union, and it is such disparities that are at the root of the crisis in Europe.

    While the European Union was created in large part to attempt to prevent Europe from continually being dominated by external powers (the United States and the Soviet Union), so to was ASEAN created in large part due to the overwhelming power of external powers (the United States, China and potentially India). Originally, the European Union was made up of mostly wealthier export-oriented economies, but over time, the EU has added mostly poorer countries, leading to larger disparities in wealth and economic policies among the EU’s member states. In contrast, ASEAN was, from its inception, a grouping of economies that had wide variations in terms of wealth and economic development.

    Prior to the European debt crisis, the EU was seen as a model for integration for Southeast Asia. However, ASEAN member states are now aware that the creation of a common currency is not possible without the deeper political and economic integration of the organization’s member states. Fortunately for ASEAN, it has a much younger population than the EU and is not burdened by unsustainable social welfare systems that are reducing Europe’s export competitiveness. Moreover, with 600 million people and a high level of export competitiveness, ASEAN has the potential to be not only a leading exporting-region in the world, but also one of the world’s fastest-growing domestic markets. With the political situation improving in key ASEAN countries such as Indonesia and Myanmar, the outlook for the region is brighter than ever, but it must avoid the pitfalls that face regional economic alliances.

    The Advantages of New World Economies (2012-07-03)
    While much of the developed world faces the prospect of long-term economic stagnation, a handful of developed economies are likely to experience relatively strong economic growth over the longer-term. These developed economies are the so-called New World economies, the largely English-speaking former colonies of Britain located in North America and the Pacific region. Thanks to the number of crucial factors, these New World economies have the potential to avoid many of the pitfalls that have trapped many of the world’s leading developed economies in a cycle of stagnation and decline.

    There are four so-called New World economies that are poised to continue to experience healthy levels of economic expansion in the coming years and decades (the United States, Canada, Australia and New Zealand). While much of developed Europe and Asia faces economic decline as a result of shrinking populations and a lack of investment in research and development, these New World economies have the potential to continue growing in the future. This is due to the fact that these four economies are each boosted by rising (and relatively youthful) populations, higher levels of investment in technology, as well as large amounts of land and resources.

    While most of the world’s exporters have turned to giant emerging markets such as China and India for their growth in the future, these four New World economies will also provide exporters with major growth opportunities in the 21st century. Combined, these four countries have a population of more than 375 million people and their total population is forecast to grow to more than 550 million people by the middle of this century. Moreover, these New World economies continue to attract the bulk of the world’s high-skilled migrants, allowing them to be hotbeds of innovation and entrepreneurship. As such, these New World economies will enable developed economies to maintain a major role in a rapidly changing world.

    The New President of Mexico (2012-07-03)
    As expected, the candidate of the once-dominant PRI party, Enrique Pena Nieto, won this month’s presidential election in Mexico, ending the PAN party’s 12-year control of the Mexican presidency. President-elect Pena Nieto takes charge of Mexico at a time while that country’s drug war continues to destabilize large areas of the country and the global economic slowdown threatens to hold down economic growth in Mexico. Meanwhile, the runner-up in this year’s presidential election, left-wing candidate Andres Manuel Lopez Obrador, has challenged the election results, just as he did in the previous presidential election in 2006. 

    The PRI party’s Enrique Pena Nieto won Mexico’s presidential election with 38.2% of the vote, a slightly lower amount of the vote than had been expected. The leftist opposition candidate, Andres Manuel Lopez Obrador, finished in second place for the second consecutive election, winning 31.6% of the vote. In third place was the candidate of the ruling PAN party, Josefina Vazquez Mota, who won a disappointing 25.4% of the vote. Meanwhile, the PRI made gains in the parliamentary and state elections that took place at the same time as the presidential election, giving the party that ruled Mexico from 1929 to 2000 almost total control of Mexico’s political system.

    President-elect Pena Nieto will face a number of major challenges as he prepares to take office. The most pressing challenge facing the president-elect will be Mexico’s ongoing drug war as major drug gangs such as the Zetas have extended their control of many areas of Mexico and infiltrated many segments Mexico’s government and security forces. On the economic front, falling oil prices and slumping export markets will dampen Mexico’s economic outlook over the near-term, while Mexico will need to do more to boost its export competitiveness to ensure longer-term economic success. Finally, President-elect Pena Nieto must convince a majority of Mexicans that his PRI party will not return to its old ways after 12 years out of power, a task made more difficult by Mexico’s many challenges and Mr. Lopez Obrador’s refusal to recognize the election results.

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    Reprinted from ISA Report published July 3, 2012 (updated July 24, 2012), International Strategic Analysis,http://www.isa-world.com/main.php  
  • June 03, 2012 4:16 PM | Deleted user
    Germany and France on Opposite Sides (2012-06-27)
    With the election of the Socialist Francois Hollande as France’s new president, relations between the Eurozone’s two largest economies, Germany and France, are becoming increasingly strained and this could have massive consequences for Europe’s economic future. For the new French government, it is imperative that measures be taken to stimulate growth in Europe, particularly in the recession-bound economies of southern Europe. However, the conservative German government continues to demand that more austerity measures be enacted in those Eurozone economies in need of international financial assistance.

    Over the near-term, relations between Germany and France are likely to remain strained over the two countries’ differing visions of a future European Union. Moreover, economic growth is forecast to continue to slow in both countries over the near-term and this will force both governments to take steps in the interest of their own country’s economic outlook. For France, with its deteriorating level of export competitiveness, this means more government-led steps to stimulate economic growth in Europe through higher levels of public spending. In contrast, Germany, with its high level of export competitiveness, is in many ways satisfied with the status quo as the Eurozone’s troubles have weakened the euro and led to higher levels of German exports outside of the Eurozone.

    Looking further ahead, there is a significant possibility that relations between Germany and France will move further away from the close relations that existed over the past six decades. One reason for this split is the fact that, as a result of its shrinking domestic market, Germany will become ever more dependent upon exports for economic growth. In contrast, France is likely to struggle to raise its export competitiveness in the coming years and thus will face the prospect of a longer-term economic stagnation along the lines of Italy or Spain. With their two economies moving further apart, Germany and France will struggle to find common ground on many issues and this could lead to a much-less cohesive European Union in the future. Of course, much will depend upon national elections in Germany next year, as should the opposition SPD enter the government, it will favor some of the policies being supported by France’s new government.

    Egypt's New President (2012-06-25)
    The Muslim Brotherhood’s Mohammed Mursi was declared the winner of this month’s presidential election In Egypt, becoming that country’s first president to have been elected in a free and fair election. President-elect Mursi’s victory means that the Muslim Brotherhood now controls both Egypt’s presidency and its parliament, reflecting the power of Islamist movements in Arab countries impacted by the Arab Spring. However, the Egyptian military’s power grab in recent weeks means that much remains unsettled in Egyptian politics and the new president could struggle to assert his authority in the coming months.

    Mohammed Mursi won this month’s presidential election in Egypt by the narrow margin of 51.7% to 48.3% over former Prime Minister Ahmed Shafiq in the election’s second round of voting. To the dismay of liberals and reformers, the two finalists were relative hard-liners, one representing the country’s social conservatives and the other representing the old guard. With President-elect Mursi soon to be in power, the Muslim Brotherhood will have control of most levels of political power in Egypt and this will have massive implications for Egyptian foreign and social policy and could lead to tensions with Israel and Egypt’s Coptic Christian minority.

    In the coming weeks and months, President-elect Mursi and the Muslim Brotherhood will find itself in a struggle with Egypt’s armed forces over control of various aspects of Egypt’s political system. Already, the country’s armed forces have attempted to weaken the presidency, question the legitimacy of the parliament and move to have a greater influence over the creation of a new constitution for Egypt. This is certain to lead to clashes with the Muslim Brotherhood, which after nearly 90 years of oppression is anxious to strengthen its new-found hold on power in Egypt. As a result, the political situation in Egypt is likely to remain very tense and this could destabilize not only Egypt, but also much of the Middle East and North Africa.

    Chaos in the Eastern Mediterranean (2012-06-20)
    While Central Asia and Central Africa are often cited as the world’s two most unstable regions, another region, the Eastern Mediterranean, has emerged as an increasingly worrying source of economic and political instability. Politically, the Arab Spring has had a massive impact on the southern and eastern coasts of the Eastern Mediterranean, producing wars in Libya and Syria and upheaval in Egypt, Gaza and Lebanon. Meanwhile, most of the region’s economy has nosedived in recent years, highlighted by the depression in Greece that has impacted other countries such as Cyprus.

    The Arab Spring and the European debt crisis have served to destabilize what has been throughout history one of the world’s leading flashpoints, the Eastern Mediterranean region that stretches from Greece in the north, around the eastern Mediterranean to Libya in the south. These momentous events have led to massive political changes across the region, with governments in Egypt, Libya and Greece being ousted and with Syria on the brink of a full-scale civil war. Moreover, what had been one of the fastest-growing regions in terms of economic growth has fallen into uncertainty, with most of the region’s economies experiencing deep recessions.

    These changes are having a massive impact on the balance of power in the Eastern Mediterranean. First, outside powers such as the United States, Europe and Russia have been forced to scramble to keep up with the rapid political changes that are continuing in the region, with each of these powers potentially losing key allies in the region. Second, Turkey has emerged as a much more powerful player in the region, returning to a role that it held prior the collapse of the Ottoman Empire. Finally, Israel sees itself threatened by the massive changes in the political leadership of its Arab neighbors and it fears that the region’s new leaders will prove to be much more hostile to Israel than their ousted predecessors.

    Greece's No-Win Election (2012-06-18)
    It was an election that was not divided by the traditional split between left-wing and right-wing political parties, but rather by the differences between parties that either supported or opposed the international community’s bailout program for the collapsing Greek economy. In the end, Greece’s traditionally two most powerful parties (those that support the bailout that they negotiated with international lenders) managed to win enough seats in the parliament to form a coalition government. However, this will do little to ease Greece’s pain as years of economy decline lie ahead and this election may have prolonged an eventual solution to the crisis.

