Geopolitical Weekly - The Business Impact

Analytical Insight provides a weekly overview of global geopolitical events and the potential impacts these events may have on business operations.

Venezuela Spring - An uprising is coming

Key Points

Venezuela will likely see a large scale social uprising within the next six months. Low oil prices combined with deep-rooted social discontent could lead to a possible overthrow of Maduro’s government.

Business Continuity – An uprising will lead to significant business disruptions including operation disruptions, logistics disruptions and service interruptions
Business Risk – A social uprising will likely be accompanied by high inflation and borrowing costs, arbitrary taxation for foreign and cash-rich industries, government expropriation for agricultural and food retailers and potential restricted access to hard currencies for particular sectors
Security - Large scale protests will further deteriorate the security situation and may result in widespread violence and damage to assets
Travel – Analytical Insight has raised its travel risk rating for Venezuela to HIGH from MODERATE WITH HIGH AREAS

Venezuela is currently harbouring the perfect conditions for a large scale uprising comparable to the Arab Spring seen in 2011.The sharp downturn in global oil prices will continue to significantly affect Venezuela and increase the likelihood of a nationwide uprising. About half of Venezuela’s fiscal revenue and 96% of export revenue come from the oil industry. This sudden decrease in public revenue will curb social spending. A withdrawal of social spending funds will only further destabilise the discontented youth and increasingly despondent society. As oil prices remain low, Venezuela will be unable to meet import costs for food and other necessary goods and will cause prices of stables to increase continuously.These factors will likely lead to increased discontent among the already disgruntled public and spur further uprisings, similar, albeit potentially more violent, to those seen in February 2014.

The Business Impact

Businesses in Venezuela could see large scale disruptions to business operations in areas affected by protests. Disruptions will include staff inability to reach work, closure of premises, transport and logistic constraints and infrastructure interruptions including power and water interruptions.The government will seek to raise additional revenue through arbitrary taxation, especially of foreign entities and wealthy sectors.Business with existing contracts or in contract negotiations will likely face cancellation and amendment with little or no notice.

For further information on the potential impact to your business, contact a member of our Latin America Analysis Team

Nigeria - a lose / lose forecast for business

Key Points

Nigeria is set to face a period of political instability following its 14 February Presidential election. While it is currently unclear whether the long serving government will retain power, what is evident is that this is a lose/lose situation for Nigeria in the short to medium term.

Business Continuity – Whether the ruling People’s Democratic Party or the opposing All Progressive Congress win power, the business environment will be disrupted by terrorism, social unrest and/or political deadlock either way. Businesses located in the north will be more affected should the PDP retain power. Conversely, businesses in the south will be at higher risk of business disruption in the event that the APC takes power
Business Risks – If there is a change of government, businesses associated with Jonathan’s administration may face corruption probes, contract re-negotiation and investment disruptions. If the current party retain power, business will be affected by delayed reforms, economic downturn and reduced investor confidence
Security – Irrespective of who wins the February election, the security situation is likely to deteriorate. If the APC wins, insurgency in the Niger Delta is likely to increase and disrupt oil production. If the PDP retain power, they are unlikely to tackle Boko Haram. Unchallenged, the reach of its attacks is likely to spread south, potentially affecting business operations in Abuja and Lagos
Travel – Analytical Insight assesses the travel risk to Nigeria as HIGH – Travel to Nigeria should only occur with adequate security precautions

For the first time since the end of military rule in 1999, the ruling People’s Democratic Party - headed by Goodluck Jonathan - faces a real threat of losing power. In February 2013, the previously factious and weak opposition parties formed the All Progressive Congress (APC) coalition - led by Muhammadu Buhari - which could potentially replace the PDP in February.Depending on the outcome of the presidential election, the forecast for Nigeria changes significantly, however neither scenario provides an environment conducive to business.

The Business Impact

People’s Democratic Party Victory

Violent unrest - The last time Buhari lost in an election, his loyal northern supporters held violent protests resulting in 800 deaths; it is assessed that should Buhari lose to Jonathan, especially if there is a strong perception of election fraud, then violent reactions throughout the north are highly likely
Boko Haram advances south – Jonathan has been reluctant to manage insurgency issues in northern Nigeria, where he has very little economic or political interest. If Jonathan wins another term, it is likely that Boko Haram will remain unchallenged and continue to hold several regions in the north. In coming months the terrorist group may also begin an assault towards the south – the threat of attacks in Abuja and Lagos would increase
Political stalemate – The APC has vowed to form a parallel government in the event of a PDP win, an opposition of this nature would lead to political stalemate and economic stagnation
Investment disruption – Unless sovereign agencies can agree on a rating for the country under further PDP leadership, investment disruption is probable and may result in a loss of investor confidence
Contract validity – The PDP will need Western governments to endorse their win to ensure contracts signed with the PDP are not weakened legitimately and legally in Western countries in the event of cancellation or non-payment

All Progressive Congress Victory

Rise of insurgency in the Niger Delta – In the event of an APC win, there would likely be violent outbreaks and increased insurgency in the southern Niger Delta. Former militant leaders located in the region have vowed to keep Jonathan in power at any cost. An increase insurgency in this region will likely affect oil production and heavily affect the oil sector
Corruption probes – Buhari has previously pushed for anti-corruption campaigns in his former government roles. Businesses with direct contracts with the PDP may face contract cancellation and non-payment in the event of involvement in a corruption probe. It is likely that the APC will begin anti-corruption probes upon succession to power. Any anti-corruption drive is likely to lead to political stalemate as government officials seek to protect their assets gained through corrupt means
Contract validity – The APC will need Western governments to endorse their win to ensure contracts signed with the APC are not weakened legitimately and legally in Western countries in the event of cancellation or non-payment

Impact from oil price

Regardless of the election outcome, low global oil prices will force government spending to be curbed. The government depends greatly on its oil reserves for its budget. This is likely to lead to:

Currency risks - the niara has already suffered since the dramatic fall in price of oil in recent months
Inability to import food and petroleum goods - as the value of the naira falls, Nigeria will be less capable of important much needed goods such as food and other staples
Violent unrest - unrest is likely as the public react to high domestic fuel prices. It is unlikely domestic fuel will be reduced in the short term as either government will struggle to maintain a budget

View our Nigeria Country Risk Snapshot for more information on the other risks associated within businesses operating in Nigeria.

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