quarterly forecasts

Apr 13, 2015 | 09:45 GMT

50 mins read

2015 Second-Quarter Forecast

The United States is reducing its exposure in the Middle East while refocusing attention on the European borderlands with Russia.


The foreign policy of the world's superpower is maturing. In line with our expectations, the United States is reducing its exposure in the Middle East while refocusing attention on the European borderlands with Russia. As the United States expands its options in these troubled spots, Eurasia will be in focus this quarter.

U.S. balance of power strategy will be on full display in the Middle East. The United States is still playing a critical role in multiple conflicts across the region, but it is no longer placing itself at the center of those conflicts or picking sides. As a result, the Sunni powers in the region will shoulder a heavier burden to keep their Persian Shiite rival in check. Saudi Arabia may be in the spotlight for now, but watch for Turkey to start playing a more assertive role in the region in pushing up against its old geopolitical rivals, Iran and Russia. 

Russia will watch nervously as the United States continues building an arc of allies along the European borderland with Russia. Even as Russia is pushed into a tighter corner, we do not expect Moscow to take the risk of making a major military push into Ukraine this quarter. Intensifying economic stress will widen fissures within the Kremlin while Russian President Vladimir Putin's ability to manage this power struggle will visibly erode.

Meanwhile, the clock will be ticking in Europe as Greece and its creditors go through another three months of agonizing debt negotiations. We do not expect Greece to default on its debt this quarter, but Athens is facing a pivotal point in June when a post-bailout agreement will have to be negotiated. An embattled Coalition of the Radical Left party, or Syriza, will try to shift the political burden of this decision to the public by calling for a referendum on Greece's relationship with the European Union. Simultaneously, friction will increase within the German government as Berlin approaches its limit for tolerating Greek debt relief.

China's economic problems will become much more visible this quarter as defaults in industries related to the housing sector slowdown become more frequent, especially in northern China. Even as China's economic troubles cause more alarm overall, we do not think Beijing will reverse course this quarter and engage in large-scale economic stimulus. Instead, Beijing will rely on targeted fiscal and financial measures to selectively boost certain regions and industries while the anti-corruption probe adds another layer of pressure on resource and construction-related industries.

Venezuela will be another crucial country to watch. With low oil prices likely to persist through the second quarter, Venezuela will rely on Chinese economic aid to keep the government afloat, but the growing severity of its economic crisis is bound to have political repercussions. With the threat of social unrest looming but no organized opposition movement positioned to harness public discontent, the Venezuelan government likely will proceed in preparing for elections while the United States takes the opportunity to expand its influence in the Caribbean Basin.


Apr 13, 2015 | 16:59 GMT

7 mins read


To the west of Eurasia lays Europe, a region predisposed to division. It is surrounded on nearly all sides by islands and peninsulas that make it difficult for Europe to cohere. The northern half of the continent, moreover, sits on a plain whose short, meandering rivers tend to empower countries without forcing them to work with others. The southern half is situated on more mountainous terrain that has historically impeded the creation of strong, unified economies. As a result, Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.

Europe is a continent riven by pockets of distinct cultures whose differences are all too often irreconcilable.
section Highlights
  • The showdown between Greece and Germany will continue during this quarter, but Athens will complete its bailout program.
  • This will be a transition quarter for France, because the Elysee will negotiate with rebel Socialist and Green lawmakers to regain their support. 
  • One particularly important trend is the electoral growth of anti-establishment parties and the fragmentation of the political system in several EU member states.
  • The crisis in Ukraine and the debate on how to deal with Russia will continue to generate friction within the European Union.
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The Fate of the Eurozone

The showdown between Greece and Germany will continue during this quarter, but Athens will complete its bailout program. There will be friction and debates, but the Eurogroup will provide Greece with enough money to avoid defaulting on its debt. The funds could come in small installments to keep Athens under pressure.

Greece's strategy will be to introduce reforms selectively to receive money from the European Union and the International Monetary Fund while keeping domestic political dissent at tolerable levels. The Greek government will not collapse during the quarter, but internal divisions in the ruling Syriza party will escalate, especially as the date for the expiration of the bailout comes closer. During negotiations with its lenders, the Greek government will highlight its good rapport with Russia — a political signal that Athens is keeping its options open. However, Stratfor does not expect Athens' ties with Moscow to substantially modify Greek foreign policy.

In Germany, opposition to providing financial assistance to Greece will continue to grow among the most conservative sectors of the government, but Berlin will negotiate with Athens to keep Greece in the eurozone. Although the German government will succeed in keeping domestic political friction under control during the quarter, resistance to giving Greece additional help could grow later in the year.

As the end of Greece's bailout program approaches, internal tensions in Greece and Germany will grow. This will affect the behavior of both governments when formal negotiations for a post-bailout agreement begin late in the quarter. Berlin and the Eurogroup will insist that Greece request additional funding and present long-term plans for economic reform. Athens will demand debt relief and more flexible targets for fiscal surplus. The Greeks will threaten to hold a referendum or an early vote linked to Athens' relationship with the European Union, and the threat of a "Grexit" will be reignited in the third quarter of the year.

The Germany-Greece debate is only an expression of a wider trend Stratfor identified in its annual forecast: the conflict between countries that believe governments should be given more time and flexibility in their efforts to reduce fiscal deficit and countries that oppose a relaxation of the EU targets for deficit and debt. During the quarter, political concerns will lead several countries in southern Europe to slow the application of austerity measures and introduce social policies that aim to minimize social unrest.

In Italy, Prime Minister Matteo Renzi's government will present plans to introduce small reforms in the pension system to make it easier for some workers to retire early. Rome also will make progress on its push to reform the Italian Constitution in order to, among other things, reduce the scope of the Senate's powers and reduce the number of lawmakers, but the process will not be finished during the quarter.

In France, President Francois Hollande and Prime Minister Manuel Valls will be doing damage control after the Socialist Party's poor performance in local elections. This will be a transition quarter for France, because the Elysee will negotiate with rebel Socialist and Green lawmakers to regain their support. The government will not be able to pass any structural reforms because these groups would oppose them. Instead, Paris will introduce bills aimed at courting the rebels in areas such as health and education, as well as investment programs for small and medium-sized enterprises.

Stratfor does not expect the EU Commission to apply punitive measures against France during the quarter. However, France's slow turn to left-wing politics will set the stage for a conflict with Germany and the EU Commission later in the year.

European Disintegration

One particularly important trend in 2015 is the electoral growth of anti-establishment parties and the fragmentation of the political system in several EU member states. This trend will continue during the quarter, leading to more fragmented political environments and unusual political alliances in key EU countries, especially the United Kingdom and Spain.

The United Kingdom will hold general elections in May. The country's traditional parties (the Conservative and Labor parties) will not be able to form a government by themselves, and alliances will be needed. The United Kingdom's "first past the post" system will prevent fringe parties from gaining a substantial number of seats. However, tough coalition negotiations will follow the elections. A weak government will probably emerge, and the United Kingdom will remain focused on domestic issues.

Spain will also hold regional elections in 13 of its 17 autonomous communities in May, as well as municipal elections across the country, which will preview the general elections that will take place in November or December. The elections will show the increasing fragmentation of Spain's political framework from a traditional two-party system to a multiparty structure where alliances are necessary to form governments. Two relatively new parties, Podemos and Ciudadanos, will perform well enough to consolidate their positions as key players in the general elections.

