global market brief and labor risk index 2012

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Global Market Brief & Labor Risk Index

2012meThodology sample reporT only

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Global Market Brief & Labor Risk Index 2012

This is meThodology sample reporT only.

To subscribe to the global market Brief & labor risk index, visit kellyocg.com/marketbrief

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conTenTs

This material was produced by Eurasia Group in collaboration with Kelly Outsourcing and Consulting Group (KellyOCG®). This is intended as general background research and is not intended to constitute advice on any particular commercial investment, trade matter, or issue, and should not be relied upon for such purposes. Eurasia Group is a private research and consulting firm. © 2012 KellyOCG and Eurasia Group.

3 preface: Teresa carroll, sVp – centers of excellence, kelly services & ian Bremmer, president, eurasia group

4 methodology

72 about sponsors

The Americas6 overview

7 risk index

8 argentina

9 Brazil

10 canada

11 chile

12 cost rica

13 ecuador

14 mexico

15 united states

Asia Pacific17 overview

18 risk index

19 australia

20 china

21 hong kong

22 india

23 indonesia

24 Japan

25 malaysia

26 new Zealand

27 pakistan

28 philippines

29 singapore

30 south korea

31 Thailand

32 Vietnam

Europe and Eurasia34 overview

35 risk index

36 Baltics

37 Belgium

38 czech republic

39 denmark

40 France

41 germany

42 hungary

43 ireland

44 italy

45 luxembourg

46 netherlands

47 norway

48 poland

49 portugal

50 romania

51 russia

52 serbia

53 spain

54 sweden

55 switzerland

56 Turkey

57 ukraine

58 united kingdom

Middle East and Africa60 overview

61 risk index

62 algeria

63 egypt

64 ghana

65 israel

66 kuwait

67 morocco

68 Qatar

69 saudi arabia

70 south africa

71 united arab emirates

cover: roof of the hans otto Theater in potsdam, germany © Andreas Levers

4 | gloBal markeT BrieF & laBor risk index 2012

Preface

ian Bremmer,

president,

eurasia group

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

middle easT and aFrica

aBouT sponsors

Teresa carroll,

sVp – centers

of excellence,

kelly services

Latin America. European countries

will continue to tighten their belts

even as that response further slows

growth. Some countries in Asia will

have to rely on disaster spending,

infrastructure development, and

foreign investment to mitigate

slowing growth. Growth in the

global economy will depend on

emerging markets nations: China

and Indonesia in Asia, Ghana in

sub-Saharan Africa, and those

nations in the Middle East whose

economies are supported by

high oil prices.

The coming year will also be

defined by political transitions.

Some of the largest economies in

the world will focus on elections

in 2012, including the US, France,

Russia, and possibly Japan. In

China, elite competition during one

of the most important leadership

transitions in a decade will result

in conservative policymaking, but

major political instability is unlikely

despite headlines. Elsewhere

in the Asia-Pacific region, leftist

opposition parties look well placed

to win a majority in South Korea,

while state elections in India will

serve as bellwether for later national

elections. In Sub-Saharan Africa,

elections in Ghana and the ruling

party conference in South Africa will

set the stage for intensifying labor

agitation. And in Latin America,

elections in Mexico will likely

return the opposition Institutional

Revolutionary Party (PRI) to power,

while in Venezuela the outlook for

economic and political stability

looks bleak no matter who wins the

presidential election there.

■ ■ ■

➔ If 2011 was marked by

crises—the Arab spring, the

European financial crisis and

Japan’s triple disaster—2012 will be

characterized by political transitions

and global economic risk. The

eurozone’s sovereign debt crisis,

as well as a slowdown in the global

economy, will bring uncertainty to

economies from Asia to Africa and


Methodology

In addition to assessing the current risk environment, this report also takes into consideration the trajectory of risk trends.

Arrows alongside risk scores explain where risks are likely to show a very positive trend (X X), positive trend (X),

negative trend (Y), very negative trend (Y Y), or remain unchanged (blank) over the 1-year period of the report.

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aBouT sponsors

➔ The Global Market Brief &

Labor Risk Index is based on detailed

analysis of hard metrics of 30 unique

labor market, socio-economic, and

political factors, layered with localized

expertise of in-country consultants.