    The center-right New Democracy party won a narrow victory over the left-wing (and anti-bailout) Syriza party by a margin of 29.7% to 26.9% and this meant that New Democracy won the 50-seat bonus granted to the winner of Greek elections. As such, New Democracy now holds 129 seats in the 300-seat Greek parliament. In the meantime, the once-powerful center-left PASOK party suffered a crushing defeat, winning just 12.3% of the vote. Nevertheless, PASOK’s 33 seats mean that it can form a pro-bailout coalition with New Democracy if it chooses, as is expected. Meanwhile, extremist parties such as the far-right Golden Dawn and ANEL parties, as well as the far-left Communists, all won enough votes to qualify for representation in the parliament.

    The parliamentary majority held by pro-bailout New Democracy and PASOK parties means that any chance of Greece dropping the euro (or being kicked out of the Eurozone) over the near-term has been diminished. However, this means that Greece will be saddled with a currency that has a value far too high for a country like Greece. Without a weaker currency, Greece will struggle to improve its export competitiveness and this will delay Greece’s recovery from its current depression. As such, Greece’s (and the Eurozone’s) economic crisis will not worsen dramatically over the near-term, but it also will not come to an end, to the long-term detriment of Greece and much of southern Europe.

    Two Crucial Elections in Latin America (2012-06-13)
    While there are relatively few national elections taking place in Latin America in the second half of 2012, there are two elections that will have a major impact on the political direction of the region for years to come. First, Mexico will hold a presidential election in July 2012 that could see that country’s old dominant political party return to power after 12 year in opposition. Then, Venezuela will hold presidential elections in October 2012 that will pit the leader of Latin America’s far-left movement, President Hugo Chavez, against a candidate backed by a newly unified political opposition.

    Mexico’s upcoming presidential election promises to be an interesting race as the old guard seeks to regain the presidency in Latin America’s second-largest country. For months, the candidate of the once-dominant PRI party, Enrique Pena Nieto, has held a commanding lead over his rivals in the polls, promising to return the PRI to power. However, recent polls have suggested that his support has ebbed somewhat, presenting a chance to the candidate of Mexico’s political left, Andres Manuel Lopez Obrador, the man who nearly won 2006’s presidential election. Should this election prove closer than polls indicate, there is a strong possibility of political unrest in Mexico at a time when drug-related violence has destabilized many areas of that country.

    Venezuela’s presidential election promises to be one of 2012’s most interesting elections. Since 1999, President Hugo Chavez has dominated Venezuelan politics and has led a revival of the far-left in Latin America. However, he is suffering from cancer and there are serious doubts as to whether or not the president will be able to compete in October 2012’s election. Meanwhile, Venezuela’s long-divided rightist opposition has formed an alliance to back a single candidate in this election, Henrique Capriles, and polls suggest that he poses the most serious threat to President Chavez in years. Here too the potential for political unrest is high, particularly if President Chavez’s health deteriorates further or if the political opposition wins the election.

    Why Spain Still Needs Help (2012-06-12)
    As expected, Spain was forced to seek international assistance to rescue its foundering financial sector, in this case a 100 billion euro ($125 billion) credit line for Spanish banks that have been battered by the collapse of Spain’s real estate market. While the Spanish government has been understandably reluctant to call this rescue a bailout, that is exactly what has been provided for Spain, although it will likely include less restrictions on Spain than the previous bailouts did on other Eurozone countries. Nevertheless, this bailout is unlikely to prevent Spain from experiencing a long period of economic decline.

    Spain’s need of a bailout is the result of the fact that much of the country’s economic growth prior to the recent crisis was the result of Spain’s real estate bubble, which spectacularly burst in recent years. This collapse led to Spain’s unemployment rate rising to near 25%, devastating the country’s domestic market. Meanwhile, Spain’s export competitiveness has declined markedly in recent years, while Spanish exporters remained dangerously over-exposed to weakening European markets, with little presence outside of Europe. As a result, Spain has had nothing to fall back on as the country’s real estate sector collapsed.

    Unfortunately, there is a real possibility that Spain will require further financial assistance in the near future. While this bailout for Spain’s banking sector will give the country some breathing room, Spain’s economy is forecast to continue to contract in the coming years. Moreover, the Spanish government has struggled to enact the austerity measures that have been demanded of it by Germany, particularly with regards to Spain’s regional governments. With more government spending cuts forthcoming and with Spain’s unemployment rate remaining dangerously high, Spain’s domestic market will remain very weak. As Spain’s export competitiveness continues to decline, export growth will remain too weak to prevent Spain from eventually needing more international assistance, or whatever the Spanish government decides to call it.

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    Reprinted from ISA Report published June 3, 2012 (updated June 27, 2012), International Strategic Analysis,http://www.isa-world.com/main.php  
  • May 07, 2012 4:15 PM | Deleted user
    French and Greek Elections Rattle Europe (2012-05-07)
    The victory by the Socialist candidate Francois Hollande in France’s presidential election and the success of political parties opposed to additional austerity measures in Greece’s parliamentary elections, while expected, has nevertheless raised concerns about the European Union’s political cohesiveness. With many of Europe’s leading economies in the grip of a recession, and with the outlook for economic growth in the region remaining poor, these political changes will raise concerns that the economic crisis in southern Europe could continue to worsen. This is due to the fact that the winners of these two elections are opposed to the policies endorsed by the two most powerful players in the European economic crisis, international creditors and the German government.

    Socialist candidate Francois Hollande won France’s presidential election, defeating incumbent President Nicolas Sarkozy by a narrower-than-expected margin of 51.7% to 48.3%. His calls for more government spending and higher taxes are likely to put him at odds with German Chancellor Angela Merkel and international financial markets and could derail efforts in the Eurozone to find common ground in the effort to end the region’s economic crisis. Meanwhile, Greece’s two main political parties (New Democracy and PASOK) managed to win just 149 of the 300 seats in the Greek parliament, giving a slight majority to parties opposed to additional austerity measures and the other bailout conditions set forth by international creditors. If a new coalition government can’t be formed in Greece, new elections will have to take place, adding to the political uncertainty in that country and across the Eurozone.

    For Europe, these two elections signal two crucial shifts. First, France’s new president will be the only left-leaning political leader in a larger European Union member state, as Germany, Britain, Italy, Spain and Poland all have center-right governments that favor lower degrees of government control of the economy, lower taxes and greater adherence to fiscal prudence. Second, the elections in France and especially Greece reflect the growing anger at the austerity measures being enacted across much of the Eurozone. This could shift the focus of the efforts to bring an end to the European economic crisis from cutting spending to finding ways of promoting economic growth. However, without a major improvement in the economic competitiveness of southern Europe’s economies, these governments are likely to find it hard to produce the economic growth rates needed to improve Europe’s economic future.

    Election Weekend in Europe (2012-05-02)
    This weekend, voters in three European countries (France, Greece and Serbia) will go to the polls at a critical junction in each country’s history. For each country, economic concerns will be the dominant issue on voters’ minds when they go to the polls, as Greece is in the midst of a severe depression and France and Serbia are confronting major economic challenges. Moreover, each election will be a referendum on those countries’ relations with Europe as a whole, as the economic crisis in Europe has raised major questions about the future direction of the European Union.

    France’s presidential election will head to a second round of voting this weekend pitting Socialist candidate Francois Hollande against President Nicolas Sarkozy, after Mr. Hollande defeated the president in the first round of voting last month. According to all polls, Mr. Hollande is expected to win between 53% and 55% of the vote in the second round, putting him in a strong position to become just the second leftist president of France in the past 50 years. Should he win, Mr. Hollande will likely face a severe economic test as France’s struggling economy could be buffeted by the markets’ fear of Mr. Hollande’s calls for more government spending and higher tax rates at a time when austerity measures are being enacted across the region. Moreover, it remains to be seen if Mr. Hollande will be able to work together with his German counterpart, Chancellor Angela Merkel, at a time when Germany is increasingly dictating European economic policy.

    On the same day, Greek voters will go to the polls to vote in early parliamentary elections amid that country’s ongoing economic collapse. With Greece’s main rightist and leftist parties losing support as a result of their handling of Greece’s economic crisis, newer parties, together with far-right and far-left parties, are expected to make major gains. In fact, recent polls show that the two leading parties (New Democracy on the right and PASOK on the left) are likely to win less than a combined 40% of the vote. Instead, the far-left SYRIZA and Communist parties are both expected to win more than 10% of the vote at the expense of PASOK, while right-wing parties such as the new Independent Greeks party and the far-right Golden Dawn party are also forecast to perform well. As a result, the political situation in Greece could become much more muddled at a time when strong leadership is needed.

    In Serbia, presidential, parliamentary and local elections will all take place on the same day as the elections in France and Greece. According to polls, the presidential election in Serbia will be a very close run affair between the pro-European President Boris Tadic and the nationalist candidate, Tomislav Nikolic. As such, a second round of voting will likely be needed, making the likely third place finisher (the Socialist candidate Ivica Dacic) the kingmaker. Meanwhile, this presidential election will be influenced by the parliamentary elections in which polls show that the nationalist Serbian Progressive Party is likely to win the most seats in the parliament. Should a nationalist government take power in Serbia, its relations with the European Union and its neighbors will deteriorate significantly, adding to the instability in southeastern Europe.

    US Economic Growth Slows (2012-05-01)
    As expected, economic growth in the United States slowed in early 2012 following a surge in the final months of 2011. This slowdown was expected as much of the growth in the latter part of last year was the result of inventory building and was not sustainable for a prolonged period of time. As such, the fact that the US economy was able to continue grow, albeit at a slower pace, is a welcome sign that the overall outlook for the US economy continues to improve, with higher growth rates forecast for the second half of this year.

