Verisk Maplecroft Political Risk Outlook 2020 - Estudio de Perspectiva de Riesgo Político 2020

Political
Risk
Outlook
2020
Changing the perspective on risk maplecroft.com

Verisk Maplecroft | Political Risk Outlook 2020
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Contents
Our people 4
Executive summary 5
1 47 countries witness surge in civil unrest – trend to continue in 2020 6
2 US drive for energy independence fuels Persian Gulf insecurity 12
3 Corporate sector becomes new front line of US-China rivalry 16
4 Latin America – China to take trade war to US backyard 20
5 Minerals for mercenaries – Russia prioritising profits over long-term

influence in Africa
25
Countries to watch 29
Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 3

Our people
The Political Risk Outlook 2020 contains expert research and analysis from the most senior members of
our Country Risk Insight team. Between them, they boast decades of experience on their respective regions,
spanning Africa, Asia, Europe, the Middle East and the Americas. They combine a forensic understanding of the
country-level risks impacting companies and investors in both developed and emerging markets with data-
led analysis that draws extensively on our industry-leading global risk data. This unique approach enables our
clients to anticipate, understand and ultimately manage the full range of risks across their operational footprint,
supply chains and investments.
Contributors
Jimena Blanco Hamish Kinnear

Head of Americas MENA Analyst
Hugo Brennan Mariano Pablo Machado

Principal Asia Analyst Senior Americas Analyst
Indigo Ellis Niamh McBurney

Head of Africa Head of MENA
Eileen Gavin Daragh McDowell

Principal Americas Analyst Head of Europe and Central Asia
Sam Haynes Joseph Parkes

Head of Risk Analytics Asia Analyst
Miha Hribernik Franca Wolf

Head of Asia Europe and Central Asia Analyst
4 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

Executive summary
If the early 2000s were marked by the global war on Outside of the Gulf, we see this rivalry increasingly
terror, the 2010s by post-crisis economic recovery and moving into new battlegrounds. We explore how
the rise of populism, the 2020s appear set to become corporates are now becoming a new front line in the
the decade of rage, unrest and shifting geopolitical strategic competition between the world’s two largest
sands. economies. This is borne out by the elevated levels
of geopolitical risk that American firms operating in
In this year’s Political Risk Outlook, we kick off by
China, and Chinese firms operating in the US, have
taking a forensic look at the upsurge in civil unrest.
had to contend with amid the trade war. We believe
Using our risk indices and predictive data, we unpack
navigating this evolving landscape is only going to
where the risk is increasing, the driving forces behind
get harder, and it is companies that face the risk of
the protests and the trends we see for 2020, including
becoming collateral damage.
understanding where protestors are at highest risk of
abuses committed by security forces and the impacts China is also taking the trade war into the United
on business. States’ backyard by placing an increasing focus on
Latin America. As the US seeks to pressure China
through trade tariffs, and Beijing looks to secure
Ultimately, with 47 countries seeing
crucial resources for its companies and population,
a significant rise in risk, 2019 was a
we will see Latin American countries such as Brazil
nadir for stability in a host of countries.
and Argentina increasingly caught up in the crossfire
But with 75 jurisdictions forecast to see
as they balance competing interests to limit probable
an uptick in protests, the next two years
economic losses. The commodities to watch are
could be just as turbulent.
steel, aluminium and soya, but a Chinese bailout for
Argentine debt could see the country’s giant Vaca
Senior analysts from our Country Risk Insight team Muerta shale play become a geopolitical trojan horse.
then explore some of the primary geopolitical issues
Finally, we examine Russia’s recent power projection
affecting the key regions and players around the world
in Africa. While Moscow is keen to build the
by dissecting the new and evolving power dynamics
impression that its global influence is on the rise,
shaping security and trade.
we argue that its growing presence is confined to
Nowhere is this more prominent than in the Persian countries characterised by weak governance and
Gulf, which has seen the start of the new decade corruption, and is fuelled more by commercial
marked by the assassination of Iran’s talismanic interests than any long-term strategy. The reliance on
General Soleimani in a US drone strike. Our MENA mercenaries and ‘political technologists’ to burnish
analysts put this in context by examining America’s Russia’s credentials as a global power is cause for
changing priorities in the region. These are being concern though. Payments for their services often
shaped by its emerging energy independence and a materialise in the form of mineral concessions, but
growing unwillingness to underwrite security for oil what happens to these claims when the leadership of
production and shipping that is of most benefit to its these countries change could have implications for
biggest geostrategic rival, China. mineral supply chains.

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47 countries witness
surge in civil unrest –
trend to continue in
2020
Miha Hribernik Sam Haynes

Head of Asia Head of Risk Analytics
A dramatic surge in protests in 2019 was experienced by a quarter of countries and sent
unprepared governments across all continents reeling. According to our latest data and
forecasts, the turmoil is set to continue unabated in 2020.
Our quarterly Civil Unrest Index reveals that over the past year 47 jurisdictions have
witnessed a significant uptick in protests, which intensified during the last quarter of 2019.
This includes locations as diverse as Hong Kong, Chile, Nigeria, Sudan, Haiti and Lebanon.

Figure 1: The Civil Unrest Index reveals widespread increases in risk during 2019
Kazakhstan
Serbia
Montenegro
Lebanon Iraq
India
Sudan
Hong Kong
Djibouti
Chad
Benin
Bolivia
Zimbabwe
Chile
Size of bubble indicates
relative increase in civil
unrest 2019-Q1 to 2020-Q1
Figure 2 puts this deterioration into stark perspective, showing the flashpoints that have seen the largest
increases in unrest between the start of 2019 and early 2020. During this period, Chile and Hong Kong have
plummeted in the index ranking of 198 countries from 91st to 6th and 117th to 26th highest risk respectively.
Other hotspots, including Nigeria (ranked 8th), Lebanon (13th) and Bolivia (21st), have also recorded some of
the biggest negative swings in the index.
Figure 2: A quarter of all the world’s countries saw significant increases in civil unrest during 2019
Sudan
Extreme risk
Chile
Verisk Maplecroft Civil Unrest Index 2020-Q1
Lebanon Zimbabwe
India Bolivia Hong Kong
Chad
Iraq
High risk
Serbia Benin
Djibouti Kazakhstan
Medium risk
Montenegro
Countries
rated extreme risk in
our Civil Unrest Index
have jumped from
12 20
Low risk
to
-1.0 -2.0 -3.0 -4.0
Deterioration in Civil Unrest Index between 2019-Q1 and 2020-Q1
Each jurisdiction in the Civil Unrest Index receives a score from 0.00 (highest possible risk) to 10.00 (lowest possible risk). The data reflects increases throughout
the past year. Some countries that began 2019 with already significant levels of unrest, such as Iraq and India, have therefore recorded a relatively lower increase in
risk compared to jurisdictions such as Hong Kong and Chile.