In Germany, the city-state of Bremen will hold regional elections. While the country's mainstream parties will dominate the elections, Alternative for Germany will enter the city-state's parliament in a continuation of the party's slow expansion in western Germany. This will confirm German conservatives' fears about losing ground to Alternative for Germany, which will in turn create new pressure on Berlin over issues from Greece to immigration.

Divided EU Foreign Policies

The crisis in Ukraine and the debate on how to deal with Russia will continue to generate friction within the European Union, as some countries will push for a relaxation of economic sanctions against Moscow while others seek to extend and even expand them. Because of these divisions, EU members are likely to choose to preserve the status quo for three more months, keeping the existing sanctions in place and giving Russia more time to de-escalate the conflict in Ukraine.

During the quarter, Germany will continue its strategy of avoiding an escalation while keeping some pressure on Russia. On the one hand, it will pressure Moscow to contribute to the full implementation of the Minsk agreement in eastern Ukraine. Berlin will rhetorically defend sanctions against Russia and threaten to propose additional sanctions if the terms of the cease-fire agreement are not met. At the same time, Germany will keep communication channels with Moscow open and pressure the United States not to escalate tensions with Russia.

In the meantime, key countries in Central and Eastern Europe will continue to consolidate their military, economic and political relationships with the United States. During the quarter, NATO will hold a series of military exercises in Romania and Bulgaria (after a year of holding similar exercises in Poland, Lithuania, Latvia and Estonia). In May, a delegation from the U.S. Department of Commerce will visit Romania and Poland to promote investment in the countries' information and communication technology sectors. Countries that typically balance relations with Russia and ties to the West, such as Bulgaria, the Czech Republic and Slovakia, will continue their gradual shift toward strengthening relations with the Western alliance.

Other countries, most notably Hungary, will continue their balancing act between Russia and the West. During the quarter, Budapest will make symbolic gestures to the United States while defending its ties with Russia.

During the Eastern Partnership summit in May, the European Union is likely to offer minor economic assistance and political support to Ukraine, Georgia and Moldova. There will also be gestures of a rapprochement with Belarus, and Brussels and Minsk will reach agreements on technical issues. The European Union sees Belarus as an important lever in maintaining pressure on Russia, but Brussels also wants Belarus to introduce democratic reforms.


Apr 13, 2015 | 17:22 GMT

10 mins read


Eurasia is the world’s most expansive region. It connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia. Forming the borders of this massive tract of land are the Northern European Plain, the Carpathian Mountains, the Southern Caucasus Mountains, the Tien Shan Mountains and Siberia. At the heart of Eurasia is Russia, a country that throughout history has tried, to varying degrees of success, to extend its influence to Eurasia’s farthest reaches — a strategy meant to insulate it from outside powers. But this strategy necessarily creates conflict throughout Russia’s borderlands, putting Eurasia a near constant state of instability.

Eurasia connects the East to the West, forming a land bridge that borders Europe, the Asia-Pacific, the Middle East and South Asia.
section Highlights
  • Tensions between the United States and Russia will persist, but Stratfor does not anticipate a major Russian military push into Ukraine that would overturn the Minsk agreement.
  • Emerging power struggles among the Kremlin elite could undermine Vladimir Putin's ability to rule effectively.
  • Another challenge Russia will face this quarter is the erosion of its influence in Kiev.
  • The Kremlin will also work to consolidate and strengthen its alliances in the former Soviet periphery as it continues competing with the West for influence in the region.
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Echoes of the Cold War

Tensions between the United States and Russia will persist, but Stratfor does not anticipate a major Russian military push into Ukraine that would overturn the Minsk agreement in the next three months. Faced with internal political struggles, a financial crisis and increased social unrest, the Kremlin will content itself with maintaining a frozen conflict in eastern Ukraine. The costs of an operation to seize a land bridge to Crimea or other territories likely outweigh the benefits for the Kremlin. In addition, Russia needs to get Western sanctions relaxed given its sharply declining economy, which means it cannot afford any military moves that would extend or expand sanctions. Instead, Russia will take steps to try to maintain the Minsk cease-fire. Low-level fighting will continue between Ukrainian security forces and Russian-backed separatists in eastern Ukraine, but the conflict likely will remain limited to small-arms fire and the sporadic use of artillery.

The United States will take a measured approach this quarter to strengthening its presence in Russia's backyard by holding military exercises, pre-positioning military equipment, and training forces throughout Central and Eastern Europe, including in Ukraine. This incremental approach is designed to reassure allies in the region and avoid provoking Russia into escalating hostilities while also keeping a range of options on the table. U.S. options include a spectrum of military assistance to Ukraine, from low-threat steps such as providing trainers to more significant moves, namely providing weapons that give Ukraine's military new capabilities. Russia's growing constraints will limit its options for countering the United States.

Russia's Internal Struggle

Mystery still surrounds Russian President Vladimir Putin's 10-day disappearance from the public eye in March. However, it has become more apparent that a power struggle is taking place among the Kremlin elite that could undermine his ability to rule effectively. One of the emerging power struggles is between the Federal Security Service (FSB) and a series of non- or anti-FSB elites, such as Chechen President Ramzan Kadyrov and Deputy Chief of Staff Vladislav Surkov. Putin will continue to balance the struggle during the second quarter, though his ability to contain such disputes is eroding

Another major challenge for Russia is its economic and financial crisis. Even if the situation in Ukraine were calm enough to end financial sanctions on Russia as early as this quarter, low oil prices would still be the factor dragging Russia's economy down the most. Russia's government relies greatly on energy revenues to meet its financial commitments. With oil prices not expected to recover this quarter, Russia will face significant financial constraints. Low oil prices will also be the main factor keeping the Russian currency weak and relatively volatile.

The primary concerns for the second quarter are the large amount of foreign debt due by Russian banks — some $40 billion — and the start of a $45 billion annual budget shortfall for the government. In addition, numerous Russian firms — including the banks, but also large firms such as Rosneft, Novatek and Gazprom Neft — have asked for financial assistance from the Kremlin. The government will continue its anti-crisis program, which can provide ailing firms and banks $23 billion in financial assistance from the National Wealth Fund and $16 billion in loans through the Central Bank, and shift $44 billion to the government budget from the National Wealth Fund. This will plug the holes for the second quarter, but the Kremlin will start reassessing how it will continue such spending programs for the second half of the year.

Dissatisfaction among the Russian public, including protests, will rise this quarter because of the country's economic and financial decline. The Kremlin will be able to manage the unrest this quarter, but with rising inflation, unemployment and interest rates on mortgages, coupled with slashes in social benefits such as healthcare and education across the country, Putin's contract with the Russian people (which has kept him in power for 15 years) is fading. This will also put pressure on many of Russia's regional governments. Though the Kremlin will try to enact a series of stimulus measures to appease the population, anti-government sentiment over the economy will grow.