    GDP growth in the United States slowed to 2.2% on an annualized basis in the first quarter of 2012, down from the 3.0% growth that was recorded in the previous quarter. In a historical context, this rate of growth was relatively low when compared to the recoveries from previous recessions, a trend that has been in place over the past two years. Moreover, with key export markets weakening and with the US housing market remaining in the doldrums, there are a number of worrying factors that suggest that this recovery will continue to struggle to gain momentum.

    However, there are some signs from the results from the first quarter that suggest that the economy in the United States is finding a firmer footing that should lead to higher rates of growth over the course of this year. The most encouraging sign is the fact that much of the growth recorded in the first quarter was the result of higher levels of consumer spending, not inventory building. As consumer spending accounts for more than two-thirds of the economy activity in the US, it is imperative that this segment of the economy begins to grow once again. Fortunately, the worst appears to be over for the US housing market and household income levels are once again on the rise, pointing 

    The Political Fallout from Europe's Economic Crisis (2012-04-24)
    Over the past few years, Europe’s political landscape has begun to be transformed as a result of that region’s economic crisis that continues to devastate the economies on the periphery of the Eurozone and weaken even the strongest economies at the core of Europe. Moreover, the economic changes underway in Europe are shifting voter preferences across the region as many of the region’s traditionally dominant parties have been discredited by their inability to prevent this crisis from spreading. Ominously, voters in many countries are turning to more extreme parties as Brussels usurps power from national capitals and as Europe’s vast social welfare systems unravel.

    Since the beginning of the current economic crisis in Europe, 11 of the 17 member states of the Eurozone have seen their governments fall, mostly as a result of the crisis. Moreover, French President Nicolas Sarkozy became the first-ever French president not to win the largest share of the vote in the first round of a presidential election in that country and is now likely to become the 12th Eurozone leader to lose his job during the current crisis. Even the Eurozone’s dominant political leader, German Chancellor Angela Merkel, has not been immune from the crisis as her government’s approval ratings have fallen, despite the fact that Germany has avoided the worst effects of the crisis thanks to its ability to export outside of the Eurozone.

    One notable result of this crisis has been the erosion of support for political parties that have long dominated the political scene in many Eurozone countries. For example, far-right and far-left candidates won one-third of the vote in the first round of voting in France’s presidential election. Moreover, far-right and far-left parties now control a large share of the seats in the parliaments of as many as eight Eurozone member states and are able to exert significant influence over government policy in these countries. Should the economic crisis in Europe persist for a prolonged period of time (and there is every reason to believe that it will), these fringe parties could gain an even larger share of the vote and could enter the government in a number of countries. 

    Egypt's Uncertain Election (2012-04-18)
    This week’s decision by Egypt’s electoral authorities to bar some of the most high-profile candidates from taking part in Egypt’s presidential election scheduled for next month has created a great deal of uncertainty surrounding the election. Moreover, with the leading candidates of the Muslim Brotherhood, the ultra-conservative Salafist movement and the country’s armed forces being barred from the election, Egypt’s three most powerful political forces will be unable to secure the presidency for themselves. As a result, all three front-runners for this election have been eliminated, a move that could lead to a new round of unrest in Egypt.

    Egypt’s Higher Presidential Election Commission (HPEC) surprised many observers when it decided to bar ten of the 23 candidates that were seeking to run in May 2012’s presidential election. Among the ten candidates that were barred from running for the presidency was the Muslim Brotherhood’s leader Khairat al-Shater, the prominent Salafist Hazem Abu Ismail and Egypt’s former intelligence chief and vice president, Omar Suleiman. Polls had shown that these were three of the most popular candidates for the presidency, with Mr. Shater being the front-runner thanks to the Muslim Brotherhood’s success in Egypt’s recent parliamentary elections.

    Of the 13 remaining candidates for the presidency, none is a clear front-runner. The remaining candidate with the highest profile in Egypt is Amr Moussa, who had been the head of the Arab League and is widely admired in Egypt. Other important candidates are the moderate Islamist Abdel Moneim Aboul Fotouh, who once was a member of the Muslim Brotherhood, and former Prime Minister Ahmed Shafiq. Meanwhile, supporters of the barred candidates have already taken to the streets to protest against the decision of the electoral authorities and this could lead to greater unrest if the remaining candidates are unable to win their support. In particular, the powerful Salafist movement has been angered by the barring of its candidate from the election and could use this decision to launch a new series of protests against what it sees as the lingering power of the country’s armed forces and the old regime.

    China's Economy Continues to Slow (2012-04-15)
    The Chinese economy continued to slow as the world’s second-largest economy recorded its lowest rate of growth in nearly three years in the first quarter of 2012. Moreover, most signs are suggesting that the Chinese economy will continue to slow into mid-2012 as a number domestic and international factors will remain in place that have contributed to the lower rates of growth over the past year. With other major economies also weakening in recent months, China’s slowdown is likely to have major ramifications for global trade and investment levels this year.

    Chinese GDP growth slowed to 8.1% on an annualized basis in the first quarter of 2012, a slowdown from the 8.9% GDP growth rate recorded in the fourth quarter of 2011. China’s weakening real estate sector played a leading role in this slowdown in early 2012 as real estate prices continued to fall in many Chinese cities and as investment levels in that key sector weakened. Moreover, export growth has slumped in recent months as key export markets, most notably in Europe, have weakened considerably, resulting in the lowest rates of export growth in China in the past three years.

    Looking ahead, Chinese economic growth is forecast to continue to slow in the second quarter of 2012 and could remain on a downward trend into the second half of this year. Export growth, the key to China’s economic miracle of the past three decades, is likely to continue to decelerate in the months ahead as demand in Europe and other markets remains subdued. Moreover, China’s domestic market is unlikely to record the rates of growth that it did in recent years as the real estate market is unsettled and as the Chinese government is unlikely to enact a major economic stimulus package in the coming months. As a result, GDP growth in China appears set to dip below the 8% threshold for the first time in recent years, although we continue to forecast that no hard landing is in store for the Chinese economy in 2012.

    Key Economic Risks in Q2 2012 (2012-04-11)
    After the briefest of lulls, economic risk levels are rising once again in the second quarter of 2012 in both developed economies and in emerging markets. The fallout from the financial problems of the past four years will continue to have a major impact on many of the world’s leading developed economies and this will pose a number of risks to the global economy. Likewise, economic risk levels in emerging markets have risen to their highest level in the past two years, and given the greater role played by emerging markets in the global economy, the potential impact of this elevated risk is very significant.

    Nearly all of the world’s leading developed economies have yet to recover from the impact of 2008’s financial crisis that nearly brought down the world’s financial system. In the second quarter of 2012, the greatest risk in developed economies will continue to be the situation in southern Europe, where unsustainable debt levels and a lack of growth prospects are once again raising the risk of sovereign defaults in this region. For Japan and Asia’s other developed economies, weakening export markets will pose a major risk in the months ahead and could push many of these economies into a new recession. Finally, the United States economy may be outperforming most other developed economies this year, but its growth rates have yet to return to the levels expected of the US and the country’s domestic market remains weak.

    Many of the world’s leading emerging markets are also dealing with higher levels of economic risk that threaten to slow growth in the world’s fastest-growing economies. Already, Asia’s two giant emerging markets, China and India, have seen their growth rates fall to their lowest level in recent years and there are mounting fears that growth could yet fall much further in these countries. Meanwhile, emerging markets such as Turkey, Argentina and Vietnam that have performed very well in recent years all are facing the threat of overheating and could experience a hard landing this year. As a result, the potential for a much more severe global economic slowdown has risen in recent months and could be triggered by a number of events.

    More North Korean Provocation (2012-04-10)
    As North Korea prepared to launch a new long-range rocket (and perhaps even test a new nuclear weapon), East Asia was once again confronted with the fact that a highly unstable rogue state was located in the midst of one of the world’s great power centers. For countries such as South Korea and Japan, North Korea is a direct threat to their security, pushing those countries to maintain close defense ties with the United States. For neighboring China, North Korea is both a threat to its rising power and prosperity as well as being a long-time ally in the region.

    After the death of Kim Jong-il late last year, it appeared that North Korea, under its young leader Kim Jong-un, was prepared to improve relations with the international community by halting its nuclear activities. However, its decision to launch a long-range rocket to put a satellite in orbit to “commemorate” the 100th birthday of North Korea’s founder Kim il-Sung brought a end to this short-lived thaw in relations with the US and other players in the region. Moreover, there are signs that North Korea is preparing to conduct its third test of a nuclear weapon, a development that would dramatically raise tensions in the region.

    With tensions rising between China on one side and a host of other Asian countries (backed by the United States) on the other, a volatile flashpoint such as the Korean peninsula poses major risks for the region. While China backs North Korea politically, it fears that a North Korean collapse could lead to a flood of refugees into northeastern China as well as a major US military presence on China’s borders. Meanwhile, both South Korea and Japan are fearful that a nuclear-armed North Korea possessing long-range missiles could one day launch an attack against targets in either country. As a result, the world’s two leading powers, plus a host of mid-sized Asian powers, are deeply involved in attempting to bring stability to the volatile Korean Peninsula, a difficult task given the nature of the regime in North Korea.

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    Reprinted from ISA Report published May 7, 2012, International Strategic Analysis, http://www.isa-world.com/main.php 
  • April 01, 2012 4:15 PM | Deleted user
    International Security Risks in the Sahel (2012-03-28)
    One area of the world that is posing an ever-increasing threat to global security is the Sahel, the long belt of arid land in Africa south of the Sahara Desert that stretches from the Atlantic Ocean in the west to the Red Sea in the east. Due to a variety of factors, this vast territory has proven to be largely ungovernable and this has given separatist movements and international terrorist organizations the chance to establish remote bases in this region. Furthermore, environmental and demographic changes are raising the potential for even more unrest in the Sahel in the years ahead.