The only thing saving Hong Kong from dropping further in the index is that it still has some mechanisms
in place for channelling discontent, including freedom of speech and a robust judiciary, even though these
are being increasingly eroded. This is in contrast with many of the extreme risk countries where no such
mechanisms exist. In terms of the severity and frequency of protests, though, Hong Kong sits alongside Chile as
the world’s riskiest location.
Economic toll of unrest numbers in the billions of dollars

The number of countries rated extreme risk in the Civil Unrest Index has also jumped by 66.7%; from 12 in 2019
to 20 by early 2020. Countries dropping into this category include Ethiopia, India, Lebanon, Nigeria, Pakistan and
Zimbabwe. Sudan, meanwhile, has overtaken Yemen to become the highest risk country globally.
An ‘extreme risk’ rating in the index, which measures the risks to business, reflects the highest possible threat of
transport disruption, damage to company assets and physical risks to employees from violent unrest. Most sectors,
ranging across mining, energy, tourism, retail and financial services, have felt the impacts over the past year.
The resulting disruption to business, national economies and investment worldwide has totalled in the billions
of US dollars. In Chile, the first month of unrest alone caused an estimated USD4.6 billion worth of infrastructure
damage, and cost the Chilean economy around USD3 billion, or 1.1% of its GDP.
Each protest is unique – but some have grievances in common

The reasons for the surge in violent unrest are complex and diverse. In Hong Kong, protests erupted in June
2019 over a proposed bill that would have allowed the extradition of criminal suspects to mainland China.
However, the root cause of discontent has been the rollback of civil and political rights since 1997. In Chile,
protests have been driven by income inequality and high living costs but were triggered by a seemingly trivial
30-peso (USD0.04) increase in the price of metro tickets.
Figure 3: Indicators that inform the Civil Unrest Index can serve as an early warning sign
Is there a significant Have food or fuel subsidies Is inflation high and Are there effective
marginalised group? been cut? sustained? mechanisms for managing
discontent?
Chile
2018 2019 2018 2019 2018 2019 2018 2019

Hong Kong
2018 2019 2018 2019 2018 2019 2018 2019

Lebanon
2018 2019 2018 2019 2018 2019 2018 2019

Zimbabwe
Extreme risk
Low risk 2018 2019 2018 2019 2018 2019 2018 2019

However, an analysis of our data suggests that a deterioration in some risk factors can serve as an early
warning sign in certain jurisdictions. Figure 3 shows four out of the 11 indicators that inform our Civil Unrest
Index scores. Subsidy cuts were the single biggest indicator that the risk of civil unrest was growing in Chile,
Lebanon and Zimbabwe. Inflation and the weakening of mechanisms that allow the channelling of discontent
before it erupts into unrest also played a role, the latter particularly in Chile, Hong Kong and Zimbabwe.
Protest-hit countries will see limited improvement, as new jurisdictions likely to join the fray
With protests continuing to rage across the globe, we expect both the intensity of civil unrest, as well as the total
number of countries experiencing disruption, to rise over the coming 12 months.
Our baseline forecast for Chile is a minor reduction in unrest over the next six months, while the country will
remain in the extreme risk category until at least 2022-Q1 – although the projection allows for some uncertainty
(see Figure 4). Our projection means that we do not expect the underlying causes of unrest in Chile to be
addressed, even though the demonstrations have succeeded in opening a constitutional revision process, which
is set to last from 2020 to 2023.i
Figure 4: Civil Unrest Index Projection for Chile indicates protests will likely linger despite constitutional reform
Santiago
increases price
of metro tickets
by 4%
Extreme risk
Verisk Maplecroft Civil Unrest Index score
High risk
Medium risk
Low risk
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2018 2019 2020 2021
Average projected score 50% of scenarios fall in this range 100% of scenarios fall in this range
Index scores 75% of scenarios fall in this range
Verisk Maplecroft’s Civil Unrest Index Projection combines analyst forecasts with statistical modelling to generate a probabilistic forecast of our Civil Unrest Index
scores for the periods six months and two years ahead. The Civil Unrest Index assesses the risk of disruption to business caused by the mobilisation of societal
groups in response to economic, political or social factors.

Figure 5: Civil Unrest Index projection for Hong Kong shows stalemate between protesters and government
continuing until at least 2022-Q1
Extreme risk
Hong Kong
government
Verisk Maplecroft Civil Unrest Index score
introduces
extradition bill
High risk
Medium risk
Low risk
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2018 2019 2020 2021
Average projected score 50% of scenarios fall in this range 100% of scenarios fall in this range
Index scores 75% of scenarios fall in this range
Verisk Maplecroft’s Civil Unrest Index Projection combines analyst forecasts with statistical modelling to generate a probabilistic forecast of our Civil Unrest Index
scores for the periods six months and two years ahead. The Civil Unrest Index assesses the risk of disruption to business caused by the mobilisation of societal
groups in response to economic, political or social factors.
In Hong Kong, divisions between the protesters and the government are now deeply embedded. There is little
prospect of a resolution unless the authorities give in to protesters’ demands or if Beijing decides to send in the
military – both of which are outlier scenarios in our view. According to our projections (see Figure 5), this will
most likely mean that protests continue over the next two years, with only minor improvement likely by early
2022.
Where protesters are at highest risk

Our projections predict that 75 out of the 125 countries in our forecasting database will on average see
an increase in civil unrest during the next six months. A key issue for companies to consider is how these
governments will deal with growing unrest (see Figure 6).
Our Security Forces and Human Rights Index, which measures incidents of extrajudicial killings, arbitrary arrest
and torture, rates 36 countries as extreme risk on this issue. This includes important emerging markets where
security forces have historically responded with heavy-handed tactics, or where they are allowed to commit
human rights violations with impunity. These feature mainland China (ranked 9th highest risk), Turkey (11th),
Saudi Arabia (23rd), Russia (33rd) and Thailand (30th).