The Ukraine Conflict

Another challenge Russia will face this quarter is the erosion of its influence in Kiev. For the Kremlin, weakening and dividing the government in Kiev has been a priority because an unstable government would struggle to integrate with Western institutions. Nevertheless, while Ukraine currently faces significant economic and security challenges, its Western-oriented government will remain in office throughout the quarter. Oligarchs will continue competing for control of a larger share of Ukraine's economy but also maintain their support for the pro-Western coalition to ensure that Ukraine continues receiving international financial assistance, without which the value of many oligarchs' assets would plummet. Inflation, rising utility costs, job cuts in the public sector, a currency that has lost much of its value over the past year, and rising prices could contribute to an increase in protests in Ukraine. However, these protests will not seriously destabilize the government in Kiev; most Ukrainians will support reform efforts and the government's work to meet conditions for the country's International Monetary Fund package, including austerity measures.

Following the IMF's March decision to award Ukraine $17.5 billion in loans over the next four years, the fund disbursed its first tranche of $5 billion in the first quarter. However, whether Ukraine receives its planned second tranche in June hinges upon negotiations between Kiev and its international bondholders. Ukraine is seeking to restructure about $15.3 billion in bonds to qualify for further IMF assistance. Russia, which holds a $3 billion Ukrainian eurobond, out of a total of about $16 billion eurobonds issued, will complicate the talks but be unable to prevent private bondholders from coming to a restructuring agreement with Kiev. The IMF will not decline to disburse Ukraine's next tranche solely based on Russia's reluctance to restructure the $3 billion bond. Meanwhile, a temporary natural gas deal reached between Russia and Ukraine in early April is set to last until the end of the quarter.  

Pro-Russian and Russian-backed elements will work to create an atmosphere of insecurity in Ukraine this quarter in an attempt to undermine the government's legitimacy. Terrorism-style attacks will likely continue to take place in cities such as OdessaKharkiv and Dnipropetrovsk. These attacks could become more sophisticated, although they are expected to remain a low-intensity security threat that does not endanger the government's position significantly. Despite a decline in the intensity of the fighting, Ukraine will work to boost the size and quality of its armed forces, though its resources will still be constrained. Russia will also continue to mount large-scale exercises within its own borders.


The Fight for Russia’s Borderlands

The Kremlin will work to consolidate and strengthen its alliances in the former Soviet periphery as it continues competing with the West for influence in the region. In the Baltic states, pro-Russian demonstrations and activities will worry the Baltic governments, but they will be more of an irritant than a serious threat to stability. Russian military action in the Baltics remains unlikely. The Kremlin's efforts to boost its alliances elsewhere in Russia's neighborhood will be shaped by the ongoing regional currency crisis. Russia's ruble crisis, fueled by low oil prices and Western sanctions, has now spread to the entire former Soviet region.

Both Moldova and Georgia face the prospect of significant political problems as a result of their currency depreciations, including potential government collapses due to aggravated internal divisions. At the very least, both countries' economic problems will undermine their EU integration efforts. Meanwhile, Kyrgyzstan and Tajikistan will continue to suffer because of their tight economic integration with Russia — Kyrgyzstan will join Moscow's Eurasian Economic Union on May 1 — as remittances from migrant workers in Russia continue to fall and unemployment at home rises. These countries are also divided internally, and there is a significant risk of protests that could turn violent.

Other countries in the region are less immediately threatened but are nonetheless struggling in the difficult economic climate. Belarus and Armenia will continue to suffer because of their high level of economic integration with Russia, but they also will receive financial assistance from Moscow to help cope with economic problems. Neither government is significantly threatened by the crisis, though both could experience moderate protests related to the economy. In Azerbaijan, low global energy prices will increase economic and social pressure within the country, though any protests will be relatively small and manageable.

Kazakhstan will hold a presidential election on April 26 that will further cement long-serving Kazakh President Nursultan Nazarbayev's rule. However, the country will continue to face economic problems, including a more volatile currency and a rise in unemployment. Thus, there is a risk of protests, though any demonstrations are unlikely to seriously challenge the government.

Low global energy prices have also hurt Uzbekistan. However, Tashkent will be able to manage any serious dissent more effectively than most countries in the region.

Although the government in Turkmenistan is still one of the most secure in the region and is unlikely to fall, a depreciating currency and low global energy prices will create unprecedented economic and security challenges this year. The European Union will initiate further discussions this quarter on getting Turkmenistan and Azerbaijan more involved in Europe-oriented energy projects via the Southern Corridor route, particularly the Trans-Caspian pipeline. However, the difficult domestic climate will also make Ashgabat more cautious in its foreign policy as it remains alert for signs of Russian attempts to undermine Turkmenistan's willingness to participate in Western-oriented projects. A concrete agreement on the Trans-Caspian pipeline will remain elusive this quarter as basic legal and maritime issues in the Caspian Sea — prompted first and foremost by Russia — have yet to be worked out.

The Kremlin will work to consolidate and strengthen its alliances in the former Soviet periphery.

As the United States strengthens its presence in the region and Russia struggles with its constraints and regional challenges, the European Union will continue to be a significant factor in the Kremlin's decision-making. Brussels likely will review its sanctions against Russia this quarter. Moscow will continue wooing some EU members, especially in Central and Southern Europe, to oppose an extension of sanctions. The biggest factor in the Europeans' deliberations on sanctions is Russia's implementation of the Minsk agreement. Given that several aspects of the agreement — most notably the removal of all foreign military forces from Ukraine — is unlikely to be fulfilled in the second quarter, we do not expect the Europeans to lift the sanctions imposed against Russia last summer. At a summit on the issue in June, the European Union is likely to extend sanctions to the end of the year or potentially delay a decision on sanctions until the next quarter.

The Europeans will also continue their push for influence in the former Soviet periphery. The European Union will host an Eastern Partnership summit in Riga on May 21-22, when the Europeans are likely to present a new support package to Ukraine, Moldova and Georgia. Any financial assistance likely will be small and therefore of limited effectiveness, especially given the current economic and currency problems in the former Soviet Union. The Europeans will also use the summit to continue slowly warming to Belarus, although any concrete improvement in relations between Minsk and Brussels will be limited to the economic realm for this quarter.

Instability in Central Asia

As Russia looks to shore up its relationships with regional allies, it will face security and military concerns in its neighborhood this quarter. In the Caucasus, increased hostilities between Armenia and Azerbaijan over Nagorno-Karabakh can be expected. However, a full-scale military conflict between the two countries that draws in larger neighbors is unlikely to occur this quarter.

In Central Asia, governments will continue hyping up the threat of militancy from groups such as the Islamic State or the Taliban from neighboring Afghanistan, but a large-scale wave of militancy into Central Asia remains unlikely. A more pressing security problem will be high inflation from currency devaluations, decreasing remittances, and more migrants returning from Russia. All Central Asian countries are at risk of experiencing protests this quarter.


Apr 13, 2015 | 14:50 GMT

8 mins read

Middle East and North Africa

The Middle East and North Africa is the world's crossroads. It encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between. The story of the region, as is so often the case of places stuck between foreign players, is the story of trade, exchange and conflict. The traditional powers of the region are Turkey and Iran — Saudi Arabia and Egypt are the current Arab powers — and their competition for influence over the region's weaker states makes the Middle East and North Africa an arena of violence and instability.

