Risks in Egypt, Mongolia, Algeria, Vietnam and Madagascar

01 August 2017

JLT Specialty's Credit, Political and Security Risks (CPS) team recently published the August edition of their monthly newsletter Risk Outlook. This issue contains an assessment of the security, trading and investment environment for Egypt, Mongolia, Algeria, Vietnam and Madagascar, some of which have been the subject of recent enquiries by JLT's client base.

Here are a few of the team's findings:

Egypt: The release of USD 1.25 billion in further funding by the IMF under the terms of an Extended Fund Facility (EFF) on 13 July 2017 reflects Egypt’s continued adherence to structural economic reforms, which include subsidy cuts and tax hikes. Although the disbursement will bolster Egypt’s foreign currency reserves and alleviate hard currency shortages (reducing currency inconvertibility and transfer risks in the coming months), the structural reforms will elevate protest risks in the 12-month outlook. With the aim to increase foreign investment, the Egyptian government has taken a series of steps to improve the business environment for foreign investors. This includes amendments to the Egyptian Investment Law in May 2017 to enhance investor incentives.

Mongolia: Despite the win of the Democratic Party (DP) candidate Khaltmaa Battulga in the Mongolian Presidential elections on 9 July 2017, the new president will struggle to materially influence policy during his tenure. The presidency is a largely ceremonial post and the parliament is dominated by the members of the Mongolian People’s Party (MPP). In August 2016, the MPP government announced plans to enhance the business environment for foreign investors and created a council to ensure legal certainty and resolve outstanding disputes. Renewed investor interest in major natural resources projects due to business-friendly policies under the MPP is expected to drive growth of 2.2% in 2017.

Algeria: The prolonged low oil price environment has negatively affected the standard of living in the country, and the Algerian economy will continue to underperform in the medium term. Although the government has slowly started implementing austerity policies in response to reduced energy revenues, to maintain social stability it hasn’t substantially adjusted fiscal policy to reform the country’s universal subsidies that account for around one fifth of GDP. Consequently, the country will experience consistent fiscal deficits in the coming years. Despite this, sovereign credit risks will remain low due to manageable public debt and substantial foreign reserves.

Vietnam: Disputed maritime claims in the South China Sea can potentially strain Vietnam’s relations with China, but it is unlikely that this will lead to a full-scale conflict. Anti-China protests have led to large-scale riots and arson attacks against China-associated or Chinese facilities; in May 2014, around 20 foreign-owned factories in central Ha Tinh, Dong Nai and Binh Duong provinces were burned down. Expropriation risks are low in Vietnam as the Vietnamese government is keen to enhance the country’s reputation with foreign firms. The country has benefitted from the relocation of manufacturing operations of a growing number of foreign firms and this will support a current account surplus of 0.8% by 2021. The Vietnamese government is working towards reducing the number of state-owned enterprises from 137 to 103 by the end of 2020.

Madagascar: Madagascar produces around 85% of the world’s vanilla crop. The twin shocks of a drought in late 2016 and the impact of Cyclone Enawo in March 2017 significantly affected agricultural production – particularly vanilla – and this will weigh on the country’s fiscal position. Although Madagascar’s budget deficit for 2017 has been adjusted upwards by 1.4% of GDP due to emergency spending, a sovereign credit default is unlikely because around 80% of the country’s debt is held on concessional terms.

To get detailed information on any of these countries, please click on the respective country's name or visit the JLT Specialty Limited website