Figure 6: A look at our Security Forces and Human Rights Index and our Civil Unrest Index projections for
2020 identifies jurisdictions where protesters are most likely to face abuses
Saudi Arabia
Extreme risk
China
Russia
Security Forces and Human Rights Index 2019-Q4
Turkey
Pakistan
Congo Thailand
Papua New Guinea Brazil Ukraine

Bahrain
High risk
Sri Lanka Zambia

Gabon Guatemala Guinea Bissau
Ghana Argentina
Medium risk
75
countries
will see an increase in
civil unrest during the
Low risk
next 6 months
-0.2 -0.4 -0.6 -0.8 -1.0 -1.2
Expected deterioration in Civil Unrest Index by end of June 2020
Each jurisdiction in our Civil Unrest Index projections and the Security Forces and Human Rights Index receives a score from 0.00 (highest possible risk) to 10.00
(lowest possible risk). Only countries likely to see a volatile combination of security force abuses and growing unrest are displayed.
Human rights violations, including arbitrary arrests and the use of indiscriminate violence, pose a risk to
protesters and any company staff in the vicinity of ongoing unrest. The use of violence, in turn, radicalises
protesters, provokes violent responses and ultimately fuels further unrest.
Businesses operating in emerging economies are often faced with considerable security challenges, particularly
in countries rich in natural resources where mining and energy projects often need high levels of protection.
However, companies are at substantial danger of complicity if they employ state or private security forces that
perpetrate violations. From an investment perspective, the use of state-sanctioned violence is a significant risk
to any country’s sovereign environmental, social and governance (ESG) profile, and is no less a risk to the ESG
profiles of complicit companies.
2019 likely to be the ‘new normal’

The pent-up rage that has boiled over into street protests over the past year has caught most governments by
surprise. Policymakers across the globe have mostly reacted with limited concessions and a clampdown by
security forces, but without addressing the underlying causes. However, even if tackled immediately, most of
the grievances are deeply entrenched and would take years to address. With this in mind, 2019 is unlikely to be a
flash in the pan. The next 12 months are likely to yield more of the same, and companies and investors will have
to learn to adapt and live with this ‘new normal’.

US drive for energy

independence fuels
Persian Gulf insecurity
Niamh McBurney
Head of MENA
The January drone strike in Baghdad – which killed Major General Qassem Soleimani, head
of Iran’s military operations abroad, and Abu Mahdi al-Muhandis, the Iraqi leader of pro-
Iranian militia group Kata’ib Hizbullah – was the clearest signal yet of a new US relationship
with the Middle East.

Figure 1: MENA oil exports to Asia remain strong as US imports of Saudi oil decline
120 Oil exports

Saudi to US
100 MENA to Asia
MENA to the rest
of the world
Oil exports (2016=100)
80
60
40
20
0
2016 2017 2018 2019 2020 2021 2022 2023
Source: Wood MacKenzie
...the willingness of the US While the Baghdad strike showed that the world’s largest military power
to step in and defend its continues to flex its muscles, America’s policies towards the region are
traditional partners in the changing. As US shale oil production has increased, and with Middle East
Middle East has receded in oil exports to Asia now higher than to anywhere else globally (see figure
line with its diminishing above), the role of the United States in guaranteeing security in the region
reliance on Saudi oil as a quid-pro-quo for secure energy supplies has weakened.
‘Bring our troops home’ was a powerful rallying cry during President
Trump’s first election campaign, but personnel numbers in the region
remain the same as under Obama. So, the capabilities are still there. But
the willingness of the US to step in and defend its traditional partners in
the Middle East has receded in line with its diminishing reliance on Saudi
oil, and we believe this could preface more insecurity in the region.
For oil exporters like Saudi Arabia and the United Arab Emirates, the
prospect of a dwindling role played by the US raises fears of a security
vacuum. Without robust security in the Persian Gulf, the Gulf economies
and 20% of the world’s oil demand are under threat. But Washington is
increasingly unwilling to underwrite protection for oil production and
shipping that is of most benefit to its biggest geostrategic rival, China.
The absence of a forceful public response from the Trump administration
following the May and September 2019 attacks on oil tankers and
installations in Saudi Arabia show that the threshold for the US to act in
the region is much higher than in the past.

Figure 2: Bilateral tensions in the Middle East as reflected in our Interstate Conflict Model
Interstate tension
USA
Iraq 80 - 100%
Iran 60 - 80%
20 - 40%
0 - 20%
Bahrain
Saudi Arabia
Qatar
UAE
FORECAST Direct conflict risks low, but anxieties run high

Will the US carry out a The exchange of missiles at the opening of 2020 reinforced the
military operation against uncertainty of this threshold, and raises the question: what are the
any Iranian targets in Iran chances of a major confrontation between Iran and the US? Our
or international waters Interstate Conflict Model – which tracks historic verbal conflict, military
which results in at least one spending, bilateral trade, regime type, and how these factors drive
Iranian fatality during 2020? militarised conflict between countries – calculates the chances of the use
Our group forecast assessed of military force between the US and Iran to be 78%, and this was even
a likelihood of 35% before the Baghdad drone strike.
While this is a high probability, our analysts believe it is substantially

mitigated by historical precedent and other factors such as domestic
political issues. Our judgement-based forecast assesses the likelihood
of an Iranian fatality in Iranian territory or the Persian Gulf as a result of
US military action to be 35%. With 2020 being an election year for both
countries, it is in neither country’s interest to get into a protracted armed
conflict.
Even though the risk of direct confrontation is relatively low, America’s

closest allies in the Middle East are not willing to completely abandon
their relationship. But they cannot read where the new threshold for US
protection is. The question is whether the US presence in the Gulf will
continue to effectively deter Iran from disrupting oil supplies when Tehran
is being backed into a corner by the collapsing nuclear deal.