The Middle East and North Africa encompasses the Arabian Peninsula, the mountains of Iran, the plains of Turkey, the deserts of the Levant, the lands north of the Sahara and all coasts in between.
section Highlights
  • The debate over the Iran deal will focus primarily on the sequencing and phasing of sanctions relief for Iran. 
  • The United States will avoid a direct combat role in the Yemen conflict, though it will be ready and willing to expand logistical and intelligence assistance to the Saudi-led coalition.
  • Turkey will also vie for leadership in the Sunni world and, with time, pick up more of the burden of handling the region's affairs.
  • Despite the emergence of groups claiming to carry the Islamic State banner, the strength of the Islamic State will remain concentrated in the Iraq-Syria theater.
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Rebalancing Power in the Middle East

Stratfor's long-standing forecast that the Iranian nuclear controversy would culminate in a political rapprochement between the United States and Iran is on course, with the signing of a framework nuclear deal April 2 paving the way for a final comprehensive agreement later this year. As we articulated in previous forecasts, we do not believe the dissenters — including members of the U.S. Congress, Israel and hard-liners in Iran — will be able to derail this negotiation.

The debate over the next three months will focus primarily on the sequencing and phasing of sanctions relief for Iran. Minor crises in the negotiations will punctuate the weeks ahead as both sides press their demands further. In the end, a final deal will emerge involving a U.N. Security Council resolution providing the political foundation for sanctions relief, with a heavy emphasis on Europe easing sanctions in the early stage of the deal while the United States relies on executive waiver authority — not Congress — to suspend sanctions in phases.

The Saudi Survival Strategy

The Saudis have come to terms with the fact that their main patron will have a relationship with their greatest adversary. Stratfor forecast that the U.S.-Iran negotiations, along with Turkey's internal distractions, would drive Saudi Arabia into a leadership role for the Sunni Arab world. This outcome came into full view in the first quarter with Saudi Arabia's intervention in Yemen, its crippled southern neighbor. Though we underestimated the territorial ambitions of the Houthis and former Yemeni President Ali Abdullah Saleh, Stratfor forecast that Saudi Arabia would carry out airstrikes in Yemen this year when the need arose. But an air campaign alone is not going to settle Riyadh's concerns over Yemen.

The Saudi-led military campaign will focus on isolating Houthi and Saleh forces by sea and by air with the aim of breaking their alliance and driving the conflict toward a negotiation. Limited incursions into Yemen to prevent rebel infiltrations along Saudi Arabia's southern border cannot be precluded, but this is an option that Saudi Arabia will try its best to avoid, especially as Riyadh struggles to maintain coalition support for a prolonged intervention. Oman will play a mediating role throughout this process as Saudi Arabia tries to split the Houthi-Saleh alliance through negotiations, though progress will be slow. The Saudi-led coalition will maintain a blockade on Yemen's ports, denying Iran the ability to replenish Houthi stockpiles and fighters and thus limiting Iranian influence in an eventual negotiation.

The United States will avoid a direct combat role in the Yemen conflict, though it will be ready and willing to expand logistical and intelligence assistance to the Saudi-led coalition.

Turkey's Resurgence

Though Saudi Arabia is presently in the spotlight, Turkey will also vie for leadership in the Sunni world and, with time, pick up more of the burden of handling the region's affairs. Turkey will expand its influence on the Syrian battlefield through its support of Islamist rebels and gradually increase its logistical support to the anti-Islamic State military campaign in Iraq.

As the United States proceeds apace with building up an alliance along the eastern European rim with Russia, Turkey will also take incremental steps to increase its engagement with countries on the front line with Russia. Turkey is not yet ready to assume a confrontational position toward Russia and will be exceedingly cautious in any moves it makes in the former Soviet periphery for now.

Most of Turkey's attention this quarter will center on its June parliamentary elections. Turkey's highly polarized electorate, sluggish economy and lackluster foreign policy record will dilute support for the ruling Justice and Development Party. Even as the party unsuccessfully attempts to appeal to both nationalists and Kurds in the final weeks ahead of the election, the party is unlikely to lose to a fragmented opposition. Nonetheless, political antagonism toward Turkish President Recep Tayyip Erdogan and his party will grow and persevere beyond the election, driving the country toward darker days in which low-intensity political violence and security crackdowns will become more frequent.

The Fight Against the Islamic State

Though several groups have taken up the Islamic State banner in name, Stratfor maintains that the core strength of the group will remain concentrated in the Iraq-Syria theater. With the battle for Tikrit sewn up in the first quarter, the next push will focus on clearing militants out of the remainder of Salahuddin province. There is now a strategic fork in the road, where the options are either to continue north along the Tigris River Valley or to move to clear parts of eastern Anbar province, where militants are close enough to Baghdad to present a direct threat to the city. With either choice, Iraqi forces will remain heavily reliant on U.S. air power to break stalemates on the battlefield. Although some gains will be made, the coalition is still quite fragile. The clearing of Hawija to the north would raise the risk of infighting between Shiite militias and peshmerga forces, while operations in Anbar would suffer from uneven support from the local Sunni community.

In Syria, regime forces will continue to battle for Aleppo while sustaining counterattacks in Daraa, but they will struggle to respond to growing rebel threats elsewhere, particularly in Idlib. As the United States pursues a final deal with Iran, it will focus its military attention in Syria on the Islamic State rather than the Syrian regime. A rebel training program involving the United States, Turkey, Saudi Arabia, Qatar and Jordan that begins in the second quarter will inevitably complicate U.S. objectives in Syria as each regional participant tries to shape the force and target set according to its interests. Hezbollah will remain militarily concentrated in the Qalamoun region of Lebanon. Politically, the group will focus its efforts on rebranding itself at home as a legitimate political actor worthy of recognition by the United States now that Washington is on the path toward normalizing relations with Iran.

Israel's Survival Strategy

Israeli opposition to the Iran nuclear agreement will not prevent a deal from coming to fruition. As Israel contends with this new reality, it will assume a more proactive military posture in its immediate neighborhood, keeping an especially close watch on Hezbollah's buildup in the Golan Heights. At the same time, the threat to Israel emanating from the Palestinian Territories will become more manageable. Saudi Arabia has given Sudan sufficient incentive to distance itself from Tehran. Thus, vital supply lines running from the Red Sea through Sudan and the Sinai to Gaza will be constricted. As Hamas becomes more constrained, the group will try to reach out primarily to Turkey and Qatar for support.

Egypt's Uphill Battle

The Egyptian government will revise its electoral laws in preparation for parliamentary elections while benefitting from lower oil prices as well as aid and investment from its Gulf Arab allies. As the Egyptian military focuses its attention on the ongoing jihadist threat from the Sinai, it will use Saudi Arabia as something of a launchpad to recover some of its prestige in the region through the establishment of a joint Arab force based in Cairo. This force will prove to be more symbolic than practical as member states prioritize their own interests.

The Libyan Civil War

Foreign stakeholders in Libya will try to unite elements of Libya's two dueling national governments — the Tripoli-based General National Congress and the internationally recognized House of Representatives in Tobruk — into a single government. Outside stakeholders will lobby for Egyptian and Emirati participation in the talks to contain the proliferation of militant groups on Libyan soil, including the Islamic State. But reaching a deal will not be easy, as Libya's various tribal, political and regional centers of power will be loath to transfer authority to what is certain to be an internally fractious and ineffective unity government. Groups pushed out of the broader western Libyan Operation Dawn coalition because of infighting — especially ethnic minorities and extremist Islamist militias — will find common cause with archrivals backing Tobruk, such as pro-Gadhafi fighters and forces allied with rogue Gen. Khalifa Hifter, in undermining a future deal.