    For most of its history, the Sahel has known little political stability and the situation today across this vast region remains highly volatile. In recent months, a number of serious security issues have arisen in the Sahel as arms have flooded into the region following the collapse of the Gaddafi regime in Libya. Internationally, groups affiliated with al-Qaeda have set up bases in many areas of the Sahel, allowing them to plot attacks against targets in the region and around the world. Locally, unrest in the Sahel has increased in recent months, highlighted by the Tuareg rebellion underway in Mali, the ongoing unrest in Sudan and the emergence of Islamist extremist groups in northern Nigeria.

    Unfortunately, environmental and demographic trends suggest that the potential for even more security challenges to emerge from the Sahel in the coming years will continue to rise. As desertification continues to spread southwards into more areas of the Sahel, water and food supplies are being stretched to the breaking point and this has been the catalyst for many of the conflicts in the region. At the same time, the Sahel is home to some of the highest birth rates in the world, leading to massive population growth in a region that can barely sustain the current population living there. With more people and fewer resources, the potential for massive unrest across much of the Sahel will rise and this will have a major impact on the countries bordering the Sahel, something that is already happening in countries such as Nigeria and Sudan.

    Spain's Dreary Economic Outlook (2012-03-27)
    In recent weeks, concerns have mounted over the health of the Spanish economy and whether or not Spain would need an international bailout to meet its debt obligations. These concerns are the result of both the inability of the Spanish government to adequately reduce its budget deficit as well as the dire state of the Spanish economy as a whole. Regardless if Spain needs a bailout or not, it is highly likely the Spain is entering a prolonged period of economic stagnation, with little hope for growth over the next few years.

    Spain’s borrowing costs have increased in recent weeks and are now higher than those of Italy, the large Eurozone economy that most experts believed was in greater danger of defaulting on its debts. Investors have become increasingly concerned with the inability of the Spanish government to both reduce its budget deficit and to bring spending by Spain’s regions under control. Moreover, Spain’s domestic market remains very weak, with Spain once again falling into a recession in the fourth quarter of last year. With Spain’s unemployment rate above 23% and continuing to rise, there is little chance that the country’s domestic market will rebound over the near-term.

    Unfortunately for Spain, the longer-term economic outlook for that country is also far from positive. First, the Spanish domestic market will continue to weaken as a result of long-term high unemployment coupled with a rapidly aging population with one of the world’s lowest birth rates. Second, Spain’s export competitiveness has continued to fall when compared with northern European economies (not to mention more dynamic non-European economies), so Spain will struggle to export its way out of this crisis. Finally, the sectors that brought Spain its high rates of economic growth in the 1990s and early 2000s, most notably the construction sector, have little hope for recovery in the coming years, and Spain is struggling to expand into new, faster-growing industries.

    Will Libya Split Apart? (2012-03-21)
    When Libya’s civil war broke out in early 2011, one of the potential outcomes that was deemed most likely to come to fruition was the division of that country into western and eastern states. This was seen as a likely outcome as the rebellion against Muammar Gaddafi had begun in the east, a region that traditionally had very loose ties with Tripoli in the west and resented the favoritism shown towards the west by Gaddafi. Now, almost six months after the conclusion of Libya’s civil war, the potential for an East-West split in Libya has re-emerged as Libya’s new government struggles to exert its control over the country.

    In recent weeks, major protests have erupted in the city of Benghazi and other areas of eastern Libya, demanding more autonomy for the region known historically as Cyrenaica. So far, political leaders in eastern Libya that support autonomy for that region are demanding the creation of a regional parliament and control over the region’s police, but have not gone so far as to call for a split with Tripoli. Nevertheless, these calls for autonomy have led to major clashes between protestors and armed groups associated with the Libyan government in recent days, a development that could lead to greater tensions in an already volatile country.

    For its first 12 years as an independent country (1951 to 1963), Libya consisted of three largely autonomous regions (Tripoli in the northwest, Fezzan in the southwest and Cyrenaica in the east). During the 42 years of rule by Muammar Gaddafi, the once influential eastern part of the country was marginalized in favor of the groups that backed the dictator in the western part of the country. These grievances played a major role in sparking the uprising in eastern Libya that led to the eventual ouster of Gaddafi last year, as regional leaders hoped that the removal of Gaddafi would allow the east to once again enjoy more political power. If the new government in Tripoli attempts to once again marginalize the east, it could find itself with another uprising on its hands, one that could lead to the permanent division of Libya.

    The Threat of Another Oil Shock (2012-03-20)
    Back in 2008, soaring oil prices combined with the global financial crisis to lead to the world’s worst economic downturn in modern times. In 2012, oil prices have risen sharply once again and, when combined with the debt crisis in Europe, have the potential to lead to another serious global economic slowdown. Moreover, the potential for yet more increases in oil prices is in place and should oil prices soar to levels in excess of those in 2008, this year’s economic downturn could prove to be much more serious than most economists are predicting.

    Oil prices have risen to nearly $110 a barrel ($127 a barrel in Brent Crude terms) in recent weeks despite the economic slowdown that has dampened oil demand growth in Europe and Asia. Moreover, with the threat of a new conflict at the heart of the Middle East’s main oil producing region remaining in place, oil prices could be set to soar in the months ahead. A worst-case scenario would involve an attack on Iran’s nuclear facilities that would prompt Iranian attacks on Arab oil installations and such a scenario would likely raise oil prices to near $200 a barrel. Even if an attack on Iran’s nuclear facilities does not take place, the threat of lower oil output will remain in key oil producing countries such as Nigeria and Venezuela, keeping prices from falling in the months ahead.

    If oil prices were to rise by 20% or more in the coming months, the impact on the global economy would be significant. First, inflationary pressures that have receded in most key economies around the world would resurface, resulting in stagflation in areas such as Europe and in soaring inflation rates in key emerging markets. Second, with governments in many areas of the world enacting austerity measures designed to deal with the ongoing debt crisis, there will be little room for governments to subsidize oil prices, placing the burden squarely on struggling consumers and businesses. This will have a massive impact on poorer countries and could lead to more political unrest such as that which has occurred in the Middle East and North Africa over the past 15 months. Finally, another oil shock would have a massive impact on consumer and business confidence at a time when these measurements are finally beginning to recover from the economic woes of the past four years. If consumer and business confidence collapses, another downturn such as the one that took place in 2008 cannot be ruled out.

    The Ungovernable Country (2012-03-14)
    With public support for continuing military operations in Afghanistan dropping sharply in the United States, Britain and other countries with military forces in that country, it is increasingly likely that the bulk of foreign forces in Afghanistan will be withdrawn from that country over the next two years. In the meantime, it appears increasingly unlikely that the security forces under the control of the Afghan government in Kabul will be able to maintain control over many areas of their own country once these foreign forces are withdrawn. As a result, Afghanistan is likely to once again be a highly decentralized country facing a myriad of internal conflicts, much as it was when the Taliban seized power in the 1990s.

    The recent scandals involving the burning of Korans and the killing of Afghan civilians by a rogue US soldier have led to soaring tensions between the Afghan population and the large contingents of foreign troops, contractors and aid workers currently in Afghanistan. As these tensions rise, foreign governments, most importantly the one in Washington, are more determined than ever to withdraw most of their military and civilian personnel from Afghanistan sooner rather than later. In fact, there is a growing possibility that a majority of US and other forces could be withdrawn from Afghanistan as soon as mid-2013, well ahead of schedule.

    Unfortunately, there is little chance that the Afghan government in Kabul will be able to maintain control over many areas of Afghanistan once the US and its partners have withdrawn from the country. Despite years of training, the nominally large Afghan security forces will struggle to defeat the Taliban and other regional groups that are likely to re-emerge in the wake of the US withdrawal. As a result, Afghanistan will likely once again be divided into various fiefdoms, with an emboldened Taliban holding sway in many areas of eastern and southern Afghanistan. While the US is unlikely to allow the Afghan government to fall, it is also unlikely to re-commit the forces needed to force the Taliban from their strongholds in these areas, effectively dividing the country.

    Can the US be an Engine of Economic Growth in 2012? (2012-03-13)
    With the economies of giant emerging markets such as China and India slowing down, and with much of Europe in the midst of a recession, the onus is once again on the United States to be the leading engine of economic growth for the world. With an improving economy and a strong position in many high-growth industries, the US should be able to prevent global economic growth from falling too far this year. However, a battered domestic market will continue to prevent the US economy from reaching its potential levels of growth, causing more problems for the world economy.

    Over the past few months, most of the positive news from the world’s largest economies has been generated in the United States, where GDP growth rose to 3.0% last quarter on an annualized basis. This is in stark contrast to the situation in most other developed economies, most notably Europe, where the region’s debt crisis is threatening to usher in a long period of stagnation. Moreover, the engines of world economic growth over the past four years, the world’s giant emerging markets, have all experienced a sharp slowdown in growth in recent months. As a result, exporters around the world are again looking to the United States to provide them with the best opportunities for growth over the near-term.

    While the United States economy is forecast to outperform most other developed economies in the years ahead, it is unlikely to achieve typical post-recession levels of growth anytime soon. This is due largely to the fact that the US’ domestic market remains weak as its recovery is being hindered by the continued weakness of the US housing market and an ongoing reduction in debt levels by US households. Moreover, US exporters are being impacted by these slowdowns in key export markets, removing another potential avenue of growth for the US economy. As such, the US alone will struggle to return to its role as the world’s pre-eminent engine of economic growth in the coming years.

    Australia's Economy Slows, But Will Rebound (2012-03-07)
    Australia’s economy ended 2011 with a worse-than-expected performance in the final three months of the year. With key export markets such as China and India slowing in the latter part of last year, demand for Australian natural resource exports weakened, reducing Australia’s economic growth rates. Despite this slowdown, Australia continues to have much better prospects for longer-term economic growth than most other developed economies and should realize higher rates of economic growth by the second half of this year.