The analysis aggregates the

individual factors into 9 core risk

variables: 5 macro variables and 4

labor variables that are each assigned

a score on a 10-point scale projecting

the degree of risk over the next

90 days. Each risk variable is also

assessed as to whether it is trending

negative or positive.

factors such as crime, military

spending, terrorism, domestic

and inter-state armed conflict,

and security alliances.

macroeconomic environment: This

indicator captures the current health

of the macroeconomic environment

by aggregating the risks of short-

term and long-term economic

instability. Short-term factors include

economic and fiscal performance,

while long-term factors take in

the structure of the economy,

the environment for the private

sector, and demographic trends.

policy environment for foreign

investment: This indicator measures

how hospitable a country is to

foreign investors by identifying

and assessing any constraints on

or barriers to economic activity,

augmented by observing the degree

to which the economy is already a

destination for foreign investment.

laBor risk

labor market flexibility: This

indicator captures labor market

flexibility, assessing the regulatory

environment that employers face

in managing human resources,

the ability of labor to influence

policymaking, and the near-term

potential for changes in the

labor regulatory environment.

labor availability: The labor

availability indicator incorporates

migration, urban population, the

size of the labor force, the extent

to which women participate in the

labor force, and unemployment.

labor quality: The quality of labor

is measured by the education

and skill level of a labor force, the

general health of the population,

and labor productivity.

labor contentment: This

indicator assesses the likelihood

of labor discontent by combining

the existence or potential of

near-term labor unrest with the

misery index, which incorporates

unemployment and inflation rates.

■ ■ ■

For all variables, scores range

from 1 to 10, where 1 is ‘high

risk’ and 10 is ‘low risk’.

macro-poliTical/

counTry risk

political environment: This

indicator measures the strength

and durability of the regime and

the government through factors

including the cohesiveness of the

government and the opposition, the

degree to which the government

has popular support, and the

strength and transparency of

government institutions.

social environment: This

indicator captures the presence

and intensity of, and the potential

for, social conflict. Factors include

income inequality, ethnic/class

conflict, urban population growth

rates, and issues that can arise

from poor government service

provision, such as high infant

mortality and low literacy rates.

security environment: This

indicator captures internal and

external security risks, including


Overview: The Americas

conTenTs

preFace

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overview

risk index

argentina

Brazil

canada

chile

costa rica

ecuador

mexico

united states

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aBouT sponsors

increasing severance pay, as well

as unemployment and disability

benefits. And Mexico’s labor

laws are likely to be overhauled

after the election—particularly

if the PRI wins—to make work

contracts more flexible. In contrast,

although the US election will

draw attention to the issue of

immigrants, any changes in visa

policies are likely to be small.

Across the Americas, economic

growth is expected to slow in 2012

because of the eurozone crisis

and heightened uncertainty about

global growth. Many countries

in the region will continue to

implement pragmatic economic

policies in an effort to manage

slowing growth, but countries

such as Argentina, Ecuador,

➔ There are three major

elections in 2012, in Mexico,

Venezuela, and the US. In

Mexico, the election is likely to

bring the opposition Institutional

Revolutionary Party (PRI) back to

power, while in Venezuela and the

US, the incumbents are likely to

win another term—although this

is by no means assured in either

case. In the run-up to the election

in Venezuela, President Hugo

Chavez is likely to focus the labor

code more on social issues by

and Venezuela will maintain

unorthodox economic policies

and direct intervention in their

economies. That said, the ability

of some governments to respond

may be hindered by political

stalemate, particularly in the US.

Despite slowing growth, labor

markets are expected to remain

tight in some well-performing

sectors. It is already difficult for

employers to find skilled labor in

Brazil’s energy and infrastructure

sectors and in Canada’s mining

and oil sectors. In Chile, where

significant strikes hit the mining

sector in 2011, tight labor

markets may embolden workers

to seek greater concessions

from employers in 2012.

■ ■ ■


conTenTs

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aBouT sponsors

The americas – risk index summary TaBle 2012

macro risks laBor risks

political social security economicForeign

investmentFlexibility availability Quality contentment

Argentina 6 7 9 4 Y 4 Y 4 5 6 2 Y

Brazil 7 7 8 X 6 Y 6 5 5 5 7

Canada 10 9 9 5 X 8 7 6 7 6

Chile 6 Y 7 Y 9 6 7 6 5 Y 7 4

Colombia 6 7 6 5 6 6 5 X 5 3

Costa Rica 6 7 9 Y 4 Y 6 Y 7 5 6 5 Y

Ecuador 5 5 7 5 Y 3 Y 4 4 4 5 X

El Salvador 5 Y 6 6 Y 3 Y 5 7 4 4 6

Mexico 7 7 7 Y 5 6 6 X 6 6 7

Panama 6 Y 6 8 6 X 7 X 5 5 X 5 3

United States 7 8 9 6 X 7 8 6 8 5

Venezuela 5 7 6 3 X 2 Y 3 Y 5 5 3 X

north america 8 8 8 5 7 7 6 7 6

central & south america

6 7 8 5 5 5 5 5 4

americas 6 7 8 5 6 6 5 6 5

Very positive trend

positive trend

negative trend

Very negative trend

For all variables, scores range from 1 to 10, where 1 is ‘high risk’ and 10 is ‘low risk’.