The Difficulties of North African Reform

A succession plan for ailing Algerian President Abdel Aziz Bouteflika is nearly in place. The final candidate will be drawn from state-backed political structures — either the National Liberation Front or the National Rally for Democracy — with close links to both Bouteflika and the broader political machinery behind his years in office, including a handful of trusted generals and family members. We expect a set of reforms and constitutional changes to be announced within the quarter, with the government linking them to promises made during the 2011 uprisings and Bouteflika's 2014 presidential campaign. 

Security will also be a priority, since Algeria is a leading participant in the national dialogue processes of both Libya and northern Mali. Algiers will maintain its robust deployment of military and police forces across the country as a safeguard against transnational jihadists and potential domestic unrest.


Apr 13, 2015 | 16:42 GMT

6 mins read


The Asia-Pacific is home to more people than any other region. Centered on the western rim of the Pacific Ocean, this region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast. Several of these countries, most notably China, experienced rapid economic growth in the second half of the 20th century, giving the region a new sense of global economic relevance that continues today. That relevance, however, depends largely on China, a power in transition whose rise is testing the network of U.S. alliances that have long dominated the region. How effectively Beijing manages its transition will shape the regional balance of power in the decades to come.

Centered on the western rim of the Pacific Ocean, the Asia-Pacific region includes the easternmost countries of continental Asia as well as the archipelagos that punctuate the coast.
section Highlights
  • The depth of China's economic problems will become even clearer, with virtually every major indicator likely to show slowed or negative growth. 
  • In Japan, the coming months will see a flurry of legislative activity aimed at pushing through structural, social and economic reforms.
  • The Association of Southeast Asian Nations will hold a number of important meetings to advance regionwide free markets for trade, labor and capital.
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China in Transition

In the second quarter, the depth of China's economic problems will become even clearer, with virtually every major indicator — barring, perhaps, those for services industries and household consumption — likely to show slowing or negative growth. Attention will especially focus on the housing sector slowdown's effects on financial stability and employment in regions most directly exposed to construction-related industries, especially the rust and resource belts of northern and northeast China. Stratfor expects reports of defaults by local property developers, resource companies and building materials businesses to become more common this quarter, along with anecdotal evidence of localized economic and employment crises in provinces like Shanxi. However, thanks in part to proactive government measures to calm local financial crises and in part to China's inherent internal economic fragmentation, these crises will remain fairly isolated within the quarter.

Economic fragmentation, in conjunction with the government's desire to allow the economic slowdown to continue and to use the slowdown to drive economic reform and restructuring, make it highly unlikely that Beijing will reverse course and engage in large-scale economic stimulus this quarter. Further interest rate or reserve requirement ratio cuts are possible — even probable — but will serve primarily to ensure that banks have ample liquidity to manage rising non-performing loan ratios. Otherwise, Beijing likely will continue using targeted fiscal and financial measures to boost certain regions and industries — notably services, agriculture and manufacturing — rather than opt for investment and credit expansion on anything approaching the scale of the post-2008 period. In the meantime, Chinese authorities will continue the messy process of implementing long-discussed reforms such as establishing a national property registry, creating a deposit insurance scheme (as a step toward liberalizing deposit rates at state-owned banks), and expanding municipal bond pilot programs.

In the political sphere, China's second quarter will be dominated by the ongoing anti-corruption campaign. Over the coming months, the campaign will focus on officials from the 26 state-owned enterprises publicly named as potential targets in February, with particular attention to businesses in the struggling resources and construction-related industries.

China will continue expanding investment, diplomatic and overland infrastructure ties across its periphery this quarter. Beijing will pay particular attention to implementing President Xi Jinping's much-touted Silk Road Economic Belt initiative and solidifying plans to build overland rail ties to Thailand. In May, representatives from China and Association of Southeast Asian Nations member states will meet to discuss the implementation of the nonbinding Declaration of Conduct in the South China Sea, but Stratfor does not anticipate major advances or shifts in the status quo for either the South or East China seas.

A Japanese Awakening

With the current Diet session set to conclude in June, the coming months will see a flurry of legislative activity — and concomitant public discussions — aimed at pushing through structural, social and economic reforms. These reforms are meant to improve productivity and ensure that the first two arrows of "Abenomics" (monetary and fiscal stimulus) translate into long-term, sustainable economic growth. Topping the government's agenda will be passing legislation to make it easier for companies to hire and fire workers, to increase competition and productivity in domestic agricultural markets, and to encourage greater corporate investment at home. Meanwhile, the ruling coalition appears to have reached a consensus on security legislation and will most likely pass defense reforms enabling the Japanese Self-Defense Forces to provide logistical support to Japan's allies in distant conflicts and authorizing the military to employ force to rescue Japanese nationals abroad. These will be accompanied by a streamlining of the command structure of the Ministry of Defense and the Ground Self-Defense Force to improve the military's ability to respond quickly to a crisis.

The reaffirmation of strategic and security ties between the United States and Japan will feature prominently during Prime Minister Shinzo Abe's April visit to the United States and expected speech before both houses of the U.S. Congress. Also at the top of Abe's agenda will be securing congressional support for White House efforts to fast-track negotiations over the Trans-Pacific Partnership, which Japan has signaled it is ready to join. Japanese accession to the proposed agreement continues to face political obstacles at home, but in Stratfor's view these are surmountable; progress is now more dependent on the U.S. Congress authorizing trade promotion authority. Either way, formal agreements on the Trans-Pacific Partnership are not likely within the second quarter.

Weak inflation, corporate investment and consumer spending in recent months have prompted expectations that the Bank of Japan will expand its purchases of Japanese government bonds this quarter in an effort to further weaken the yen to spur inflation and boost exports. Although such a move cannot be ruled out, a major expansion of the current quantitative easing campaign remains unlikely in the near term, especially with energy prices set to remain low throughout the quarter. Recent comments from Japanese authorities reinforce this view, emphasizing the government's expectation that conditions will improve in the second half of the year as consumer and corporate spending recover.

In our annual forecast, we still considered a Russia-Japan deal on the lingering territorial dispute and on energy and natural resource investment likely. However, that was based on an expectation that European pressure on Russia would ease, giving Japan a little more leeway internationally. Both Tokyo and Moscow still want a deal, but the window of opportunity is closing rapidly, and continued international consternation with Russia will further constrain Japan's decisions. Abe's decision to forgo a visit to Moscow for the Russian commemoration of the end of World War II underlines the resumed wariness between Tokyo and Moscow.

Although Japan will not be sending its prime minister, South Korean President Park Geun Hye and North Korean leader Kim Jong Un are both likely to attend the ceremony. This would be Kim's international debut and would further highlight the attempted shift in North Korean orientation (at least politically) away from China and toward Russia. It could also provide Moscow an opportunity to play mediator and arrange some side discussions between the North and South Koreans, possibly without U.S. or Japanese attendance.