    Australia’s GDP growth rate fell to 2.3% on an annualized basis in the fourth quarter of 2011 (0.4% GDP growth on a quarterly basis), a much worse result than had been expected. This was due to a sharp downturn in export growth in the final quarter of 2011, which had a major impact on Australia’s mining sector that has been the engine of Australia’s strong economic performance in recent years. With Asia’s leading economies realizing lower rates of economic growth in late 2011, demand for Australian natural resources fell markedly in recent months, reducing the overall level of growth for the country’s economy.

    While growth is likely to remain near current levels in the first half of 2012 due to the continued slowdown in key export markets in Asia, the longer-term outlook for the Australian economy remains very positive. First, export demand in Asia is forecast to recover by the second half of this year and to remain strong in the years ahead. Second, massive new investments in Australia’s mining sector will boost natural resource output in the years ahead, further boosting growth. Finally, Australia’s domestic market will continue to expand as Australia records higher rates of population growth than almost any other developed economy, allowing the domestic market to grow at a healthy pace.

    Putin Returns (2012-03-05)
    As expected, Prime Minister Vladimir Putin won this weekend’s presidential election in Russia, allowing him to return to the position that he held from 2000 until 2008. While it is no surprise that Putin was able to win the election outright in the first round of voting, widespread reports of voting irregularities make it all but certain that he received far fewer votes than he was credited with in the election. Meanwhile, it remains to be seen if opponents of President-elect Putin will take to the streets of Russia’s main cities as they did in the wake of December 2011’s controversial parliamentary elections.

    As soon as Prime Minister Vladimir Putin announced that he would effectively swap places with current Russian President Dmitry Medvedev, there was no doubt that he would win this year’s presidential election in Russia. According to official results, Putin won 63.8% of the vote, enabling him to avoid having to take part in a second round of voting. His nearest rival was long-time Communist leader Gennady Zyuganov, who won just 17.2% of the vote. However, independent election observers noted numerous cases of electoral fraud and estimated that the real share of the vote won by President-elect Putin was close to 50%.

    Russia’s presidential election was important not for the election results itself, as they were a foregone conclusion, but the reaction of the Russian people to the election. After December 2011’s parliamentary elections which saw Putin’s United Russia party suffer major losses despite rampant electoral fraud, hundreds of thousands opponents of Putin and his allies took to the freezing streets of Moscow and other Russian cities to protest against the irregular nature of these elections. With more cases of electoral fraud being reported this time around, there is a strong possibility that more anti-Putin protests could erupt in Russia’s larger cities, where the long-time Russian leader has lost much of his support. If these protests grow much larger and are sustained for a prolonged period of time, the Putin government might feel threatened and could launch a massive crackdown on the protestors, or face being overwhelmed by the opposition, much like a number of strongmen in the Middle East and North Africa over the past 15 months.

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    Reprinted from ISA Report published April 1, 2012, International Strategic Analysis, http://www.isa-world.com/main.php 
     
  • March 01, 2012 3:14 PM | Deleted user
    India's Economy Falters (2012-02-29)
    India’s economic slowdown continued in the final months of 2011, with economic growth rates in India falling to a near two-year low during the fourth quarter of last year. This slowdown was the result of both internal and external factors that are likely to remain in place during the first half of this year, preventing India’s economy from staging a major comeback over the near-term. Moreover, this slowdown has prevented India from closing the economic growth gap with China, as it had appeared likely to do just a short time ago.

    Indian GDP expanded by 6.1% on an annualized basis in the fourth quarter of 2011, down from the 6.9% growth that was recorded in the third quarter and well below the economic growth rates achieved in India in previous years. A key reason for this slowdown was the poor performance by India’s manufacturing sector, which suffered from a sharp decline in export demand in late 2011. Furthermore, inflationary pressures continued to plague India’s domestic market and this has forced India’s central bank to implement a series of interest rate hikes that have dampened domestic demand levels in India.

    While 2011 was a very disappointing year for the Indian economy, 2012 also holds a number of risks that could prevent India from returning to the levels of economic growth that it had achieved in the years before the global economic crisis. First, export demand is likely to continue to weaken in the coming months, with signs pointing to weaker demand in key export markets such as China and Europe. Second, inflationary pressures are forecast to remain in place as energy prices remain high and could rise even higher if oil supplies are threatened. Finally, political gridlock is preventing the Indian government from enacting the types of reforms that are needed to boost foreign investment in India and this is having negative consequences for many sectors of the Indian economy.

    Nuclear Weapons in the Middle East (2012-02-29)
    One of the greatest fears surrounding Iran’s efforts to develop nuclear weapons is the concern that, should Iran acquire nuclear weapons, other countries in the Middle East would rush to develop their own nuclear weapons programs. This would lead to an arms race in the Middle East at a time when the United States is shifting its military focus from that region, potentially leaving no outside power in a position to prevent a major conflict between the region’s leading powers from breaking out. Moreover, this would dramatically raise the risk that nuclear weapons, or at least know-how to develop such weapons, would become available to non-state actors that would not have the incentives not to use such weapons that state actors have.

    At present, the only state in the Middle East to possess nuclear weapons is Israel, which has, by most estimates, the world’s sixth-largest nuclear arsenal. Meanwhile, nearby Pakistan, which has close ties to many Middle Eastern governments, also has a large nuclear weapons program and has expressed its willingness to work with allies such as Saudi Arabia to develop a nuclear weapons program should Iran acquire such weapons. It is clear that Saudi Arabia will likely move ahead with the development of its own nuclear weapons program should Iran acquire nuclear weapons and it is possible that Egypt could revive its own nuclear weapons program as well.

    While nuclear weapons played a key role in actually preventing an all-out war between the United States and the Soviet Union during the Cold War, and while India and Pakistan have thus far refrained from using their nuclear weapons against one another, the proliferation of such weapons in the Middle East will have major consequences for regional and global security. First, countries such as Iran, Saudi Arabia, Egypt and Pakistan have governments in which rival groups constantly struggle for power and this will make controlling and securing these weapons a very uncertain process. Second, non-state actors such as al-Qaeda and the Taliban have ties with some of the groups that might end up controlling and securing these weapons, making it possible that these non-state actors might be able to acquire a weapon as well. Finally, the range of territorial and religious disputes in the Middle East is more complex than in any other region where nuclear weapons are factor today and the likelihood of a conflict between one or more nuclear powers in the region will remain high for the foreseeable future. 

    Sectarian Tensions in the Middle East and Central Asia (2012-02-22)
    The growing level of tension between Iran on one side and a host of Western and Arab states on the other has raised concerns that Iran might attempt to foster unrest among Shiite Muslim communities in a number of countries in the Middle East and Central Asia. These tensions have already manifested themselves in recent sectarian violence in a host of countries in the region and, given Iran’s interest in avoiding a direct military confrontation with the West, could be used as a tool by Tehran to strike back at its perceived enemies should Iran’s nuclear facilities come under attack.

    As the world’s dominant Shiite Muslim country (Iran is home to more than 40% of the world’s total Shiite population), Iran has supported the efforts by Shiite communities in other countries in the Middle East and Central Asia to gain more political power. Thanks to the political transformation of neighboring Iraq over the past year, Iran now has a neighbor to the east in which the Shiite population is now also politically ascendant. Meanwhile, Shiite minorities in countries such as Pakistan (20 million Shiites), Yemen (9 million), Lebanon (1.3 million), Saudi Arabia (750,000) and Bahrain (450,000) have launched political uprisings of varying degrees of intensity in recent years as political change sweeps across the region.

    For Iran, these Shiite communities provide an excellent opportunity to strike at its rivals in the region should Iran come under attack from Western, Israeli or even Arab states. On the Arabian Peninsula, Iran can provide more support for Shiite communities in Saudi Arabia, Yemen or Bahrain to strike against its leading rival in the region, Saudi Arabia. In Lebanon, Iran’s Hezbollah allies can launch new attacks against Israel, striking the country most concerned about Iran’s nuclear program. Finally, Iran can add to the chaos in Pakistan and Afghanistan through those country’s Shiite minorities, causing significant headaches for the United States in its efforts to defeat the Taliban and bring stability to Central Asia.

    A Stay of Execution for Greece (2012-02-21)
    As expected, Eurozone finance ministers approved a deal with the Greek government that will allow Greece to receive a second massive bailout worth $173 billion (130 billion euros) in exchange for a series of new austerity measures and economic reforms. This deal has allowed Greece to avoid an immediate default on its debts and has brought a temporary sense of relief among other Eurozone members amid the ongoing debt crisis. However, Greece (and many other Eurozone countries) face massive economic challenges in the coming months and years that will cause massive hardships for the region.

    This latest bailout for Greece will allow that country’s government to continue to function and prevent a total collapse of the Greek economy in the coming months. However, this bailout comes with a terrible cost for Greece, as it will force the Greek government to enact further painful austerity measures at a time when the country’s economy has already contracted by 16% since the start of the crisis. Moreover, much of the losses incurred by the haircut imposed on lenders to Greece (up to 70%) will be incurred by Greek banks, further weakening the country’s already-shattered financial sector. Finally, reduced levels of government spending could result in Greece remaining in a recession for as long as a decade, with the country’s economy contracting by as much as one-third.

    Meanwhile, this newly found confidence in Europe is simply the calm before the storm as the region faces huge challenges, both over the near-term and the long-term. In the coming months, Italy will face massive debt repayments that will challenge the Eurozone’s third-largest economy’s ability to raise funds on international markets. In addition, Portugal is facing many of the same risks as Greece and investors are increasingly concerned that Portugal will also need a second large bailout to finance its debts. 

    Over the longer-term, much of the Eurozone faces the prospect of a prolonged period of economic stagnation as domestic markets remain weak and austerity measures severely reduce economic spending. Moreover, the eventual unraveling of Europe’s social welfare systems that is an inevitable consequence of this crisis will produce major social upheaval in many countries in the region. Furthermore, without massive immigration, Europe’s working-age (and shopping –age) population is set to decline rapidly in the years ahead, further reducing growth. As such, it is clear that the Eurozone’s debt crisis is far from over and the region’s leaders need to do more to improve the region’s competitiveness over the long haul.