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

Real wages will get a significant boost in 2012 because the minimum wage will climb by 14%, which will drive wage increases throughout the economy. Though wage hikes are a major driver of service sector inflation and consensus 2012 inflation expectations are above the 4.5% center of the central bank’s targeted inflation band, the government is bound by its commitment made in early 2011 and is unlikely to anger labor by reneging on it.

Brazil

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Political Social Security

MACRO RISKS LABOR RISKS

Economic Foreign Investment

Flexibility Availability Quality Contentment

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Central & South AmericaAmericas

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country macro risks

country labor risks

central & south america

americas

reduce Brazil’s perennially high real

interest rates. It will maintain tight

fiscal policies and keep the 2012

primary surplus target at 3.1% of

GDP, though it will face difficulties

meeting it. If growth remains

tepid, policymakers are likely to

turn to the National Development

Bank to boost lending or further

loosen restrictions on credit growth

to stimulate the economy.

Labor markets remain tight, with

November unemployment at

5.2%, the lowest level in nine

years. Though slowing industrial

production could bring slight

relief in 2012, this would most

likely not signal a downturn

but a cooling of an overheated

labor market. Demand for

➔ President Dilma Rousseff

will continue to approach

macroeconomic policy this year

with the same pragmatism she

demonstrated during her first

year in office. Policymakers will

face mounting pressure to adopt

stimulus measures given a weak

external environment and a

slowdown in GDP growth from

7.5% in 2010 to an estimated

3.1% in 2011 and 3.5% in 2012.

But fears that the government

will trade inflation for growth are

overblown. The economic team will

keep using the global downturn to

skilled labor, particularly in the

construction and energy sectors,

will continue to be driven by

the substantial investments

planned in each of these areas.

The congressional calendar

will be somewhat curtailed as

national politicians stump for

allies in municipal elections this

October. Even so, congress will

likely approve a new oil royalty

distribution framework (though

legal challenges will delay

new bid rounds until 2013),

pass a public sector pension

reform, and make progress on

microeconomic reforms to facilitate

infrastructure investments.

■ ■ ■


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

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united states

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europe and eurasia


aBouT sponsorsIf Pena Nieto becomes president, Mexico could face a more promising reform outlook compared to the past decade. Labor reform is one of the first items on the agenda and could advance quickly. Any future labor proposal is likely to include a series of changes aimed at diversifying the ways workers can be hired, with the ultimate goal of making employer/worker contract terms more flexible.

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NXÇÅ

North AmericaAmericas

Mexico past two years. In the event of a

more pronounced global

economic downturn, the

current government’s ability

to pursue countercyclical fiscal

measures would be constrained

by the upcoming election.

The ruling National Action Party

(PAN) could make a competitive run

in July’s presidential contest, but

the opposition candidate Enrique

Pena Nieto of the Institutional

Revolutionary Party (PRI) remains

favored; in late 2011, he led by

20 points with 44% support. It is

possible that the PRI could also

win a working majority in both

houses of congress, which would

➔ Expectations about Mexico’s

2012 GDP have declined somewhat

because of a sluggish US economic

recovery. The manufacturing

sector—buoyed by strong

automobile production, competitive

wages and low transport costs for

goods to the US—will continue to

drive the expansion, although the

service sector is also expected to

support the economy. Employment

will continue to grow at a decent

pace (close to 3.0%–4.0%),

albeit at a lower rate than in the

facilitate decisive policymaking.

The campaign will bring a flurry

of finger-pointing and promises

to revamp the current strategy

of fighting the drug cartels, but

a tactical shift is unlikely, even if

the PRI wins. The government will

continue to rely on a heavy military

presence, close cooperation with

the US, the growing role of the

federal police, and a push to fully

implement a 2008 judicial reform

more quickly and effectively. In the

meantime, overall levels of violence

will remain high, although a peak

has probably been reached.

■ ■ ■

country macro risks

country labor risks

north america

americas


Overview: Asia Pacific

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are well placed to win a majority in

Seoul, while Hong Kong may see

an actual race for chief executive.

And in India, all eyes are on

bellwether state elections and the

transfer of power from Congress

party leader Sonia Gandhi to a

new generation headed by her

son Rahul. Legislative gridlock in

Japan could prompt Prime Minister

Yoshihiko Noda to call an election

for the lower house of the Diet.

Many governments in the region

are revising economic forecasts for

2012 downward (with the exception

of China, Vietnam, and Indonesia).