Without a concrete and Market impact

viable solution to the current The growing perception of intensifying risk in the Persian Gulf will be felt
impasse between Iran and across a broad range of sectors from sovereign debt to petrochemicals.
the US, insurance premiums But the most direct impact will be felt in shipping, where security risk
are likely to rise further premiums for vessels travelling through the Strait of Hormuz have already
increased as much as tenfold in recent months. Without a concrete and
viable solution to the current impasse between Iran and the US, insurance
premiums are likely to rise further through 2020.
Oil markets will also have to grapple with a growing Persian Gulf risk
premium. Although it took merely two weeks for oil prices to fully recover
after the attacks on the Abqaiq and Khurais oil-processing facilities in
September 2019, there is a strong case that the risk of another high-
impact attack is underestimated. With spikes in oil prices both then
and after the Baghdad drone strike, the risk of more disruption and a
concomitant rise in fuel prices has not been sufficiently priced in.
What if…the Iran nuclear deal doesn’t survive 2020?

This year will be a make-or-break year for the nuclear agreement between
Iran and world powers. With Iran losing as much as USD4 billion in
revenue every month due to US energy sanctions, it will not be easy for
Tehran to hold out for the possibility of a new US president being elected
in November 2020.
Even if a new US president takes office in January 2021, there are risks
that the deal will collapse. First, Iran may decide to walk away from the
agreement entirely in the face of a firm commitment by President Trump
to the policy of sanctions. And second, if Iranian violations of the deal
persist and increase in severity, the UK, Germany and France may no
longer be able to keep the agreement alive.
A collapse of the deal would make an already dangerous regional climate

even more volatile and unpredictable. If Iran resumes its pre-agreement
nuclear programme, tensions with the US, Saudi Arabia and Israel will go
from bad to worse.

Corporate sector
becomes new
front line of
US-China rivalry
Hugo Brennan
Principal Asia Analyst
A ‘Phase One’ trade deal announced in December 2019 does nothing to change the fact
that we are in the dawn of a new era defined by strategic competition between the United
States and China. This dynamic will likely serve as a significant source of geopolitical risk for
companies and investors in the year ahead, as they are in danger of becoming pawns in a
broader confrontation. Corporate entities will need to adapt their business strategies in order
to navigate this evolving geopolitical landscape or risk becoming collateral damage.

The Trump administration The elevated levels of geopolitical risk that American firms operating in
will likely continue its China, and Chinese firms operating in the US, have had to contend with amid
systematic campaign to the trade war represents the new normal rather than an anomaly. In our view,
stymie the rise of Chinese the Phase One trade deal will only serve as a sticking plaster in a bilateral
tech companies relationship that has an ever-growing number of pressure points. We expect
that strategic competition between the world’s two largest economies will
steadily rise in 2020, in line with a long-term shift towards more adversarial
bilateral relations and fuelled by the US presidential election.
The Trump administration will likely continue its systematic campaign to

stymie the rise of Chinese tech companies, with an eye on the perceived
threat they pose to America’s technological supremacy and national
security. This approach will utilise criminal prosecutions, pressurising
allies to bar Chinese telecoms firms Huawei and ZTE from participating
in the rollout of 5G networks; and restricting the export of critical tech
components to Chinese firms via the US Entity List.
Conversely, US firms are particularly exposed to Beijing’s plan

to establish its own ‘Unreliable Entity List’ of foreign individuals,
businesses and organisations perceived to pose a threat to China’s
national security or economic interests. US delivery firm FedEx has
been identified by China’s state-owned media as a prime contender
for inclusion on the list after it allegedly re-routed Huawei documents
to America on the request of US law enforcement agencies. The case
provides a cautionary tale of how corporates are no longer mere
bystanders in the geopolitical power struggle.
Figure 1: Long-term trend is towards increasing geopolitical tensions between the US and China
12-month US warns China over Trump elected Trump pays a 'state US increases
rolling average South China Sea president plus' visit to China tariffs rates
Negative Diplomatic Exchanges between China and US
Obama and Xi agree Mar-a-Lago Trade talks 1st G20

to cyber truce summit break down truce
400
300
200
100
0
2015 2016 2017 2018 2019
People’s Bank of Trump questions 2nd G20
China devalues Yuan One China policy truce
Beijing rejects South China US-China enter US announces 'Phase 1' deal,
Sea tribunal ruling trade war delays tariff increase
Sources: GDELT, 2019; Verisk Maplecroft, 2019

The establishment of a Chinese blacklist would institutionalise Beijing’s

... strategic competition
currently ad hoc means for punishing foreign companies for their
between the US and China
perceived transgressions and those of their home governments.
will likely escalate in 2020
and beyond, as will the As illustrated in Figure 1, the trade war has been the most prominent
associated geopolitical risks source of friction in the US-China relationship since the start of 2018.
for corporates. Bilateral relations have been characterised by cycles of increased
geopolitical tensions followed by de-escalation depending on the status
of trade negotiations.
However, the trend of increasing strategic competition pre-dates the

trade war, and indeed, the Trump presidency. The trend line in the chart
shows that ‘verbal conflicts’ between China and the US – which we use
as a proxy for geopolitical tensions – has become steadily more frequent
over the past five years. Moreover, multiple pressure points exist in the
US-China relationship beyond those economic issues covered by the
Phase One trade deal (see Figure 2). All of this underpins our assertion
that strategic competition between the US and China will likely escalate in
2020 and beyond, as will the associated geopolitical risks for corporates.
Figure 2: Key pressure points in the US-China relationship
Taiwan: President Tsai Ing-wen won a

landslide election victory on 11 January 2020
on a pledge to defend the self-governing
island’s sovereignty from Beijing. Her
re-election ensures that cross-strait relations
will remain tense and a potential flashpoint in
the US-China relationship.
Hong Kong: Voters will elect a new Legislative

Council in September 2020, which will pit the
US-backed pro-democracy movement against
the Beijing-backed authorities.
South Pacific: US-China rivalry in the South

Pacific is likely to heat up in 2020 as Beijing
seeks to expand its influence within the
Xinjiang: The US Congress Second Island Chain.
looks set to pass legislation
in 2020 calling for tough
sanctions against China for
Beijing's treatment of its
Muslim Uyghur population
in Xinjiang.
South China Sea: The US will
continue to engage in freedom of
navigation operations in the South
China Sea in 2020, a practice that
riles Beijing and poses a direct
challenge to China’s bid for
regional supremacy.

