2008 GEOPOLITICAL BRIEFING

Featuring GLOBAL POLITICAL RISKS
By Jonathan Beutler

2008 GEOPOLITICAL BRIEFING

Prepared in December 2007 by Jonathan Beutler Contact: beutler@ucla.edu or jmbeutler@gmail.com

This report contains a brief synopsis of the geopolitical climate in a small cross-section of regions and countries in the world. This report is neither comprehensive nor exhaustive. For more information on these topics, please contact the author. The main purpose of this report is to provide a sample of political risk analysis. The author is very aware of major political developments in Burma, India, Kenya, South Africa, Israel, France, the U.S., Australia, and elsewhere; this report is simply a briefing of some of the world’s hotspots.

Jonathan Beutler has worked and studied in the U.S., Europe, Asia, and South America. He speaks five languages and has provided analysis and research for such organizations as universities, the U.S. government, the State of California, and corporations.

© 2007 Los Angeles, California, U.S.A.
This report and all its contents are the intellectual property of Jonathan Beutler. Any portion of this report may be cited and republished only if and after written permission has been granted from the author, Jonathan Beutler. For permission to reuse, republish, or cite this report, please contact Mr. Beutler at beutler@ucla.edu This report is not intended to provide investing advice, and should not be treated as persuasive evidence to invest in a particular region or country. 2

6 major global political risks of 2008:
1. East Asia: China 2008 will be one of the most important years in contemporary Chinese history because of the singular event of the 2008 Summer Olympics. Beijing and other Chinese cities are undergoing heavy reforms and redevelopment in preparation for the Olympics. On the global front, the Chinese government is expected to continue its aggressive natural resource diplomacy, primarily in Africa, the Middle East, and Latin America. An important aspect of regional political risk is the inflammatory situation across the Taiwan Strait. Regional players and the United States have become increasingly concerned with a strengthening “independence” movement in Taipei. Taiwan’s president, Chen Shui-bian has expressed his government’s desire to apply to the United Nations as an independent country, which the P.R.C. has warned would provoke a very dangerous situation in the region. China has declared that such a move on the part of Taiwan would only intensify alarm across the Strait. Taiwan appointed a representative to Hong Kong toward the end of 2007, who is expected to seek better relations with and support from the city-state, which will place more tensions on relations with Beijing. During 2008, it is expected that Taiwanese leaders will attempt to draw more global attention to their desire for independence. Additionally, Hong Kong politicians are urging Beijing to allow for a direct sovereign vote for the Chief Executive of the Hong Kong S.A.R. Beijing’s relationship with Hong Kong is expected to change somewhat during 2008 as legislators in Hong Kong demand more sovereignty from the Mainland. The recent victory of pro-democracy Anson Chan against a Beijing-backed candidate in a legislative election in Hong Kong is indicative of general sentiment in Hong Kong. American elections in 2008 are likely to produce further strained relations between Washington and Beijing. Although relations have improved, most presidential candidates in both major political parties in the U.S. are moving toward protectionist rhetoric against China. China’s exported goods have become a scapegoat used by American advocates of antiChinese protectionism. Chinese industry’s drastic expansion will continue in 2008, while the state and private firms will seek to acquire assets abroad. Chinese diplomacy will most likely focus on the country’s consumption of foreign natural resources. Increasingly, Chinese firms are proving to be strong competitors in both domestic and foreign markets. Despite the remarkable economic growth and infrastructure modernization in China, there is considerable political risk associated with instability throughout many provinces of China, where regional Communist Party leaders are at odds with national leaders over a handful of proposals, reforms, and economic objectives. 2. Africa: Nigeria Despite sectarian strife and several allegations of human rights violations, this West African oil-rich nation is enjoying, particularly in the telecoms industry. Prospects for investment in this OPEC-member country are generally positive. Thanks to Nigeria's natural oil reserves, the Chinese government has courted Nigeria in order to establish closer ties between the two. As in many developing nations, Nigeria continues to be affected by significant corruption and violence. Some aggressive groups within the country have advocated the disruption of the Nigerian oil industry, and have pursued violence against that industry’s infrastructures. Nigeria’s president, Umaru Yar'Adua, has taken office in 2007, whose election was criticized by international observers who expressed concerns of electoral fairness. Regional stability in Western Africa largely depends on Nigeria. If Nigeria suffers a constitutional conflict or other form of political stability, a larger crisis in that part of Africa can be expected. 3. Central Asia: Pakistan Pakistan’s severe political crisis is one of the major dangers facing the world. As one of the greatest political concerns during past years,

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Pakistan is saturated with corruption, instability, and violence. Although Pakistan, a nuclear-armed country, has strengthened ties with India and the United States, it remains a primary concern for regional and potentially global stability. Pakistan is home to a number of extremist groups, and many in the U.S. and the West accuse the Musharraf regime of incompetence in fighting extremism and correcting instability. Recent turmoil in Pakistan has brought awareness to the fragile situation in Pakistan. The former political leader Benazir Bhutto had returned from exile in 2007 to her country expecting to run for national office. Then in late December 2007 she was assassinated, thus ending her mission to reform and modernize Pakistan. Her death is expected to result in further disarray in a country where stability is already scarce. The aftermath of this event is potentially dangerous, and the country’s nuclear weapons are cause for great concern of neighboring countries in particular. President Musharraf has removed his military uniform and become the nation’s civilian president, and has lifted the state of emergency hold on the government. However, he is expected to return the country to martial law if chaos reigns in early 2008. During this time of political uncertainty, regional stability is at stake. Pakistan is the only nuclear-armed country in the Muslim world, and some of its regions are dominated by anti-Western political radicals. The instability issue in Pakistan is particularly serious because it is within the realm of possibility that nuclear arms could eventually fall under the control of radical adversaries. Within Pakistan’s borders there may continue to fester hateful groups of antiWestern radicals. In 2008, they will continue to seek influence in the operations of the regional and national governments in the country. 2008 will be an important and pivotal year in Pakistan’s history, because of a relatively weak military head of government, political instability, and a large arsenal of nuclear weapons. 4. Eurasia: Russia Russia’s president Vladimir Putin has been named TIME magazine’s Person of the Year in 2007.