Japan, New Zealand, and Thailand

may mitigate some of the effects of

a global economic slowdown with

additional spending on rebuilding

efforts after recent natural disasters,

but authorities in Singapore, the

Philippines, and Malaysia will

➔ A number of elections and

political transitions in the Asia-

Pacific region in 2012 will mean

a focus on domestic issues amid

uncertainty stemming from the

eurozone crisis and the global

economic slowdown. As China

embarks on its most important

political transition in a decade,

jockeying among elites will lead

to risk aversion in policymaking.

Elections will also dominate politics

in South Korea, Hong Kong, and

India, as well as Japan if a snap

election is held. Opposition parties

use spending on infrastructure

development and other programs

to attract foreign investment.

Security will also matter in 2012.

North Korea’s leadership transition

and Kim Jong-un’s efforts to

consolidate power pose serious

risks to the region. Meanwhile,

China will find that its neighbors are

less enamored with the country’s

economic heft and more wary of its

strategic intentions; governments

from Tokyo to Manila will welcome

Washington’s efforts to reengage

Asia both economically and

militarily. Lastly, the drawdown of

US forces from Afghanistan could

limit the ability of diplomatic

efforts to forge peace in the region

and damage regional economic

integration and trade prospects.

■ ■ ■


conTenTs

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china

hong kong

india

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malaysia

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pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

Very positive trend

positive trend

negative trend

Very negative trend


asia paciFic – risk index summary TaBle 2012




Australia 7 9 9 7 X 10 6 5 Y 7 7 YBangladesh 5 4 6 4 Y 3 4 5 2 1

China 5 6 Y 8 7 Y 4 5 7 7 X 5 YHong Kong 6 8 9 7 Y 10 7 7 9 5 YIndia 5 4 5 6 Y 5 X 6 5 3 3 YIndonesia 5 6 8 5 X 5 X 5 6 5 3 YJapan 7 Y 9 9 4 X 8 6 5 8 7

Malaysia 6 Y 7 9 6 6 X 6 5 7 X 6

New Zealand 9 X 10 10 7 X 9 7 6 Y 7 6

Pakistan 2 Y 3 1 Y 3 Y 5 5 3 2 2

Philippines 5 5 7 4 Y 5 5 6 X 5 6

Singapore 9 9 9 8 Y 8 7 5 Y 8 9

South Korea 6 Y 9 8 6 Y 7 X 6 6 7 5

Sri Lanka 7 6 9 3 3 Y 6 4 6 2

Thailand 4 Y 6 Y 8 5 Y 6 6 Y 7 7 8

Vietnam 5 X 6 9 4 X 4 X 5 6 5 5

south asia 5 4 5 4 4 5 4 3 2

east asia (ex. Japan) 6 7 8 6 6 6 6 7 6

pacific 8 9 9 6 9 6 5 7 7

asia paciFic 6 7 8 5 6 6 6 6 5


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

An amendment to the Worker Dispatch Act will probably pass during the upcoming Diet session. Responding to pressure from advocates of more flexibility in the labor market, the DPJ dropped the near-total bans it had proposed on employing temporary workers in manufacturing as well as “registered” temporary workers (paid when dispatched). This change eliminates concerns that the law would restrict the ability of Japanese companies to meet their labor needs without having to hire more costly permanent workers.

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Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

Japan despite stimulus provided by

disaster recovery spending.

On the political front, legislative

gridlock will constrain bold

reforms in 2012, but broad

demographic shifts and

globalization are putting enormous

pressure on Japan to embrace

greater economic openness over

the medium and long term. A

mildly positive economic outlook

will not offset tension within

and across political parties and

entrenched interest groups. Major

opposition parties, especially

the Liberal Democratic Party

(LDP) and Komeito, can flex

their muscles on budget matters

because Noda’s Democratic

➔ Prime Minister Yoshihiko

Noda appears better positioned

than recent predecessors to survive

politically, but the opposition will

work in 2012 to undermine his

government and push for early

elections. If the economy can

bounce back from an estimated

contraction of 0.4% to 2.0% in

2011, Noda will be better able

to engage in legislative battles.

Unfortunately, unemployment is

not forecast to drop significantly

below the 4.9% rate seen in 2011,

and deflation is expected to persist

Party of Japan (DPJ) does not

control the Diet’s upper house.

The Diet session beginning in

January provides two major

opportunities for opposition

obstruction—the fiscal year

2012 budget and debate over

a consumption tax hike to cover

rising social welfare costs. If Noda’s

approval numbers remain strong, his

opponents will likely compromise

on the budget to avoid a snap

election. Clashes over a tax increase

will be acute, however, potentially

resulting in an election anyway. If

Noda’s support wanes, he is likely

to step down or feel compelled

to call an election by summer.