China’s dominant position Market impact

across a host of mineral The market impact will be significant and varied. It will accelerate
value chains poses a China’s push towards greater tech self-sufficiency − an objective best
potential strategic encapsulated in Beijing’s ‘Made in China 2025’ industrial policy to become
vulnerability for Washington. a manufacturing superpower across 10 high-tech sectors, including
robotics, semiconductors and green energy. This will entail narrowing
opportunities for US firms across these sectors over the coming decade.
Greater strategic competition will also fuel the Trump administration’s bid
to bolster ‘critical mineral’ supply security. Beijing’s threats to restrict the
export of rare earth elements to the US has exposed the extent to which
China’s dominant position across a host of mineral value chains poses
a potential strategic vulnerability for Washington. Reducing American
dependence on China will involve a combination of providing greater
policy support for the mining sector at home and the building of ‘mineral
alliances’ with resource-rich allies abroad.
More broadly, US companies with exposure to the mainland market

will be prime targets during periods of heightened geopolitical tensions
and may find themselves on the receiving end of China’s so-called
‘qualitative measures’, which include politicised regulatory probes, state-
sponsored consumer backlashes and discriminatory import restrictions.
International companies that are perceived to be siding with the US in
this emerging ‘Great Power’ rivalry also risk earning Beijing ire and all the
consequences that go with it.
What if... Trump loses the presidential election in 2020

One potentially important variable for the trajectory of US-China relations
is whether Donald Trump wins re-election in the November 2020
presidential election, given that confronting Beijing has been a defining
feature of his presidency. Our current thinking is that Trump has a 50-50
chance of winning a second term: US presidents seeking re-election have
been successful in two-thirds of attempts in the post-war period, but
Trump’s low approval rating and the fact that he is trailing in the polls in
key electoral battlegrounds point to a tight race.
A victory for the Democrats in 2020 would not necessarily alter the
fundamental trajectory of US-China relations though. None of the leading
contenders for the Democratic nomination look likely to adopt a dovish
stance against Beijing. In short, the shift towards increasing strategic
competition between the US and China both pre-dates and will likely
outlast the Trump presidency.

Latin America – China

to take trade war to US
backyard
Jimena Blanco Eileen Gavin Mariano Pablo Machado

Head of Americas Principal Americas Analyst Senior Americas Analyst
Trade relations between China and Latin America have been transformed over the last 20
years, as the two regions have seen a mutual benefit in developing links – one as a route to
global expansion, the other as a means to fund economic growth. Chinese interest in trade
and M&A opportunities puts it in direct competition with traditional US investment in its own
backyard, and can be leveraged in Beijing’s ongoing trade war with Washington.

With Chinese companies As the US similarly seeks to pressure China through trade tariffs, and
and consumers becoming Beijing looks to expand its Belt and Road Initiative to secure crucial
more dependent on Latin resources, Latin American countries are the focus of competing trade
American commodities and pressures and incentives from the two superpowers.
agricultural produce, it is in While some governments in the region have aligned themselves
Beijing’s continued interest to ideologically with one superpower over the other, most Latin American
reduce costs and secure countries look pragmatically to balance their political interests with the
supplies and transport. need to develop long-term economic opportunities. It is also the case
that Beijing is becoming more strategic in its investment priorities, with
its global FDI falling for the second year running in 2018 (falling by
18% overall). This is owed partly to the reorientation of some Chinese
transnational investment towards national priorities, and also partly to the
trade disputes with the US and the EU.
In our view, Beijing’s interest in Latin America in 2020 will look to the
following:
■ An expansion of trade to absorb Latin American commodities

‘punished’ by US tariffs, and to support the replacement of US exports
facing Beijing-imposed levies with cheaper Latin American alternatives.
■ A gradual expansion in greenfield projects to reduce shipping costs to

China and other nations along the Belt and Road Initiative.
■ The potential for some renewed Chinese lending to cash-strapped

regional economies, via existing or new financial mechanisms.
China is diversifying its investment portfolio in Latin

America to strengthen its supply chain
Beijing has a vested interest in defending and increasing its role in the
region, particularly in terms of agricultural goods, as China looks to
protect its food security. As of 2018-2019, 60% of China’s soya imports
originated in Latin America. To date, almost 50% of Chinese FDI in Latin
America has been heavily concentrated in extractives – less than 1% of
its investment was destined for the agricultural sector between 2003 and
2016, for example – but latterly Chinese investment in the region has
been diversifying to include, particularly, the agri-industry.
China has also moved to invest more widely in regional infrastructure,

power generation and utilities and shipping. With Chinese companies and
consumers becoming more dependent on Latin American commodities
and agricultural produce, it is in Beijing’s continued interest to reduce
costs and secure supplies and transport.