    Six Key Elections in Four Weeks (2012-02-15)
    Over the next four weeks, there were be 12 national elections taking place around the world, with six of them having the potential to lead to major unrest in the countries in which these elections are taking place. Three of these critical elections will take place in the Middle East, the scene of so much political upheaval over the past 15 months. In addition, three other elections will take place in countries that have experienced rising political tensions in recent months, with Russia’s upcoming presidential election having the potential to lead to major unrest in that important country.

    In the rapidly changing Middle East, there will be three national elections in the coming weeks that will have a major impact on that region’s stability. In Egypt, the ongoing elections for the upper house of the parliament are likely to confirm the ascendancy of Islamist political movements to power in that country, a development that could lead to a clash between the Islamists and the country’s armed forces. In Yemen, presidential elections will take place later this month, despite calls for the election to be postponed from almost all factions in that volatile country. Finally, Iran will hold parliamentary elections in early March that will pit the various factions within that country’s conservative movement against one another, amid growing tensions between Iran and a host of rivals, including the United States, Saudi Arabia and Israel.

    Outside of the restless Middle East, three other important national elections will take place in the next few weeks, each of which could lead to major unrest in those countries. The most important of these is the upcoming presidential election in Russia that will be a referendum on the return to the presidency by Vladimir Putin, who was badly shaken by his party’s loss of support in December 2011’s parliamentary elections. Elsewhere, Senegal will hold a presidential election with the 85-year-old President Abdoulaye Wade seeking another term in office amid growing opposition to his rule. Finally, the young country of East Timor will hold its third presidential election next month and this could lead to a new round of violence in that small country.

    Japan's Economic Woes (2012-02-15)
    Japan’s economy performed much worse than had been expected in the final months of 2011 and there are now fears that the recovery that had been expected in Japan in 2012 may not be forthcoming. As a result, the Japanese government is likely to take steps to attempt to boost economic growth in Japan, both for this year and for the longer-term. However, many of the same factors that have held back the Japanese economy over the past two decades remain in place.

    The Japanese economy contracted by 2.3% on an annualized basis during the final three months of 2011, a much worse performance than had been expected. This contraction was the result of disruptions to Japan’s supply chain caused by the flooding in Thailand as well as the growing weakness in many of Japan’s key export markets, particularly Europe. This brought an end to what was a very difficult 2011 for the world’s third-largest economy as it suffered from the impact of March 2011’s earthquake and tsunami disaster, the Fukushima nuclear crisis and the effects of the debt crisis in Europe.

    In response to these latest economic difficulties, the Bank of Japan announced that it would expand its asset purchase program by $130 billion in a bid to stimulate the economy. However, Japan will face the same problems in 2012 that it has faced for the past two decades, including a shrinking domestic market, higher levels of competition from foreign manufacturers and persistent deflationary pressures. While a stronger United States economy will provide for some export growth, other key export markets will remain weak in 2012, holding back overall export levels. Finally, Japan’s dysfunctional political system will mean that needed economic reforms are likely to be delayed further, making it more difficult for Japan to generate economic growth in the coming years.

    No End in Sight in Syria (2012-02-08)
    A combination of internal and external factors makes it almost certain that the ongoing conflict inside Syria is unlikely to be resolved in the near future. In fact, the situation is likely to deteriorate further as President Bashar al-Assad and Syria’s armed forces desperately cling to power, while a growing anti-government movement continues to spread to more areas of that country. As a result, Syria is headed for a full-blown civil war that could devastate the country and could force outside countries to intervene without the consent of the United Nations.

    While the conflict in Libya was a relatively easy one for foreign powers to become involved in, the ongoing upheaval in Syria is a much different situation. With a population that is both diverse and geographically mixed, it is difficult for the anti-government forces to secure control over congruous territories in Syria, making it much harder for foreign powers to secure a base of operations in Syria. Likewise, a no-fly zone such as the one enforced over Libya would be much less effective in Syria as the government has not used air power in its efforts to crush anti-government forces. Finally, whereas Libya’s population centers were almost all located along the coast, Syria’s are more widely dispersed amid much different types of terrain.

    With Russia and China blocking the United Nations’ authorization of any type of use of force against the Syrian government, the only option for international intervention will have to be unilateral action. Should Turkey and most Arab states agree to use force to stop the Syrian government’s crackdown on anti-government forces, this would open the door for intervention by the United States and some of its European allies. However, dislodging President Assad from power is likely to prove much more difficult than the removal of Muammar Gaddafi and this outside intervention could lead to a broader destabilization in the region. 

    Indonesia as the World’s Next Giant Emerging Market (2012-02-08)
    With its level of political stability having improved significantly in recent years and with its economy growing at its fastest pace in 15 years, Indonesia and its 245 million inhabitants appear poised to become the world’s next giant emerging market in the eyes of exporters and investors. With a fast growing internal market and a strategic location, Indonesia has the ability to attract significantly more trade and investment than it has done so far. Nevertheless, long-term risk levels remain high and could deter some investors from committing to Indonesia.

    Indonesia’s economy grew by 6.5% in 2011, one of the best performances of any economy around the world. Moreover, this strong growth followed a string of improved economic performances in recent years as Indonesia did better than most developed economies during the economic upheaval of the past few years. This strong growth was due in no small part to the emergence of a sizeable middle class in Indonesia that has benefitted from higher levels of political stability and solid economic policies by recent Indonesian governments. As a result, Indonesia has closed the economic growth gap with the only two emerging markets that are larger than it, China and India.

    Despite the recent economic success and higher degree of political stability, many investors remain wary of the longer-term risks involved in doing business in Indonesia. For one, Indonesia’s diverse and scattered population means that investing outside of the main island of Java remains fraught with risk as Jakarta struggles to maintain tight control of the more than 10,000 islands that make up Indonesia. Second, Indonesia’s infrastructure is in need of a major overhaul if economic growth rates are to rise further. Finally, Indonesia faces stiff competition from rivals in East Asia and beyond and therefore must do even more to attract trade and investment during these uncertain economy times.

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    Reprinted from ISA Report published March 1, 2012, International Strategic Analysis, http://www.isa-world.com/main.php 
  • February 28, 2012 3:13 PM | Deleted user
    Russia's preferred presidential candidates in South Ossetia and Transdniestria, separatist regions of Georgia and Moldova, respectively, have both lost in their territories' elections in recent months. These breakaway territories of the former Soviet Union need a foreign patron to guarantee their independence, and Russia needs them as leverage against its former states. Ultimately, the developments in South Ossetia and Transdniestria do not represent a threat to Russian influence in those regions or a larger decline in Russian power in other separatist territories.

    Analysis

    In recent months, Russia has experienced political challenges to its influence in the Georgian and Moldovan breakaway territories of South Ossetia and Transdniestria, respectively. In South Ossetia, Russia's favored presidential candidate, Anatoly Bibilov, lost a runoff election in November 2011. The South Ossetian Supreme Court declared the results of the runoff invalid, which led opposition leader Alla Dzhioyeva, who had won the vote, to mobilize her supporters, and protests were briefly rampant in the territory. The court scheduled a new election for March 25, 2012, but Bibilov withdrew his candidacy. In Transdniestria's presidential election in December 2011, the Russian-backed candidate, Anatoly Kaminski, lost to Yevgeny Shevchuk. 

    Rather than threaten Russian influence, these incidents highlight the nuances of that influence, which is more effective in the military and economic spheres than in domestic politics. The breakaway territories of the region, including the former Georgian territory of Abkhazia and the disputed region of Nagorno-Karabakh in Azerbaijan, depend on Russia's support to guarantee their independence. Likewise, Russia needs to have clout in the breakaway regions so that it can leverage them against their former states when those states refuse to cooperate with Russia's plans.

    The former Soviet Union region historically has consisted of hundreds of nationalities, including Abkhaz, Ossetians, Chechens, Moldovans, Ukrainians and Russians. As the Soviet Union began to collapse, many of these ethnic communities viewed the new emerging states as a threat to their existence and sought to escape rekindled nationalism by forming their own autonomous regions. A number of conflicts broke out: South Ossetians and Abkhazians battled with Georgia, Azerbaijanis and Armenians fought over Nagorno-Karabakh and Moldova struggled to retain Transdniestria. Only a few of these groups succeeded in achieving de facto independence, and of those that did, Russian support invariably played a part.

    Transdniestria is the largest of the breakaway territories by population, with approximately 530,000 inhabitants, followed by Abkhazia with 250,000 people, Nagorno-Karabakh with 138,000 people and South Ossetia with 70,000 people. Lacking resources and the ability to operate economically or militarily like a normal nation-state, these breakaway territories have been forced to rely on a foreign patron to guarantee their independence. Russia recognized this as an opportunity to build relationships with these territories, which it could then use as leverage against uncooperative states in Russia's periphery.

    Russia has a strong military presence in each of the breakaway areas except Nagorno-Karabakh. Between them, Abkhazia and South Ossetia host approximately 7,000 Russian troops, and roughly 1,100 Russian troops are stationed in Transdniestria. Although it does not have a military base in Nagorno-Karabakh, Russia does have a base in neighboring Armenia from which it can easily deploy troops to the territory if necessary.

    Additionally, Russian financial aid is vital to the weak economies of the breakaway regions. Russia provides South Ossetia and Abkhazia with millions of dollars in financial aid each year. Moscow suspended some of its financial aid to Transdniestria in 2012 when Kaminski lost the presidential election, but Russia still provides a few hundred million dollars. Russia's support in Nagorno-Karabakh is indirect; it gives financial aid to Armenia, which supports the breakaway territory both militarily and financially.