■ ■ ■

country macro risks

country labor risks

pacific

asia pacific


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

Trade promotion is expected to be a major initiative of the Key government, which will support job creation in export sectors. The prime minister will look to finalize a free trade agreement with the US, and he will help advance the Trans-Pacific Partnership, both of which are goals that the Labor opposition also supports. The offsetting factor over the next year or two, however, will be a slowdown in the export and tourism sectors as the European and US economies struggle.

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australia

china

hong kong

india

indonesia

Japan

malaysia

new Zealand

pakistan

philippines

singapore

south korea

Thailand

Vietnam

europe and eurasia


aBouT sponsors

New Zealand will hurt export sectors. The IMF

estimated 2012 growth at 3.8%,

while the OECD recently lowered

its forecast from 4.1% to 2.5%.

Unemployment stood at 6.6% for

the September quarter (1 July –30

September 30), 0.2 percentage

points higher than the same period

last year. The flat unemployment

numbers are supported by a flat

wage growth for the quarter,

suggesting that the central bank

will keep interest rates low (2.5%)

for the foreseeable future.

A fresh mandate for Prime Minister

John Key’s National government

in the 26 November elections

signals a move toward an economic

➔ The country’s economy

continues its slow recovery and

will remain vulnerable to a global

slowdown precipitated by events

in Europe and the US. GDP

growth in 2011 is expected to be

close to 2%, boosted mainly by

post-earthquake reconstruction

efforts and spending on the

rugby world cup. Reconstruction

spending in 2012 will continue to

benefit both the economy and

job creation, although a relatively

strong New Zealand dollar and

a weak external environment

reform policy agenda. Although the

Nationals did not win an outright

majority, they secured their best

performance in decades and quickly

moved to form a government in

association with smaller parties. In

particular, Key views his election as

a mandate to advance his economic

plan, which includes sales of energy

companies and airlines as well as

cuts in welfare payments to help

balance the government’s budget.

Key has pledged to return the

budget to surplus by 2014–2015

at the latest, and investors and

businesses will generally find

comfort in Key’s policy agenda.

■ ■ ■

country macro risks

country labor risks

pacific

asia pacific


Overview:Europe and Eurasia

conTenTs

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europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

the required spending cuts and tax

increases may further slow already

struggling economies. On the

other hand, few governments have

the financial resources to embark

on aggressive stimulus spending

to jump-start their economies.

Several governments are turning

to structural reform of their

economies, either on their own

initiative (Sweden, Denmark,

Hungary, and Poland) or under

pressure from markets and lenders

(Italy and Portugal). Both Italy and

Portugal have new governments

(Italy’s appointed, Portugal’s

elected) that appear committed

to pushing through necessary but

painful structural changes and

have a good measure of popular

➔ The eurozone’s sovereign

debt crisis will continue to put the

countries of Europe and Eurasia

under considerable economic and

fiscal pressure in 2012. Many of

these countries face both a debt

problem and a growth problem,

and the potential solutions to one

may exacerbate the other. Many

governments—including in the

UK, France, Italy, and Spain—are

pursuing austerity programs in an

effort to reduce their deficits and

contain sovereign debt levels. But

support. But pursuing serious

economic reforms is especially

hard in tough economic times.

The eurozone crisis hurt a number

of incumbent governments, and

some of these countries have

new governments as a result.

A few moved leftward in recent

elections. Denmark, for instance,

elected a center-left coalition

after a decade with a center-right

government. But others moved

rightward. After seven years in

power in Spain, the Socialists were

badly defeated by a center-right

party. Two of the most important

elections in the region, in France

and Russia, are due in early 2012.

■ ■ ■


conTenTs

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Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

europe and eurasia – risk index summary TaBle 2012




Baltics 6 8 9 5 Y 8 7 6 6 5

Belgium 6 Y 8 9 5 Y 8 6 8 7 7 YBulgaria 6 X 8 8 4 Y 7 7 6 6 5

Croatia 7 X 8 9 4 7 6 6 6 4

Czech Republic 6 9 9 5 Y 7 6 6 8 5 YDenmark 9 9 9 6 8 7 6 8 8 YFrance 7 Y 9 9 5 Y 7 7 7 7 5