In the early years, much of China’s investment in Latin America was in

Higher costs and more
direct JVs with state-owned or state-controlled enterprises. But gradually
complex ESG requirements
it has extended to the private sector and is being channelled through
threaten to deter Western
M&As, thereby giving access not only to natural resources but also to
lenders from embarking
energy generation, infrastructure and also to market position. According
on mega transport
to the UN Economic Commission for Latin America and the Caribbean,
infrastructure projects in
the top 20 M&A’s in Latin America in 2018 included Chinese acquisitions
the political tinderboxes of
of a major electricity firm in Chile, Brazil‘s most profitable port company,
Latin America.
and a water utility in São Paulo, for a combined total of USD3 billion.
Unlike in Africa, Chinese outlays in greenfield infrastructure projects

previously represented less than 5% of its total investment in Latin
America. This is now changing.
Again, this diversification is of mutual advantage to both the region and

China. Higher costs and more complex ESG requirements threaten to
deter Western lenders from embarking on mega transport infrastructure
projects in the political tinderboxes of Latin America. In offering an
alternative, China is positioned to secure key resources and boost its
foothold in the region.
By and large, this comes at the expense of US economic interests,

particularly in South America but also closer to home in Mexico. Thus,
even as Washington puts pressure on friends and foes to address the
US commercial imbalance with China, it may find that the opposite is the
result.
A pertinent example is the Trump administration’s restoration of tariffs

on Argentine and Brazilian steel and aluminium. This move is designed to
force both countries into negotiations, with the US government wanting
to improve the competitiveness of US soya exporters against Southern
Cone producers. Yet, this may prove counterproductive for the US in
global strategic terms.
Market impact
As Figure 1 shows, Argentina and Brazil’s aluminium and iron ore exports
to the US, while considerable at USD3.47 billion, are only a fraction of
their soya flows to China – USD22.42 billion. And while the aluminium
and iron ore industries have deep pockets and strong political influence in
their respective countries, the larger need to stabilise economic growth in
Brazil – and avoid the economic abyss in Argentina – almost certainly will
push the two governments closer to China, not Washington, regardless of
their radically different political hues.

Figure 1: Value of soya exports to China vastly surpass the value of metals exports to the United States
Almost two-thirds of China’s total soya imports originate from Argentina and Brazil
22.6bn 27.3bn USA

35.6bn
China
Totals in USD
2.8
Iron and steel

15
3b
lion
9m
Imports
20 bil
illio
io
n
i ll
Exports
n
481
Alumium
1bn 11.1bn 25.6bn
mil
Imports
lion
Exports
Brazil
n
Soya billio
Imports 2.42
2.8bn
0.8bn
Exports
Trade flows Argentina
Source: CID, Harvard, 2017
...as affordable external Likewise, as affordable external financing becomes increasingly

financing becomes challenging, China becomes a more appealing alternative to the US to
increasingly challenging, bankroll deficits and capital investment needs in the region, particularly
China becomes a more since Beijing’s ESG bar is considerably lower. That is not to say that
appealing alternative to the China’s lending has no strings or conditions attached, but its T&C’s tend
US to bankroll deficits and to be commodity export commitments rather than IMF-style structural
capital investment needs... policy demands.
While the Trump administration sees trade and financing negotiations as

a zero-sum game, Latin American governments seeking to boost weak
economic growth in 2020 will welcome interest from both superpowers.
In our view, pragmatic economic need, rather than politics and ideology,
will underpin Latin America’s deepening relationship with China in the
coming decade.
What if…China bails out the battered Argentine economy?

Facing a 10th potential default, Argentina urgently needs to restructure
its debt with the IMF and institutional lenders. The newly installed left-
wing President Alberto Fernández has been keen to maintain a strong
relationship with the US to secure its backing in negotiations with the
IMF – in exchange, sources say that he has interceded with President
Nicolás Maduro to secure better treatment for US business interests in
Venezuela.

However, should Washington’s political demands regarding Venezuela

threaten the cohesion of Fernández’s disparate Peronist coalition at
home, or the IMF require the maintenance of austerity over a protracted
period, we expect him to seek a lifeline elsewhere. With Venezuela itself
in deep bankruptcy, it is not inconceivable that China could step into the
breach.
A Chinese bailout – not dissimilar from Venezuela’s purchase of

Argentine debt in 2006 – almost certainly would be in return for
hydrocarbon export commitments from Argentina, plus Chinese financing
of the infrastructure needed to secure the supply. With US majors among
the top investors in Vaca Muerta, Argentina’s shale play may yet become
a bargaining chip in the strategic face-off between the US and China.

Minerals for
mercenaries – Russia
prioritises profits over
long-term influence in
Africa
Daragh McDowell
Head of Europe and Central Asia
Despite rising perceptions that Russia is extending its geopolitical reach, the foundations of
Moscow’s claim to renewed global influence are shaky at best. Moscow spent much of 2019
trumpeting diplomatic re-engagement with Africa, piggy-backing on the spread of Russian
private military contractors (PMCs) – particularly the infamous Wagner group – across the
continent.

With its domestic economy stagnating and protests growing, the Kremlin
It is financial gain that is
wants to burnish Russia’s credentials as a global power. However, the
driving Russia’s newfound
reliance on PMCs and non-state actors to underpin Russian power
foreign policy assertiveness
projection means these efforts are driven more by commercial than
in Africa.
political logic – in other words, the tail is wagging the dog.
African state clients have tended to pay for Russian support through shares
in mines and natural resource deposits, with PMCs providing the logistics
and security needed for commercialisation. This means deployments have
generally focused on states with weak democratic and legal norms and, in
some cases, where the government’s hold on power is tenuous.
PMCs can provide a veneer of stability, but their capabilities are too
limited to provide a foundation for more permanent Russian influence.
Russia’s attempts to provide political and campaigning support have
generally backfired due to lack of local knowledge. This creates a
scenario in which Russian claims to a host of resources, many vital
for the production of electric batteries and other next-generation
technologies, are dependent on the good will of governments that
Moscow is ill-equipped to maintain in power.
Commercial opportunism, not strategy, guiding Africa policy

It is financial gain that is driving Russia’s newfound foreign policy
assertiveness in Africa. Russian companies – including major established
miners and secretive offshore holding companies (many of which are linked
to Yevgeny Prigozhin, the alleged founder of Wagner) – are increasingly
gaining control of mineral rights and concessions in exchange for ‘services’
rendered.