Southeast Asia: Burdened by Consensus

In our annual forecast, we noted that although ASEAN economic integration plans would not be realized in full by the Dec. 31, 2015, deadline, the year would nonetheless bring significant activity and tangible strides toward building a regionwide free market for trade, labor and capital. In the second quarter, ASEAN members will hold a number of important meetings toward this end, including the 2014 annual ASEAN summit (April 24-27), meetings with a variety of ASEAN's major external trade and investment partners, and several regionwide conferences and working sessions on legal and regulatory reform. These meetings will coincide with regulatory reform efforts in key ASEAN member states, namely Indonesia, in an effort to attract greater foreign investment in infrastructure development and manufacturing. 


Apr 13, 2015 | 16:54 GMT

6 mins read


The Americas stretch from the Arctic Circle in Canada to the southern tip of Chile. This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world — an ascendance aided in part by bringing Mexico and Canada into its sphere of influence. Farther south, the nations of South America are like islands, separated by vast spaces of impenetrable mountains, rivers and jungles. Try though these countries may to integrate more closely, deeper ties such as those that characterize North America will prove elusive.
This geographically, culturally and politically diverse region is home to the United States, a nation whose geography helped it become the foremost economic and military power in the world
section Highlights
  • The deepening economic crisis in Venezuela will dominate the government's attention and actions in the second quarter.
  • Brazil's focus in the next quarter will turn to domestic economic policy and politics.
  • The Colombian government and the Revolutionary Armed Forces of Colombia will come closer than ever to a peace deal in the second quarter.
  • Unrest in Mexico's southwest will threaten local electoral processes ahead of Mexico's June elections.
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Venezuela's Unraveling

The deepening economic crisis in Venezuela will dominate the government's attention and actions in the second quarter as the country begins to feel the brunt of low oil prices. Because of sustained low oil prices in the first quarter, Venezuela will face greater reductions in imports in the coming months, which will lead to accelerated inflation and worsening food shortages. The government could proceed with an increase in the price of heavily subsidized gasoline during the second quarter, although the degree of inflation from this measure and any social unrest it causes will depend greatly on the pace of such an increase.

Disorganized unrest from citizens dissatisfied with the country's lengthy economic crisis will occur this quarter, but the opposition is unlikely to initiate such demonstrations, given that it is politically split and organizing internally ahead of legislative elections later this year. As long as any unrest remains disorganized and geographically isolated, the government likely can contain it. Both the ruling United Socialist Party of Venezuela and the opposition coalition Mesa de la Unidad will nominate candidates for the legislative elections. The Venezuelan government is likely to formally call for the elections during this quarter, since the political risk of not holding elections could be too great for the ruling party to manage.

With Venezuela in an increasingly intractable crisis, it is plausible that diplomatic contacts between the United States and Venezuela will increase as Washington attempts to exercise some influence over the course of events in Venezuela. Despite U.S. efforts, political forces and the economic deterioration within Venezuela will continue to have the greatest influence over developments in the lengthy crisis.  

The government will consider and implement a number of economic measures that could raise some cash for Caracas this quarter, but the country's financial problems are too substantial for such measures to provide anything but temporary infusions of cash. Venezuela is likely to receive $5 billion from a Chinese loan, but over the next few months it will not be able to leverage enough additional oil exports for loans sufficient to offset the government's hefty financial shortfall. Venezuela will have to make almost $2 billion in bond payments over the next quarter, and it is likely to meet those commitments.

Colombian Peace Process

The Colombian government and the Revolutionary Armed Forces of Colombia, or FARC, will come closer than ever to a peace deal in the second quarter. Both sides will negotiate on the subject of how the rebels will eventually demobilize and be judged by Colombian courts. Issues such as what crimes will be punished and what legal mechanisms will handle the crimes have yet to be decided, and some advances on those issues are likely during the quarter. Further measures to de-escalate the conflict, such as cooperation between militants and the government on removing mines, as well as a bilateral cease-fire could occur in the coming months. However, a final deal is unlikely in the next three months.

The government also will continue its attempts to open formal negotiations with the National Liberation Army, Colombia's second-largest militant organization. Both sides met during the last quarter in confidential negotiations, but further progress is needed in the FARC talks before the National Liberation Army joins negotiations with the government.

U.S.-Cuba Talks

Cuban and U.S. diplomats will negotiate the re-establishment of formal political relations during the second quarter. It is possible that a formal deal on appointing ambassadors will be reached in the next three months, but the appointments could be delayed by the need for U.S. congressional approval. Even if ambassadors are named in that time period, the United States' ongoing economic embargo on Cuba will keep the countries' economic relationship mostly unchanged.

The Importance of Mexico

Mexico's regulatory authorities will further implement the legal tenets of the energy reform during the next quarter. The National Hydrocarbons Commission will release the details of the blocks that will be offered in the third round of bidding for onshore and shallow-water offshore oil blocks. The commission, Mexico's energy secretariat and other government regulatory bodies will also continue deliberations on when and how to hold the more lucrative deep-water and shale block auctions. The commission could also announce the contract terms for deep-water and shale blocks, which will be offered later in Mexico's energy bidding rounds.

Unrest in Mexico's southwest during the second quarter, particularly demonstrations in Guerrero primarily led by the Guerrero State Coordinator of Education Workers teachers' union, will threaten local electoral processes ahead of Mexico's June elections to replace the 500 members of the lower house of Congress. Therefore, Mexico City will face a difficult decision to either reach negotiated settlements with the participating organizations or use security forces to take a more aggressive stance against protesters. The first option risks political backlash from proponents of education reform, but the second risks fueling more unrest in the area.

Brazil and Argentina

Brazil's focus in the next quarter will turn to domestic economic policy and politics. Brazilian President Dilma Rousseff's government will focus on implementing federal budget cuts to manage Brazil's weakened economy while also dealing with the ongoing corruption scandal at state-owned energy firm Petroleo Brasileiro.

Petrobras has delayed releasing its third-quarter financial results from 2014 since the corruption scandal began last year, and the company must release the results or face the risk of early repayment of more than $50 billion dollars in debt. A release of the results would reassure investors and creditors of Brazil's commitment to address the corruption scandal. Petrobras will try to release the audited results during this quarter but could be delayed by technical reasons. Additional prosecutions of public officials or former Petrobras and private sector executives involved in the scandal are possible this quarter.

Despite Rousseff's reduced public approval, her government retains the loyalty of allied parties and most likely will survive the scandal. Rousseff's opponents have publicly called for her impeachment, but her Workers' Party has enough political allies in Congress to avoid a direct impeachment vote. Demonstrations by disparate groups of Brazilian citizens upset with the economic crisis and the president's handling of the corruption scandal will continue into the second quarter. However, these demonstrations lack political organization and are unlikely to coalesce into a significant threat for the government.

Petrobras must release the results or face the risk of early repayment of more than $50 billion dollars in debt.

Argentina is unlikely to budge in its refusal to negotiate with holdout creditors during the second quarter. The country will remain in technical default. The bulk of Argentina's state revenue from soy exports will enter government coffers during this quarter, and a good harvest probably would give the government the financial ability to continue deferring negotiations with the holdouts.