Germany 7 9 10 6 Y 8 5 8 7 7 YHungary 7 8 9 4 Y 7 7 6 X 7 6

Ireland 8 Y 9 9 4 Y 9 7 4 Y 7 6

Italy 7 X 9 10 4 Y 7 5 X 5 6 6 YLuxembourg 9 10 9 6 8 Y 6 6 8 7

Netherlands 6 Y 9 10 6 Y 8 6 7 7 6 YNorway 9 Y 9 9 7 8 5 6 8 8

Poland 8 X 8 9 6 Y 7 6 6 7 6

Portugal 7 Y 8 9 3 Y Y 8 6 X 6 5 3

Romania 7 8 9 4 Y 7 8 6 X 6 5

Russia 5 6 X 8 4 X 4 X 5 7 6 8

Serbia 6 8 8 Y 4 6 5 6 6 2

Spain 8 X 8 9 4 Y 6 6 X 6 6 3

Sweden 9 9 9 6 8 Y 4 6 7 7

Switzerland 9 9 9 7 Y 8 Y 8 6 Y 9 7

Turkey 7 7 X 8 X 6 6 6 4 5 5

Ukraine 5 Y 6 7 3 Y 5 4 X 6 6 4

United Kingdom 8 Y 9 9 5 Y 8 8 6 8 6 YWestern europe 8 9 9 5 8 6 6 7 6

eastern europe and eurasia

6 8 8 4 6 6 6 6 5

europe and eurasia 7 8 9 5 7 6 6 7 6

Very positive trend

positive trend

negative trend

Very negative trend



Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

The annual adjustment of wages for inflation is scheduled to occur in spring 2012, although the LSAP wants to push it off until mid-year. Businesses in the country are campaigning to establish a two-year moratorium on this adjustment, arguing that it contributes to higher unemployment. But the adjustment will likely occur, and wages are expected to grow by 4.5% on average in 2012. However, lower inflation rates in 2012 will reduce the inflation adjustment in 2013.

Luxembourg

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NXÇÅ

Western EuropeEurope and Eurasia

country macro risks

country labor risks

Western europe

europe and eurasia

first half of 2012. Efforts by the

government to boost the economy

with investment programs and

heightened spending have

provided only short-term relief.

The second half of 2012 should

see growth pick up due to

further increases in government

spending and consumption, and

a revival of private investment as

business confidence improves.

Efforts to draft a 2012 budget

with spending cuts and structural

reforms have led to conflict

between the parties of the

ruling coalition—the Christian

➔ The economy grew by an

estimated 1.6% in 2011, thanks

to the impact of the eurozone

crisis on Luxembourg’s exports

and its financial sector, which

is the country’s main source

of growth. Domestic demand

remains weak and unemployment

is expected to increase from 4.5%

to 5.0%. Inflation is expected to

fall from 3.6% in 2011 to 2.1%

in 2012. Growth will remain

sluggish, at about 1.0% in the

Social People’s Party (CSV), the

Democratic Party (DP), and the

Luxembourg Socialist Worker’s

Party (LSAP)—with each party

pushing its own austerity plans.

The DP and CSV want the budget

to include more structural shifts,

including changes to pensions

and social benefits, but the LSAP,

which has a strong working class

identity, is reluctant to carry out

such modifications. As a result,

it is uncertain which reforms

the coalition will prioritize and

agree to undertake in 2012.

■ ■ ■


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia

overview

risk index

Baltics

Belgium

czech republic

denmark

France

germany

hungary

ireland

italy

luxembourg

netherlands

norway

poland

portugal

romania

russia

serbia

spain

sweden

switzerland

Turkey

ukraine

united kingdom


aBouT sponsors

The government is expected to approve labor reforms in the first quarter of 2012, in line with the conditions attached to the bailout package. The new legislation is expected to make the labor market more flexible by reducing firing costs, and increasing the number of circumstances under which individuals can be dismissed. While the reforms will encounter resistance from the trade unions, the government is likely to succeed in implementing the reforms.

Portugal

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NXÇÅ

Western EuropeEurope and Eurasia

to the EU/IMF funding package

aim to tackle the Portuguese

economy’s inefficiencies and

include a wide range of structural

changes in areas such as labor

markets and the judiciary.

Since the June 2011 elections,

Portugal has been led by a

center-right coalition government

headed by Prime Minister Pedro

Passos Coelho. The coalition is

comprised of the center-right

Social Democratic Party (PSD) and

the right-wing Democratic Social

Center-Popular Party (CDS-PP),

and provides the best possible

political arrangement for the

implementation of the EU/IMF

conditions with both parties having

➔ Portugal’s economy

continues to face obstacles to

growth. The IMF estimates that

it shrank 2.2% in 2011, and

it is not expected to grow in

2012. Portugal also faces high

unemployment (currently at

12.5%), which is expected to peak

at almost 14.0% in 2012, according

to the OECD. Portugal’s budget

is being financed by an EU/

IMF bailout that runs until 2014,

when the country is expected

to return to capital markets for

funding. The reforms attached

pushed policies similar to the EU/

IMF terms during the campaign.

In addition, the main opposition

party, the Socialist Party (PS),

signed the EU/IMF memorandum

of understanding when it was

still in power, so its ability to

challenge the coalition on its

implementation is severely limited.