Figure 1: Russian activities and concessions in Africa focus on weakly governed and corrupt states
Libya
Wagner troops are fighting
alongside Khalifa Haftar's Sudan
Libyan National Army Concessions: Gold, Oil
Russian PMCs have advised
the Transitional Military Council
on quelling civil unrest
Guinea
Concessions: Bauxite
Moscow has openly supported Central African Republic
Alpha Conde's attempts to extend Concessions: Gold, Diamonds
his presidency Russian national Valery
Zakharov serves as
Faustin-Archange Touadera's
Mozambique national security adviser
Concessions: LNG
An unconfirmed number of
Wagner soldiers have been killed
fighting Islamist militants
Zimbabwe Madagascar
Concessions: Platinum, Diamonds Concessions: Chromite
Russia and Zimbabwe have an Yevgeny Prigozhin is reported
agreement on joint military exercises to have sponsored an
and arms manufacture intereference campaign in the
2018 Madagascan election
Extreme risk Wagner Group:

High risk Present
Corruption Index
Medium risk Not present Wagner Group
Democratic Governance Index
Low risk Unclear
Russia’s preferred partner As the map above illustrates, Russia’s preferred partner states in Africa are
states in Africa are characterised by weak democratic governance and all are in the extreme risk
characterised by weak category in our Corruption Risk Index. These factors make it easier for host
democratic governance and governments to sign over these rights with minimal oversight.
all are in the extreme risk The use of PMCs and other private sector resources, such as political
category in our Corruption ‘technologists’, minimises the resources Russia must expend to
Risk Index. financially benefit from these arrangements. Utilising deniable mercenary
troops also means that when contractors die in combat – as an
unconfirmed number of Wagner soldiers did in Mozambique in October
2019 – the Kremlin does not take a political hit.
When Russia has attempted to operate in more stable locations – usually

by conducting electoral interference on behalf of favoured candidates – the
results have been less successful. A case in point is Madagascar, where
Russia was obliged to switch candidate mid-campaign when it became
clear that its first choice would finish a distant third in first-round polling.

While Russia’s renewed Market impact

presence in Africa is causing Guinea is an example of the potential downside for Russia if local allies
concern in many Western fail. Prompted by Guinea’s importance as a supplier of bauxite for
states, the real problems Russian aluminium producer Rusal, Russian diplomats in the capital,
may only present themselves Conakry, have openly supported President Alpha Condé’s efforts to
with changes in a country’s extend his term in office; this has helped fuel months of increasingly
leadership. bloody civil unrest.
Presidential and legislative elections in Guinea are due in 2020, and China is
also competing with Russia for access to its bauxite and iron ore deposits.
A scenario could arise where a new leadership could challenge or reverse
mineral deals agreed by President Condé. At that point, who ‘owns’ Guinean
bauxite or iron ore becomes a matter of dispute once it hits world markets.
This presents a substantial risk to ensuring the integrity and sustainability

of supply chains across the region, as well as compliance with sanctions
(Prigozhin and his business interests have been subject to extensive US
sanctions). While Russia’s renewed presence in Africa is causing concern
in many Western states, the real problems may only present themselves
with changes in a country’s leadership.
What if… Russia’s client governments collapse?

It is not just in Africa where Russia’s commercial interests may be difficult
to enforce when facts on the ground change; the claims themselves can
be used as a bargaining chip. In Venezuela, Rosneft has provided billions
in loans to the oil and gas sector, with equity stakes serving as collateral.
In the event of regime change in Caracas, and a successor government
supported by the West takes power, Moscow can use these debts as
bargaining chips to secure a seat at the table during the transition and
ensure Russian interests are taken into account.
In Venezuela, Russia has a larger footprint, greater local knowledge and

economic commitment. If Russian PMCs are driven out of Sudan or
Central African Republic, the Kremlin may have a tougher time gaining a
seat at the negotiating table. But that doesn’t mean that Russia will cut
its losses – instead, Moscow is likely to continue pushing its claims and
enlist allies in doing so.
This opens a scenario in which the legal owner of a particular ingot of

bauxite or nickel is a matter of international dispute. As the transition
towards renewable energy continues apace, demand and competition for
African minerals is set to intensify. If ownership disputes become a part
of that competition, ensuring the integrity of supply chains in advanced
manufacturing will become exponentially more difficult.

Countries to watch
India and Pakistan: Dwindling threshold for The coalition was formed in March 2018 out of
the use of military force necessity, above all to ensure a working government.
Since then, both parties have seen their vote shares
After a fraught 2019, the Indian
plummet in regional and EU elections. A new SPD
subcontinent will again be a
leadership elected in December 2019 will likely push
geopolitical flashpoint to watch
for more left-wing positions to avoid the party’s
in 2020. Tensions remain
disappearance into the political fringe and will
high following Prime Minister
therefore clash with the conservative CDU/CSU.
Modi’s decision to strip Kashmir of its special semi-
autonomous status in August 2019. The unresolved Merkel will struggle to keep internal tensions from
status of Kashmir is at the heart of the dysfunctional slowing down the government programme. In the
relationship between the two nuclear powers, and absence of national elections, there will be fewer
the full implications of Modi’s move will take time events presenting clear occasions for government
to shake out. However, the apparent closure of collapse. Instead, we are likely to see the SPD
any path towards autonomy, and the ongoing and leadership using policy disputes to try to justify a
unprecedented crackdown by Indian security forces, collapse, either later in the year or in early 2021.
will likely drive anti-India sentiment and fuel militancy.
As the political landscape becomes more fragmented
The lessons learned in Mumbai and Islamabad and the succession in Germany becomes increasingly
from the most recent nuclear crisis will add to the unclear, uncertainty over the longevity of the current
risk picture over the coming year. Rather than being government and potential future coalitions will only
chastened by the risk of escalation, each side came grow.
away from the crisis claiming victory, and Modi’s
military assertiveness was a factor in his dominant South Africa: Ramaphosa facing uphill
performance in the 2019 election. The threshold for battle to claw back investor sentiment in
using military force on the subcontinent has been 2020
lowered, and an immediate rerun would be on the Investors in South Africa are buckling
cards in the event of another major terror attack up for a bumpy 2020, because unrest
against India. Our Interstate Tensions Index captures caused by poor government service
the dynamic, with India and Pakistan sitting in the delivery, internal challenges to the
extreme risk category. ruling ANC, strong unions, a faltering economy, and
a failing Eskom will continue to threaten President
Germany: Merkel’s reign likely to come to an Cyril Ramaphosa’s ability to govern. Accordingly, junk
early end status looms in February as Moody’s reassesses
Angela Merkel has been Europe’s anchor South Africa’s last remaining investment-grade
of stability since becoming Chancellor sovereign rating.
in 2005. However, we see a high risk
At the beginning of 2019, the strength of the unholy
that her tenure will end even before her
alliance between the far-left EFF party and the Zuma-
scheduled departure at the end of the
linked faction in the ANC saw South Africa drop
legislative term in autumn 2021. We forecast a 72%
into the medium-risk category in our Government
likelihood that the coalition government of Merkel’s
Stability Index for the first time. The index assesses
CDU/CSU and the SPD will collapse prematurely.
the stability of executive authority, and accounts for
internal divisions within the executive.