    Russia has shown that it can and will use its dominant position in these breakaway regions to punish their former patrons when they engage in actions that Moscow does not like. For example, Russia invaded Georgia in 2008 when Tbilisi was actively following a pro-Western course (its attempt to join NATO in particular), and it later recognized South Ossetia and Abkhazia as independent states. It has since kept troops stationed in the territories, where they can be a constant threat to Georgia. If Azerbaijan or Moldova did anything of which Russia does not approve, Russia could recognize the sovereignty of Nagorno-Karabakh or Transdniestria, respectively.

    While Russia's position in the breakaway territories is strong, the position of the states that those territories broke away from is not. Moreover, those states themselves are weak compared to Russia, and thus they cannot militarily change the reality in the breakaway regions. And Russia has no interest in seeing those territories restored to their former patrons because that would remove an important lever for Moscow. Therefore, the recent events in South Ossetia and Transdniestria will not hurt Russia's strategic position in those areas, though they do illustrate that events in those areas do not always go according to Russian plans.

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    Reprinted from Stratfor Global Intelligence, February 28, 2012. To view, go tohttp://www.stratfor.com/analysis/russias-influence-breakaway-territories-region 
  • February 25, 2012 2:36 PM | Deleted user
    After three decades of migrating to the coast, the inland population is increasingly working closer to its roots.

    “RETURN to your hometown to work and care for your family,” reads a red banner strung over the main street of Fuxing, a hillside town in the heart of China. Until recently, farmers in surrounding villages dreamt only of getting away from their pumpkin patches and earning good wages in factories on the coast more than 1,000km (625 miles) away. Officials were happy to be rid of them. Now they are desperate to get them to stay.

    Jintang county, to which Fuxing belongs, once enjoyed the dubious honour of being the biggest labour-exporting county in Sichuan province. Poor, deep inland and badly connected with overseas markets, Sichuan had little choice but to encourage its huge, underemployed rural population to find work elsewhere. Officials from counties like Jintang used to tour factory towns near the coast touting the merits of their surplus labourundefined and trading on the stereotype of the tough and determined Sichuanese.

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    In the 1980s and 1990s the number of people from Jintang who were working elsewhere grew from almost nothing to 180,000 (out of a population of 900,000). More than a third of them went to factories in Guangdong province (see map (http://www.economist.com/node/21548277) ), the first area in China to cash in on the country’s export boom. China’s migrant workers like to stick close to others from their hometown, and many of Jintang’s workers ended up in a single district of Dongguan, a centre of labour-intensive production in Guangdong, making everything from electronics to clothing. A street in Dongguan became known as Little Jintang. Chinese media say the Communist Party chief of Jintang used to visit local factories to persuade them to hire his county’s migrants. Six years ago Jintang set up an office in Dongguan for this purpose.

    The lure of home

    A big change is now coming. Jintang is administered by Sichuan’s capital, Chengdu, which like other inland cities is beginning to boom, thanks to a flood of government investment in recent years and the transfer of some manufacturing away from the coast in search of cheaper land and labour. In Fuxing walls and lampposts are plastered with job advertisements, not for work in distant coastal factories but for positions in and around Chengdu. Some of them offer jobs with Foxconn, a huge Taiwanese firm which makes Apple’s iPads and other computer products at a plant near the city (for pay of more than 2,000 yuanundefined$320undefineda month, says one pink poster). Foxconn’s largest factory is in Guangdong, but it opened a huge, modern operation in Chengdu in October 2010, and has talked of expanding to an astonishing 500,000 staff within five years. Chengdu officials have been scrambling to make sure that as many jobs as possible go to locals (who appear undeterred by a number of unexplained suicides at Foxconn’s huge plants in China).

    By a roadside in Fuxing, a few dozen young men and women from the surrounding countryside wait with piles of baggage for a bus to take them to Chengdu (though technically in Chengdu, Fuxing is two to three hours’ drive away from the city proper, much of it along a winding country road). It is just after the lunar new year holiday, a time when migrant labourers have for more than two decades returned to the coast after spending the festival in their home villages. But for many of those at the bus-stop, Chengdu is their final destination. They crowd around your correspondent, regaling him with stories of how wages in Chengdu are now not much lower than on the coast, and how jobs nearby are getting easier to find.

    In a change with implications that resound beyond this small, remote corner of China, such stories mark the beginning of the end of a phase in China’s development: one that was marked by lengthy journeys and often miserable lives in faraway, Dickensian factories. Isolated Fuxing will soon be just a few kilometres from an expressway. Villagers are excited about the new road, not only because it will make travel to Chengdu much easier, but because it will bring business and job opportunities closer. Workers in Fuxing are putting the finishing touches to a large new open market and shopping complex.

    Officials across the county have been busying themselves with what until three or four years ago would have been an unthinkable task: persuading migrants to stay in Jintang after the new-year festivities rather than go back to the coast. They hold meetings with migrant-worker representatives and offer tax breaks and help secure loans for those wanting to start up businesses. A government-owned newspaper in Chongqing, a region neighbouring Sichuan, even published a photograph of policemen carrying the bags of migrants returning to spend the new-year holiday there. In a country where officials (and long-established city-dwellers) often view migrant workers with disdain, the signal was clear: welcome home. A stretch limousine was provided by a Chongqing boss as a free shuttle service for the workers (see picture above).

    Officials say that in 2011, for the first time, the number of local labourers migrating from one part of Chongqing region to another exceeded the number leaving for other provinces. Just a few years ago, 70% were going elsewhere. Xinhua, a state-run news agency, reported that since 2008, four-fifths of people leaving their homes for the first time in Henan, another big exporter of labour, had been migrating within Henan. Before then, it said, the same proportion had left for other provinces. In Sichuan the trend has been similar. In 2008, 58% of its 20m migrants were working outside the province. Last year the ratio dropped to 52%. A labour official in Chengdu says enthusiasm for staying close to home has been especially marked this year. One factor, he says, has been the difficulty that Europe’s downturn has caused coastal factories producing export goods. (By no means all of the new jobs being created inland are in the export sector, the traditional employer of migrant labour.)

    Migration over huge distances will remain a striking feature of China’s labour market for years to come. Employment along the coast suffered huge disruption late in 2008 as a result of the global financial crisis, with millions of migrants losing their jobs. But it quickly recovered as exports revived and stimulus measures helped spur growth. Now coastal factories are back to hand-wringing about a shortage of labour, notwithstanding the dark shadow cast by Europe’s misfortunes.

    But recent changes in migration patterns, though they are only just beginning, may be more than temporary distortions caused by troubled Western markets. They reflect China’s evolving economy and its ageing population. Even deep in the interior, the days of an abundant and apparently endless supply of cheap, young labour are over. The number of 15- to 29-year-olds peaked last year, according to UN estimates, and the working-age population as a whole will begin to decline in a few years. More than 90% of people under 30 from rural areas are already engaged in non-agricultural work, according to a report last year by the Development Research Centre, a government think-tank. So pressed are some businesses in Chongqing and Sichuan for semi-skilled labour that officials this year helped companies from the two regions to visit other provinces in search of workers.

    The shift in migration patterns may also reflect a rebalancing of China’s economy. Domestic demand has made a bigger contribution to China’s growth in recent years, driven by heavy investment in infrastructure and property. To serve this expanding internal market, firms do not need to nestle close to a port. The result is a fast-narrowing wage gap between the coast and the interior. In 2004 coastal wages for migrant labourers were 15% higher than inland, according to a survey by the National Bureau of Statistics. Now, many workers in Sichuan say that taking into account transport costs and higher living expenses on the coast, less well-paid jobs closer to home are beginning to look much more competitive.

    Experiments are under way in Chengdu and its environs, as well as in Chongqing, aimed at making it easier for migrants in urban areas to enjoy the same welfare benefits as registered city-dwellers. Lack of access to such benefits, particularly to urban schools, subsidised housing and health care, is a big problem for migrants. Many leave their children behind in their villages to be looked after (often not very attentively) by grandparents or other relatives.

    Between August 2010 and December last year, Chongqing awarded full urban-welfare rights to 3m migrants from its rural hinterland who had lived for a certain period in urban areas. Chengdu plans to eliminate welfare-related barriers to migration within the city boundary by the end of this year. This will mean that Fuxing’s farmers will be able to migrate to the city proper and enjoy the same benefits as were once enjoyed only by holders of urban hukou, or household-registration papers. The farmers will also be allowed to keep their land-use rights in the countryside. The reforms impose a big financial burden on local governments, but for the moment Chongqing and Chengduundefinedbuoyed by a surge of government-led investmentundefinedare enjoying the kind of boom that was once confined largely to the coast. Chengdu boasted 15.2% growth in 2011, while Chongqing says its GDP grew 16.4%, faster than almost every other provincial area. The shift will create new problems even as it solves others, but it heralds a change of huge consequence for China’s hitherto unbalanced development.
    _____________________________________________________________________
    Reprinted from The Economist, February 25, 2012. To view, go to http://www.economist.com/node/21548273 
  • February 21, 2012 3:11 PM | Deleted user
    Great Wall has just opened the first Chinese car plant on EU soil, and it has chosen to do so in Bulgaria.

    At a well-attended ceremony near the north Bulgarian town of Lovech on February 21st, two new beginnings were registered. One was for China, whose Great Wall Motors was opening what it claims is the first Chinese car production plant ever built on EU soil. The other was for Bulgaria, which hasn't produced cars since 1996 but is keen to join its East European neighbours in developing a thriving auto industry.

    The Lovech factory is the outcome of a joint venture signed in autumn 2009 between Great Wall and the local Litex Motors. Employing 120 so far, the factory started test production in November last year and is set to produce just 2,000 vehicles this year. But these figures should rise dramatically: by 2014, plant is expected to have a workforce of 2,000 and annual capacity of 50,000 units if it is working in two shiftsundefinedexpandable to 70,000 on a three-shift basis.