However, while the government

has successfully fulfilled some of

the conditions, some of the most

difficult reforms, such as to fiscal

and labor policy, have yet to be

attempted. Implementation of

these reforms will be a critical

test of the government’s ability

to transform the economy.

■ ■ ■

country macro risks

country labor risks

Western europe

europe and eurasia


Overview:Middle East and Africa

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa

united arab emirates

aBouT sponsors

the political turmoil sweeping the

Arab world, both governments

have boosted ad hoc social

spending and implemented wage

hikes. Qatar and Saudi Arabia will

both experience strong growth,

bolstered mainly by the energy

sector. The Israeli economy is

also expected to perform well

in spite of some exposure to the

eurozone crisis and weak demand

from key Western export markets.

The overabundance of foreign

labor will remain a chief concern

for governments in the Persian

Gulf region in 2012. Saudi Arabia,

Qatar, and the United Arab

Emirates (UAE) will each seek

to implement reforms that limit

the presence of foreign workers

and increase opportunities

for their own citizens.

➔ The Middle East underwent

a dramatic political transformation

in 2011, which will have a lingering

economic effect in parts of the

region in 2012. The political

turmoil in Egypt has weakened

its financial position as the new

government takes shape. The

events of the Arab Spring will also

force governments to increase

spending over the upcoming

year in an attempt to assuage

political and financial discontent.

Even though the regimes in

Algeria and Morocco survived

In Sub-Saharan Africa, Ghana and

South Africa have presidential

and party elections respectively

in December 2012. Ghana is

projected to be the region’s fastest

growing economy in 2012, due

mainly to new oil production,

while South Africa faces growing

economic challenges given its

exposure to the eurozone crisis.

Both countries are dealing with

worker discontent and labor

agitation will intensify in the run-up

to national and party elections in

the two countries. In Ghana, the

government is unlikely to make

significant concessions on the

minimum wage, but in South Africa

political dynamics are keeping

alive prospects for onerous

proposed changes to labor laws.

■ ■ ■


conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

Very positive trend

positive trend

negative trend

Very negative trend


middle easT and aFrica – risk index summary TaBle 2012




Algeria 4 Y 4 4 Y 5 1 5 5 3 2 Y

Egypt 2 Y 5 6 Y 3 Y 4 4 3 4 1 YY

Ghana 5 5 7 4 5 X 3 Y 5 3 4 Y

Israel 6 X 8 7 5 X 7 7 5 7 5 Y

Kenya 3 Y 3 5 3 X 6 6 5 3 4

Kuwait 4 Y 6 Y 8 8 4 4 4 Y 5 Y 5

Morocco 4 5 7 4 6 7 5 4 X 4 Y

Nigeria 5 3 5 5 X 5 X 5 3 2 2 Y

Qatar 7 8 8 9 8 X 7 7 X 7 7

Saudi Arabia 5 6 7 7 4 7 3 5 3 Y

South Africa 6 Y 5 6 4 6 Y 3 Y 5 5 2 Y

United Arab Emirates 7 8 8 7 9 XX 6 6 7 X 6

middle east and north africa

5 6 7 6 5 6 5 5 4

sub-saharan africa 5 4 6 4 6 4 5 3 3


5 6 7 5 5 5 5 5 4


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

Although Algeria has managed to avoid the political unrest that wracked its neighbors in 2011, social mobilization around specific issues, especially labor demands, is on the rise. Labor activism will likely remain elevated in 2012 as the state avoids major reform but continues robust social spending. Workers are likely to strike, and could mobilize outside the umbrella of officially sanctioned labor unions or syndicates, making any disruption more difficult to mediate.

Algeria

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Political

Middle East and North AfricaMiddle East and Africa

Social Security




NXÇÅ

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

country macro risks

country labor risks


middle east and africa

state’s ability to deliver services.

Electricity outages and public

housing shortages will likely result

in riots and other forms of unrest.

Ad hoc social spending will only

temporarily support a fragile safety

net that is already vulnerable to

shocks in the energy sector.

Foreign investment and expertise

in the hydrocarbons sector are

necessary if Algeria is to increase

or even maintain current levels

of oil and gas output, but harsh

regulatory policies discourage such

investment. Given the economy’s

dependence on oil and gas,

which provide more than 60% of

government revenue and more than

95% of export revenues, the sector’s

performance is critical to Algeria’s

➔ Despite relatively strong

macroeconomic indicators,

Algeria suffers from uneven

wealth distribution, a poorly

diversified economy, and high

youth unemployment. In response

to rioting and unrest in early

2011, the government boosted

subsidies and public sector wages.