On the political front, different parties will begin negotiations toward forming alliances for October federal elections. The Front for Victory, President Cristina Fernandez de Kirchner's faction of the Peronist party, will continue welcoming dissident Peronists back into the fold. Republican Proposal candidate Mauricio Macri will negotiate electoral alliances with the Radical Party, especially in the provinces, where the Republican Proposal presence is small.


Apr 13, 2015 | 17:05 GMT

6 mins read

South Asia

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders. The Himalayan Mountains form the northern border of South Asia, whose two main rivers, the Indus and the Ganges, support the region’s great population centers. India is the region’s dominant country, home to the world’s fastest growing economy. But its rivalry with neighboring Pakistan, a fellow nuclear power and growing consumer market, has made South Asia one of the world’s most dangerous nuclear flashpoints. The region is also a testament to how militancy and militarism can undermine the regional integration needed to unleash higher economic growth.

Everything that informs geopolitics can be found in South Asia: challenging demographics, geographic diversity, and contentious, ill-defined borders.
section Highlights
  • New Delhi will spend the second quarter working to consolidate its authority within the lower house even as the opposition continues to prevent the passage of reforms.
  • Border and water-sharing agreements between India and Bangladesh, expected this year, will be delayed because of both countries' domestic concerns.
  • Negotiations between Kabul and the Taliban will dominate Afghanistan in the second quarter.
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India's Own Worst Enemy

The momentum that propelled the Bharatiya Janata Party following its sweeping electoral victory in the 2014 general elections has largely stalled. Prime Minister Narendra Modi is struggling to find support for an ambitious reform agenda across India's divided political landscape and even within his own party. The Bharatiya Janata Party's majority in the lower house of the Indian Parliament has proven to be almost too large and diverse a body to effectively back the prime minister. New Delhi will spend the second quarter working to consolidate its authority within the lower house even as the opposition continues to prevent the passage of reforms — including a controversial update to the Land Acquisition Bill — within the quarter. 

India's economy will continue benefiting from low imported energy costs, but domestic regulatory and infrastructure constraints will stymie efforts at revamping coal and iron ore production. The Modi government will attempt to distract the population from a series of domestic problems (including unseasonable flooding ahead of monsoon season) by playing up several high-profile foreign policy engagements during its first year in office.

New Delhi will struggle to help stabilize ongoing political and social unrest in neighboring Nepal and Bangladesh and will continue lagging behind China in its attempts to woo Sri Lanka. Border violence with Pakistan has quieted since the beginning of the first quarter, but hard-line Hindutva elements within Modi's government will continue to quash attempts to restart peace talks with Islamabad. 

Unrest in Bangladesh

Dhaka begins the second quarter with little recourse to combat the ongoing strikes and shutdowns caused by the opposition Bangladesh Nationalist Party and its allies, including the hard-line Jamaat-e-Islami. The ruling Awami League government is unlikely to capitulate and start negotiations over fresh elections, a key demand of the opposition. Public unrest will continue taking its toll on the Bangladeshi economy, including its garments sector, but the military is unlikely to get involved — especially as violence perpetrated by Islamist elements backing the Bangladesh Nationalist Party will continue to inspire grudging support from India and the international community for the Awami League's efforts to contain extremist elements at home. 

Border and water-sharing agreements between India and Bangladesh, expected this year, will be delayed because of both countries' domestic concerns. However, Bangladesh's unrest will not completely put off potential investors. Regional economies, including Japan, China and India, will continue cautious engagement with Dhaka, hoping to work behind the scenes to take advantage of the country's pro-investment government and cheap labor once the security situation improves

Sri Lankan Politics

Per the timetable announced during January's presidential election, newly elected President Maithripala Sirisena vowed to dissolve Parliament and hold fresh elections 100 days after being sworn in Jan. 12. Colombo's new government has struggled to find a consensus among an unwieldy coalition of former regime elements, Sinhalese nationalists, former Tamil separatists and a disgruntled Muslim minority. Sirisena has announced plans to dissolve the parliament in May and institute a war crimes tribunal by the end of the quarter, which is sure to cause divisions within the island's Sinhalese majority. Difficulties in passing electoral reforms and settling decades of deep-rooted tensions indicate a strong possibility that this process will extend beyond the quarter, with fresh elections and constitutional drafting taking up much of the rest of 2015.

The elections are a precursor to a bigger change on the island: a transition from a presidential system to a parliamentary system aimed at avoiding the return of a strongman government such as that under former President Mahinda Rajapaksa. But Sirisena won with only a modest majority — about 51 percent — and the previous president and his allies remain a political force to be reckoned with. Previous regime elements are counting on the loose coalition of rivals behind the new president to continue struggling to put forward a united front in future elections, hoping to position themselves with a plurality of votes or at least as a strong opposition bloc.

Sri Lanka's foreign policy under the new government is not likely to change drastically. While Sri Lanka's position regarding India will be less openly antagonistic than it was under Rajapaksa, Colombo will still have strong economic and political links with Beijing. The wrinkles that developed in the relationship between Sri Lanka and China after Sirisena took office likely will smooth out by the end of the quarter as the countries work to renew the terms of some $5.5 billion in infrastructure loans acquired while Rajapaksa was president. 

South Asian Militancy

As the government of Prime Minister Nawaz Sharif tries to focus on improving economic conditions, especially increasing power generation capacity to minimize public anger during the coming summer months, Islamabad will be dealing with two new issues. First, in addition to the ongoing operations against domestic militants in Pakistan's tribal regions, the Sharif government and the military are confronting organized crime syndicates and political militias from Karachi, the country's largest city. This effort has exacerbated problems between the central government and the Muttahida Qaumi Movement, the local party that controls the southern port city and much of the urban areas of the southeastern Sindh province through its own alleged criminal networks and armed groups. Stratfor expects an uptick in both political unrest and violence in Karachi during the second quarter, with direct effects on the movement of goods through the city and on the regional economy. Moreover, local opposition could disrupt activity at Pakistan's newly inaugurated floating liquefied natural gas import terminal at Port Qasim, just east of Karachi.

The second challenge is that Pakistan's main foreign patron, Saudi Arabia, has formally asked for military assistance for its mission in Yemen. Islamabad will be under a great deal of pressure to send troops, war planes and naval ships to assist the kingdom, especially considering the long history of financial and energy assistance from Riyadh (and more recently Doha, as seen in favorable LNG pricing terms from Qatar). But Pakistan must also consider the rising role of Iran, with which Pakistan shares 500 miles (805 kilometers) of border. Both Iran and Saudi Arabia are likely to court Pakistan, with Islamabad struggling to find a balance between the Middle East's Sunni and Shiite powers.

As in the past, Pakistan is likely to send advisers and troops to help bolster the Saudis' defensive capabilities in the second quarter, but it will not allow them to take any direct combat roles. However, retired Pakistani military members may enlist as private contractors, though Pakistan would keep this quiet to avoid stoking long-standing sectarian tensions at home.


Apr 13, 2015 | 19:34 GMT

7 mins read

Sub-Saharan Africa

Sub-Saharan Africa is a study in diversity. Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, the region is home to countless cultures, languages, religions, plants, animals and natural resources. It’s no surprise that it captured the imagination of Europe’s earliest explorers — and that it continues to capture the imagination of current world powers eager to exploit it. And yet despite the region’s diversity, Sub-Saharan African countries have common challenges — transnational terrorism, rapid population growth, endemic poverty and corruption — that prevent them from capitalizing on their economic potential. The coming years will be critical for the region, especially as its political institutions mature in a rapidly globalizing world.