    Great Wall is targeting EU markets, which neither it nor other Chinese car manufacturers have had much success in penetrating so far. For this year, Great Wall says, the Lovech plant will be producing for Bulgarian and its neighbours, especially Romania, Italy and Spain. But it is expecting to start producing right-hand drive vehicles for the UK market before year-end. And in 2013 it will be targeting all Europe.

    Model range, prices and quality will be crucial to its success, as the Chinese carmaker seeks to follow a development path already successful marked out by the likes of South Korea's Hyundai. Starting now with production of Voleex C10 compact sedans, the plant will add Steed 5 pick-ups to its range next month and Hover H5 SUVs before year-end, with more models to come in 2013.

    Prices are intended to be low enough to represent a good alternative to second-hand. The Bulgarian press has cited Lv16,000 (around €8,200) for a C10, Lv24,300 for the Steeds and Lv28,700 for the Hovers. There will be seven quality checks in the course of assembly, with the plant's top management poached from a Nissan plant in South Africa.

    Great plans

    It is all part of a wider pattern of aggressive expansion for Great Wall, which is based in China’s Hebei province. Ranking just tenth among Chinese carmakers in 2011, according to the Chinese Association of Automobile Manufacturers, it is outstripping rivals in terms of growth. It sold 487,000 vehicles last year, up 22.5% year-on-year, compared to a 13-year low of 2.45% growth for the Chinese auto industry as a whole. Moreover, 83,000 of those sales were on foreign markets, up 50% on the previous year. Great Wall is targeting 600,000 unit sales next year.

    With current capacity of just 500,000 units a year (upa) in its Baoding plant, those ambitions will require some investment. Last August, Great Wall commissioned the 300,000 upa first stage of a plant in Tianjin, with second and third stages of 250,000 and 300,000 upa respectively slated for completion by end-2012 and end-2015.

    Nor is its foreign expansion confined to Bulgaria, or even Europe. According to its website, Great Wall sells in 120 countries, everywhere but North America. It has production facilities in Senegal, the Philippines, Indonesia, Iran, Vietnam and Egypt, and plans to open plants in Venezuela and Malaysia in the next couple of years. Last October, it also announced its intention to set up a factory in Brazil, with capacity of up to 100,000upa.

    Bulgarian boom?

    Bulgaria, a congenially low-wage, low-tax EU foothold for Chinese investors, could therefore find itself part of something big. Yet it is only a start for the country's auto ambitions. The Great Wall plant is, after all, just an assembly plant operating on the basis of imported kits. Bulgarian batteries should be incorporated soonundefinedthe country boasts a strong producer, Monbatundefinedand Great Wall has said it is in negotiation with other Bulgarian component producers. But this is not yet a Slovak or Czech-style auto boom.

    Moreover, there are concerns that Great Wall's ambitions are bigger than its pockets will allow. By world standards, 50,000upa is relatively small for a car plant, and around 90% of the Bulgarian investment (Lv189m to date) has come from local tycoon Grisha Ganchev. And that investment only covers production, not sales. Other Chinese producers that have ventured onto the EU car market have done so by acquisitionundefinedGeely bought Sweden's Volvo last year, while Nanjing Auto bought the UK's MG Rover in 2005. Acquisitions bring infrastructure, suppliers and dealer networks that Great Wall will have to build up from scratch.

    Acquisitions also overcome some of the branding and quality problems that all Chinese producers will face for several years yet. By choosing Bulgaria as its base, Great Wall is not even gaining access to a local skills base. Bulgaria assembled Fiats (briefly) and Moskviches under communism, while a Rover joint venture made 2,200 Maestros in 1995-1996 before folding up. But that’s about it. Contrast that with neighbouring Romania, where France’s Renault tapped into a long car-making tradition at Dacia in Pitesti.

    The worry is that Great Wall’s prices may not be low enough to overcome the quality perceptions. Dacia-Renault representatives have claimed that Pitesti cars often come out cheaper. And, even in Bulgaria, Great Wall will be competing against a thriving market for second-hand cars. Prestige-conscious drivers may prefer a 3-4 year-old car bearing a well-known West European name rather than that of a new Chinese investor, however welcome its investment may be.

    Still, even Hyundai started out small, and few in the auto industry doubt that Chinese carmakers will soon be making inroads into the European market. Great Wall could be at the forefront. By choosing Bulgaria, therefore, Great Wall gave the country a chance to build up its skills in an industry that has served its neighbours well over the past two decades. With a lot of hard work and luck, both sides could eventually find this first step is paying off.

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    Reprinted from the Economist Intelligence Unit - ViewsWire, February 21, 2012. To view, go tohttp://viewswire.eiu.com/index.asp?layout=ib3Article&article_id=1988827383&pubtypeid=1112462496&country_id=1800000180 
  • January 31, 2012 2:36 PM | Deleted user
    A significant proportion of thriving firms today are exporting their goods and services. Here’s why (and how) your business should follow suit.

    Accounting firm McGladrey’s Manufacturing Distribution Monitor Fall 2011 Edition reveals that 43 percent of manufacturers and distributors are thriving and growing, and a large proportion of those are exporting. What does the correlation mean for companies looking to expand into the export market?

    According to McGladrey’s latest survey of 511 manufacturing and distribution leaders, 71 percent of respondents are exporting to foreign countries, with most exporting to Canada (82 percent) and Mexico (54 percent), and Western Europe (excluding Germany, the Netherlands or the United Kingdom at 38 percent), the U.K. (38 percent) and China (38 percent) rounding out the top five destinations.

    Notable growth markets include Brazil, Central America and South America. Meanwhile, exports to China have slowed, which McGladrey ascribes to the market becoming “ever-more sophisticated and thus harder to penetrate.” The accounting firm also notes that free trade agreements (FTAs) with Colombia, Panama and South Korea were signed after the period of the survey. How these FTAs will affect exports to countries remains to be seen.

    Today, the companies most likely to export are in the biotech (88 percent), industrial machinery (84 percent), textiles and apparel (83 percent) and automotive (82 percent) industries, while companies dealing with building materials (59 percent), food and beverage (57 percent) and wood, paper and printing (41 percent) are in the bottom tier of exporting companies.

    According to McGladrey‘s findings:

    • Customer and/or key client demand is the most common reason for exporting; 
    • Interest in exporting to Central America and South America is rising, and Brazil seems to be where mid-market manufacturers see the greatest growth potential; and 
    • Initial forays into offshore markets tend to focus on transactional issues, while firms’ subsequent moves into additional foreign markets focus more on strategic issues. 

      While the majority (52 percent) of respondents reported increases in exporting activities over the past year, a striking finding is the correlation between growth in exports and organizations’ health: Approximately 60 percent of the companies that are thriving have increased their exports, a sign that exporting sales is recognized as a key driver for growth.

      “The takeaway is if you’re not exporting, you need to think about exporting,” Karen Kurek, national manufacturing leader for McGladrey, recently told IndustryWeek. “And if you are exporting, you need to think about ways you can enhance that activity.”

      Companies looking to expand their export sales may be intimidated by such a large undertaking, but resources for research and partnership are readily available. In a separate report, IndustryWeek asked several industry leaders who focus on exports for their advice:

      1. Actively select the markets you pursue. Do research and take advantage of free trade agreements the government has with nearby countries. “The decision to go into new markets should be thought of not as one big, irreversible commitment but as a series of smaller experiments from which you can learn,” according to Frank Lavin and Peter Cohan, authors of Export Now: Five Keys to Entering New Markets. 

      2. Recognize that different markets require different approaches. SASCO Chemical Group President Marc Skalla says that people should “learn the culture of the market [they] want to enter,” as foreign markets aren’t always receptive to American products. 

      3. Establish and nurture international relationships. Kathe Falls of the Georgia Department of Economic Development noticed a trend: American companies would enter foreign markets, develop relationships with local customers, then abandon them when the U.S. economy improved. Consistent and considerate relationship maintenance is key to avoiding this misstep. 

      4. Develop partnerships. Developing relationships with in-country partners can help exporters avoid a multitude of worries. “Whether it’s a selling agent, distributor or wholesaler, it’s always a good idea to have local expertise involved when trying to penetrate new overseas markets,” Daniel L. Gardner, CEO of Ocean World Lines, says. 

      5. Don’t overlook government resources. Because government agencies already have a foot in the door in foreign countries, they can assist companies with a wide range of services, including finding booth space at foreign conventions or providing free market research. 

      More information on federal support can be found through the International Trade Administration. Additionally, the White House’s National Export Initiative is designed to ease restrictions and provide resources to companies looking to export.

      _____________________________________________________________________

      Resources

      Manufacturing & Distribution Monitor: Fall 2011 Report
      McGladrey, November 2011
      http://mcgladrey.com/pdf/manufacturing_distribution_monitor_fall_2011_report.pdf 

      …Business Accelerating Despite Concerns about Government Gridlock
      McGladrey, Nov. 21, 2011
      http://mcgladrey.com/News-Releases/McGladrey-Manufacturing-and-Distribution-Monitor-Shows-Business-Accelerating-Despite-Concerns-About-Government-Gridlock 

      Survey: Healthy Manufacturers Tend to Export
      by Josh Cable
      IndustryWeek, Jan. 6, 2012
      http://industryweek.com/articles/survey_healthy_manufacturers_tend_to_export_26305.aspx?ShowAll=1 

      5 Keys to Growing Your Export Sales
      by Jill Jusko
      IndustryWeek, Dec. 14, 2011
      http://www.industryweek.com/articles/5_keys_to_growing_your_export_sales_26164.aspx?ShowAll=1 

      _____________________________________________________________________

      Reprinted from Industry Market Trends, January 31, 2012 issue. To view article, go tohttp://news.thomasnet.com/IMT/2012/01/31/thriving-businesses-exporting-mcgladrey-reports/?WT_mc_t=nlimt&WT_mc_n=127&channel=email 
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