The increased spending will not

hurt state finances in the short

term; Algeria’s foreign currency

reserves recently topped $170

billion and it has virtually no

external debt. Corruption and

inefficiency, however, do hurt the

political and economic stability.

In response to the Arab Spring,

President Abdelaziz Bouteflika

repealed the emergency law that

had been in place since the 1992

outbreak of civil war, and unveiled

a series of political reforms aimed

at increasing transparency and

reducing corruption. Serious political

reform is unlikely under the current

regime, however, and empty

promises could deepen popular

dissatisfaction. Bouteflika has been

ill for years, and infighting will

likely increase ahead of a transition

to new leadership. Although his

term lasts until 2014, his sudden

death would be destabilizing.

■ ■ ■


Low risk

high risk

Very positive trend

Positive trend

Negative trend

Very negative trend

conTenTs

preFace

meThodology

The americas

asia paciFic

europe and eurasia


overview

risk index

algeria

egypt

ghana

israel

kuwait

morocco

Qatar

saudi arabia

south africa


aBouT sponsors

Although the labor market has benefited from the economy’s resilience following the international financial crisis, recent data indicate that the rate of employment recovery is slowing. Lower fiscal income in 2012 resulting from slowing growth—a consequence of stagnating exports— will hamper the government’s ability to generate new employment through spending. Nevertheless, if the protests reemerge, the Netanyahu government could yet seek to generate jobs through greater spending by adjusting fiscal priorities.

Israel

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NXÇÅ

Middle East and North AfricaMiddle East and Africa

Prime Minister Binyamin

Netanyahu’s popularity has

recovered from a mid-2011 low,

when government approval

ratings fell below 20% during

unprecedented protests against

economic inequality and housing

costs. The Trajtenberg Committee,

appointed by Netanyahu

in response to the protests,

produced some controversial

policy recommendations that were

selectively implemented by the

government. Officials have not

yet, for example, followed the

recommendation to cut defense

spending by 3 billion shekels ($800

million). However, the government

should move on some of the

➔ After suffering in the

aftermath of the 2008 global

financial crisis, the Israeli economy

rebounded in 2011, expanding by

nearly 5.0%. Growth is projected

to continue with an estimated

3.5% increase in 2012 GDP.

Unemployment has dropped

from 7.5% in 2009 to about 5.8%

by year-end 2011. Nevertheless,

economic weakness in key export

markets in the EU and North

America means that Israel will

post a current account surplus of

less than 0.25% of GDP in 2011.

committee’s recommendations

in 2012, such as cutting housing

benefits for the ultra-Orthodox,

which will prove broadly popular.

The government is also likely

to ease business registration

procedures, but is unlikely to

address the issue of construction

permits, which remain a significant

impediment to business

development. Implementation of

new tax incentives for investors in

2011 eradicated some anomalies

in the system; further changes in

this area are unlikely in 2012.

■ ■ ■

country macro risks

country labor risks


middle east and africa


About this Report

The Global Market Brief & Labor Risk Index is jointly developed by KellyOCG, the Outsourcing and Consulting Group of human resources provider,

Kelly Services and Eurasia Group, the global political risk consultancy. The report, a proprietary blend leveraging Kelly’s labor market knowledge with

Eurasia Group’s expertise in political and socio-economic risk analysis, delivers a groundbreaking resource for companies as they assess market

investments and global labor strategies.

Published on an annual basis, the Global Market Brief & Labor Risk Index is segmented by four geographies: the Americas, Asia-Pacific, Europe and Eurasia,

and the Middle East and Africa, with detailed insights for 55 of the world’s most important economies.

About Eurasia Group

Eurasia Group is the world’s leading global political risk research and consulting firm. Since 1998, it has helped clients make informed business decisions in

countries where understanding the political landscape is critical. The firm’s research analysts are trained social scientists with post-graduate degrees, extensive

professional experience, and a diverse range of language capabilities. Headquartered in New York, it also has offices in Washington and London, as well as a

network of experts around the world. For more information, please visit www.eurasiagroup.net.

About KellyOCG

KellyOCG® is the Outsourcing and Consulting Group of Kelly Services, Inc., a leader in providing workforce solutions. KellyOCG is a global leader in

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Outsourcing (CWO), including Independent Contractor Solutions, Human Resources Consulting, Career Transition & Executive Coaching, and Executive Search.

Visit www.kellyocg.com.

About Kelly Services®

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and consulting services as well as world-class staffing on a temporary, temporary-to-hire and direct-hire basis. Serving clients around the globe,

Kelly provides employment to more than 530,000 employees annually. Revenue in 2010 was $5 billion. Visit www.kellyservices.com.

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More Information

To find out more about how the KellyOCG / Eurasia Group partnership can add insight to your global planning, please contact [email protected]

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