Covering an area that spans the entire width of the continent beginning at the Sahara Desert and ending at the southernmost tip of South Africa, Sub-Saharan Africa is home to countless cultures, languages, religions, plants, animals and natural resources.
section Highlights
  • The political transition in Nigeria will lead to small pockets of unrest in the Niger Delta region.
  • Labor negotiations in South Africa carry the risk of violence. 
  • Upcoming elections in Ethiopia will test the current prime minister.
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Nigeria: Obstacles to Prosperity

The first quarter in Africa ended with Muhammadu Buhari defeating incumbent Goodluck Jonathan in Nigeria's presidential election. The election marks the African country's first democratic transition from one political party to another. This transition will lead to small pockets of unrest, perhaps even violence, in Jonathan's base of support in the Niger Delta region, but any volatility will be contained within the area. Still, because the most inflammable security situation is in the oil-rich Niger Delta region, where it would have the most notable economic consequences for the country, the potential fallout will force Buhari to accommodate former militant groups and avoid escalations. Buhari's victory was large enough that Jonathan and his People's Democratic Party will not be able to contest the election. The new president likely will be inaugurated May 29.

Buhari and his party, the All Progressives Congress, will spend the next three months forming a Cabinet. Extensive consultations will take several months because Buhari will be patient in an attempt to minimize any fallout from his victory in the Niger Delta region. He will attempt to bring the region into the political fold by relying on Niger Delta politicians within his party leveraging their long-established political connections and patronage networks within the region. Buhari is fighting an uphill battle; he won virtually none of the vote in some of these states. Winning over the region will be a long process that plays out over the next year.

Jonathan's main goal during his final days in office will be easing his exit and ensuring that he does not alienate anyone so that he does not become a political target after he leaves office. This means that, barring an emergency, he will not make any dramatic changes. The People's Democratic Party, which had ruled Nigeria since its transition to democracy in 1999, split over the issue of Jonathan's candidacy and will seek to distance itself from Jonathan as it attempts to re-establish itself in the new Nigerian political landscape. Many of the party's members may leave and join the All Progressives Congress to remain within the political power structure.

Nigeria's economy will remain in a tenuous position after the inauguration. Low oil prices and a drop in the value of Nigeria's currency, the naira, have created fiscal constraints on Abuja. Neither Jonathan nor Buhari can substantially address economic problems that are driven largely by external forces. Nigeria's public spending will remain restrained, and while cuts in expensive programs such as fuel subsidies have long been considered, it will be difficult for either politician to end those programs without risking significant public backlash.

Boko Haram is unlikely to regain the capability to control territory quickly.

During the first quarter, military pressure has significantly degraded Boko Haram's ability to control large areas. The group has been pushed out of many towns and villages in the northeast and has shifted toward terrorist attacks. With the election over, there is no longer the political need for Jonathan to maintain military pressure. However, Buhari has a greater political incentive to continue targeting Boko Haram and to avoid letting Nigeria's military become complacent as it did under Jonathan's leadership. Although Buhari will be compelled to act more swiftly against Boko Haram than Jonathan was, during the first few months of his presidency he will have more pressing concerns: forming a government, managing an austere budget and ensuring continuity in the Niger Delta. Regardless, Boko Haram is unlikely to regain the capability to control territory quickly. The group will continue focusing on suicide bombings, armed assaults and other militant attacks in the northeast.

The Niger Delta region will remain in a wait-and-see mode for the first few months after the election. Leaders in the region previously resorted to disrupting energy production with militant attacks to extort Abuja for political gains. That option remains available, but initially leaders in the Niger Delta will try to work with the government. Jonathan's amnesty program and other political initiatives have brought significant amounts of money into the region for former military commanders, and several of their security contracts were renewed toward the end of Jonathan's term. Buhari will face more constraints in maintaining these patronage networks than Jonathan did, since he has other patronage networks to support. However, Buhari understands the importance of the Niger Delta and does not want another militant group organizing in the country. There is a lot of distrust between the two sides, but there is an incentive for them to work together, and both are willing. This will keep the militant option in check for the near future.

The Post-Apartheid Era Ends

In South Africa, low commodity prices continue to limit revenue for both the government and the mining industry. A key dynamic within that context — labor negotiations in the gold and coal sectors — will start in the second quarter. The Association of Mineworkers and Construction Union (AMCU) and other unions will begin presenting their demands in the early part of the quarter, and official negotiations will begin toward the end of it. Gold mining companies have already taken the first steps to ease tension regarding non-wage issues and have proposed building more houses for their employees to own.

These negotiations carry the risk of strikes, though they will not necessarily be of a significant scale; after significant disruptions in the platinum sector last year, unions might rethink their strategies. Radical tactics and unrealistic demands have complicated unions' ability to make gains in negotiations, particularly while mining companies are constrained by low commodity prices and high domestic energy prices, and are thus less able to agree to the unions' demands. Still, even though they won't be large or shut down significant portions of the mining industry, some strikes — including illegal wildcat strikes — are likely.

This year, the AMCU, which typically has used more aggressive tactics in its negotiations, is expected to take part in the centralized negotiations with the National Union of Mineworkers. This would help stabilize negotiations in the gold sector. However, the AMCU has continued to gain members in the gold sector — the union now represents an estimated 25-30 percent of mineworkers in the sector — and a desire to maintain that growth could cause the union to diverge from the trajectory followed by the National Union of Mineworkers to outperform it in negotiations and pull its members away. The AMCU will likely try to attract key workers, such as drillers, and entry-level workers — tactics the union used in the platinum sector in 2012 and 2013 to increase its membership. Although the AMCU would like to expand its presence into other mining sectors, such as coal, its short-term focus will be on consolidating its position in the gold sector.

During the second quarter, South African electricity company Eskom is expected to increase electricity tariffs and receive the first tranche of its bailout. South Africa's ruling party will be pressured into intervening if companies are greatly affected by high electricity costs. The higher prices will increase constraints on the mining industry as it attempts to find common ground with labor unions demanding higher wages. Moreover, internal disruptions could plague Eskom after the suspension of the company's CEO only six months after his appointment. This could lead to a restructuring of Eskom in the short term.

Ethiopian Elections

On May 24, Ethiopia will hold a general election. This is the country's first election since the death of former Prime Minister Meles Zenawi, and it will be a test for current Prime Minister Hailemariam Desalegn. The Ethiopian People's Revolutionary Democratic Front maintains solid control over the country's political system, and its power is not likely to be challenged during the election. Significant crackdowns on dissidents prior to the start of the campaign season have limited the chances for such challenges to arise, and the highly divided opposition lacks resources and offers little alternative to the ruling party.

Ethnic tensions, economic competition and power struggles within the ruling party have occurred in the past but seem to be sufficiently under control. Because of Ethiopia's indirect election of its prime minister — Parliament chooses the candidate that will fill the post — Desalegn is likely to maintain his position. The continuity of rule in Addis Ababa will be conducive to attracting foreign investment and embarking on large infrastructure projects

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