Our 6-month projection for Government Stability Colombia: Violence and unrest widen
maintains this deteriorating trajectory, with a 41% faultlines in fragile peace
chance of an increase in risk by 2020-Q3.
The year ahead is fraught with
Priced into this outlook is the fact that a challenge challenges for Colombia. It’s failing
to Ramaphosa’s tenure is not out of the question peace process saw violence intensify
at the June 2020 ANC National General Council. in 2019 and we expect this to spiral in
Unless, to appease ANC radicals, he introduces land 2020.
expropriation without compensation (another thorn in
Three years on from the historic
investors’ sides) before the March 2020 deadline, this
peace deal with the FARC, the commitment of the
possibility becomes even more likely. Ramaphosa’s
conservative government led by President Ivan Duque
hurdles are high, and numerous.
to its full implementation is under serious question,
Libya: Civil war set to continue deep into prompting growing investor doubts as to whether
2020 the ‘peace dividend’ will be sustained. Last year saw
Colombia’s second largest guerrilla group, the ELN,
There is no end in sight to the Libyan
along with FARC dissidents and powerful organised
conflict. The offensive by Khalifa
criminal gangs, intensify violent activities, raising
Haftar’s Libyan National Army (LNA) on
security threats across the country.
Tripoli will persist this year as foreign
interference escalates and ceasefire At the same time, accumulating frustration over social
negotiations come to naught. problems combined with the rejection of Duque’s
unpopular fiscal reforms, spurred a totally unexpected
A Russo-Turkish initiative to broker a ceasefire
wave of popular protests, culminating in damaging
agreement has already stuttered to a halt, and the
national strikes late in the year. While not on the scale
prospects for similar international peace efforts
of the violent upheaval in Chile, we expect this unrest
remain grim. The LNA and two of its principal backers
to continue in 2020, amid Duque’s underwhelming
– the UAE and Egypt – still believe a military solution
response. To add to this volatile mix, the steady
to the conflict is possible, despite Turkey’s military
flow of migration from Venezuela is straining public
intervention to prop up the Tripoli-based Government
resources, exacerbating criminality and testing public
of National Accord (GNA). This means a successful
tolerance, further undermining Colombia’s delicate
ceasefire is unlikely to materialise. Even if a truce is
social cohesion under the peace agreements.
brokered, threading the needle on a lasting political
agreement will be exceptionally hard. Against this complex backdrop, investor confidence
will be tested to new limits in 2020.
The fighting will remain focused in the capital’s
suburbs, once again exposing civilian districts to
indiscriminate shelling and airstrikes. Clashes are also
to be expected near Sirte, the strategic central city
which the LNA captured in early 2020. With a complex
array of foreign powers happy to flout a poorly
enforced UN arms embargo and supply both sides,
the conflict is set to relentlessly grind on.

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Political

Changing the perspective on risk maplecroft.com

About Verisk Maplecroft

1 47 countries witness surge in civil unrest – trend to continue in 2020 6

2 US drive for energy independence fuels Persian Gulf insecurity 12

3 Corporate sector becomes new front line of US-China rivalry 16

4 Latin America – China to take trade war to US backyard 20

5 Minerals for mercenaries – Russia prioritising profits over long-term

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 3

Jimena Blanco Hamish Kinnear

Hugo Brennan Mariano Pablo Machado

Indigo Ellis Niamh McBurney

Eileen Gavin Daragh McDowell

Sam Haynes Joseph Parkes

Miha Hribernik Franca Wolf

4 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 5

Miha Hribernik Sam Haynes

6 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

-1.0 -2.0 -3.0 -4.0

Deterioration in Civil Unrest Index between 2019-Q1 and 2020-Q1

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 7

Economic toll of unrest numbers in the billions of dollars

Each protest is unique – but some have grievances in common

2018 2019 2018 2019 2018 2019 2018 2019

2018 2019 2018 2019 2018 2019 2018 2019

2018 2019 2018 2019 2018 2019 2018 2019

8 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 9

Where protesters are at highest risk

10 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

Papua New Guinea Brazil Ukraine

Sri Lanka Zambia

-0.2 -0.4 -0.6 -0.8 -1.0 -1.2

Expected deterioration in Civil Unrest Index by end of June 2020

2019 likely to be the ‘new normal’

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 11

US drive for energy

12 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

120 Oil exports

Source: Wood MacKenzie

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 13

FORECAST Direct conflict risks low, but anxieties run high

While this is a high probability, our analysts believe it is substantially

Even though the risk of direct confrontation is relatively low, America’s

14 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

Without a concrete and Market impact

What if…the Iran nuclear deal doesn’t survive 2020?

A collapse of the deal would make an already dangerous regional climate

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 15

16 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com

The Trump administration will likely continue its systematic campaign to

Conversely, US firms are particularly exposed to Beijing’s plan

Obama and Xi agree Mar-a-Lago Trade talks 1st G20

Sources: GDELT, 2019; Verisk Maplecroft, 2019

Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com 17

The establishment of a Chinese blacklist would institutionalise Beijing’s

However, the trend of increasing strategic competition pre-dates the

Figure 2: Key pressure points in the US-China relationship

Taiwan: President Tsai Ing-wen won a

Hong Kong: Voters will elect a new Legislative

South Pacific: US-China rivalry in the South

18 Verisk Analytics Official Public Information © Verisk Maplecroft 2020 | maplecroft.com