Russia is rich in assets, and has opened for international investment. Russian politics was increasingly scrutinized in 2007 because of allegations that the year’s presidential election was biased and undemocratic. Putin has declared that he will seek to have influence in the national government by becoming Prime Minister, when Dmitry Medvedev assumes the Russian presidency. 2008 will be an important year in postSoviet Russia because the transition from Putin to Medvedev, with the continuing presence of Putin in the government is reminiscent of Soviet-era fraternity politics. During 2008 it is likely that Putin will in fact become Prime Minister and exercise extensive influence in Russia’s politics, and especially in its foreign policy. Russia, in 2008, will seek to assert a more influential role in global affairs, primarily in the Middle East, and reinforcing its military infrastructure and presence. 5. The Middle East: Turkey Investment opportunities in Turkey are abundant. Turkey occupies a very strategic location: a gateway from the West to the Middle East and Eurasia. However, the country is at a pivotal point in its modern history, in which it must prove its stability through current challenges. Instability is most prevalent in the eastern and southeastern regions of the country. In these parts public education is not as widely offered as in other sections of the country. Also, police brutality in Turkey has become a highlighted problem in large cities. The Turkish government during the end of 2007 launched military action in northern Iraq, attacking strategic targets among the Kurdish group PKK, deemed a terrorist organization by Turkey and the U.S. Turkish entry to the European Union is even less likely now because Nicolas Sarkozy has assumed the French presidency. Turkish membership in the EU will be a much debated topic in 2008, and will draw more attention to this country that straddles two continents. Turkish society is confronted by the struggle between secularism and religious fundamentalism. Turkey has stood as an example that an Islamic country can become democratic and modernized.

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On a sweeter note, Godiva Chocolatier was sold to the Turkish firm Yildiz Holding for US$850 million in December 2007. 6. Latin America: Venezuela The risky situation in Caracas is likely the most significant threat to regional stability in the Americas. President Hugo Chávez suffered a significant electoral loss in 2007 when voters rejected his proposals, including one that would have allowed him to remain in power indefinitely. Chávez has threatened to punish European firms and investors in his country – particularly Spanish companies – due to a diplomatic rift between Caracas and Spanish

delegates that widened at the 2007 IberoAmerican Summit in Santiago de Chile. Venezuela’s relationship with most governments in Western Europe has cooled as well. Additionally, the anti-American president has stated that his country may decide to cut off petroleum supplies to the United States. Until recently this has been seen as very unlikely because of the heavy American consumption of Venezuelan oil. But now this seems more possible as Venezuela warms up to leadership in China, Russia, and the Middle East, potentially establishing strong oil purchasing ties.

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4 countries to watch in 2008:
1. Latin America: Brazil 2008 looks like a spectacular year for Brazil. Many have recently commented that the “B” from “BRIC” should be dropped. I beg to differ. Brazil is progressive and on the move. The stars are aligned to bring Brazil further economic growth, widespread prosperity, and investment opportunities. Brazil has long been a leader in alternative fuels, and 2008 will mean that more than ever these commodities will be important to the country’s growth and regional influence. Additionally, the Brazilian petroleum company, Petrobras, discovered massive deposits of petroleum off the coast of Rio de Janeiro, which will most likely position Brazil as an even more important regional player in petropolitics, perhaps counterbalancing the influence of oil-rich Venezuela. Brazil is now seen as the principal driver of growth, development, and democratization in South America. Brazilian president Luiz Inácio Lula da Silva (Lula) has initiated a widespread campaign against corrupt acts and behaviors that have penetrated all levels of the country’s government. Additionally, it is expected that the federal government in Brazil will enact major tax code reforms during 2008. This will greatly enhance the country’s investment grade. 2. East Asia: South Korea With the recent election of a conservative government in Seoul, less protectionist measures can be expected in 2008. This is seen as an encouraging step toward finalizing the Free Trade Agreement with the United States. The fast-paced development and modernization in South Korea has led to a more intensified Western interest in Korea. New technological hubs have been built in Incheon (near Seoul), where the country’s new state-of-the-art international airport is located. As a regional leader in hi-tech innovation, Korea’s favorable political climate makes the country a particularly exciting place for business and investment. 3. Europe: Spain Spain has been called one of this decade’s engines of European growth. The economic growth in Spain has outpaced most other members of the European Union. President Zapatero has overseen many significant and globally renowned changes in Spain. Spain is a country to watch because of its favorable business climate and steady economic growth. Forecasts by international observers indicate a continuation of steady growth, despite obstacles in the housing market. Recently, the country’s Mediterranean coast was slammed with a series of construction scandals, and a dip in vacation housing demand. This housing slump is being corrected, and the 4. Southeast Asia: Thailand Thailand has recently endured a very volatile political climate. The Thai Prime Minister, Thaksin, was exiled as a military coup took over government operations in 2006. But in late 2007, Thaksin’s partisans and supporters in the People Power Party (PPP) were widely favored and returned to national control. Thaksin is expected to return to his country in early 2008, but will most likely not seek national elected office. In 2008, many beneficial reforms are expected to take place in Thailand. The new government is likely to implement measures to strengthen democracy in the country and increase political stability.

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