Integration Efforts in South and East Africa
Prediction: The economic and transportation supply chain infrastructure in southern and eastern Africa will become more deeply integrated. Angola and South Africa as well as Kenya and Uganda will take major steps in 2014 to deepen their supply chain connectivity, including pipelines, roads, rails and energy infrastructure.
Evaluation: There have been announcements of major infrastructure developments in southern and eastern Africa. Angola, for example, announced extensive upgrades to port and railway connectivity within the country and across the region. South Africa, as a regional economic power, has invested limited resources in infrastructure integration. Countries in eastern Africa and the Great Lakes region have begun securing funding and signing agreements with construction companies for major infrastructure projects. The implementation of the projects is at an early stage, but countries like Tanzania secured a large amount of Chinese funding to begin projects sooner.
Outlook for 2015: This dynamic will continue throughout 2015; many large projects are still in the process of being completed. Anticipated oil and natural gas projects, particularly in eastern Africa, will continue to drive infrastructure investment and development.
Prediction: Germany and Russia will take care to maintain their bilateral relationship, but the two countries will bargain over Central Europe, Ukraine and the European Union's energy strategy.
Evaluation: Though Germany has supported and imposed sanctions on Russian firms and individuals in response to the annexation of Crimea and the activities of Russian-backed separatists in eastern Ukraine, Berlin and Moscow have worked to maintain their political relations, with Germany playing a central role in mediating between Russia and Ukraine.
Outlook for 2015: Germany and Russia will keep communication lines open. Germany will continue to support the new government in Kiev and mediate its conflict with Moscow. Berlin will continue its strategy of keeping political pressure on Russia, and it is ready to maintain the sanctions in place during the first half of the year. However, Germany will also support lifting the sanctions when they start to expire in mid-2015.
Prediction: Europe will be able to muddle through another year of stagnant economic growth and high unemployment, but the political and social pressures developing on the Continent will impede the very structural reforms needed to manage the crisis in the long run. Credit conditions for households and companies will remain tight, undermining domestic consumption and hopes for a strong economic recovery. Efforts made by the European Central Bank to provide easier access to credit for small and medium-sized businesses will have limited success. Nationalist and Euroskeptical parties will perform strongly and achieve record results in most of the elections to the European Parliament.
Evaluation: As forecast, the economic situation in Europe was defined by stagnating economic growth and high unemployment, especially in the eurozone periphery. Credit conditions remained tight, and the European Central Bank's attempts to boost growth had a very limited impact. Meanwhile, Euroskeptical parties continued to rise throughout the Continent, with groups such as France's National Front and the U.K. Independence Party reaching record levels of popular support. We also saw the emergence of new players on the right, such as the Sweden Democrats, and the left, such as Podemos in Spain, challenge the establishment
Outlook for 2015: This will be another year of very low growth for Europe, with very modest growth in Germany and stagnation in France and Italy. In this context, the core of the debate will revolve around the European Central Bank and its policies to address Europe's low inflation and meager growth. With general elections scheduled in key EU member states, including the United Kingdom and Spain, anti-EU parties will continue to challenge the establishment. As a result, the two-party system that characterized national politics in most of these countries will be shattered.
China's Economic Rebalancing
Prediction: In 2014, China will continue to adjust the fiscal relationship between central and local levels of government, widening taxes on natural resource production and property and creating avenues for local governments to raise capital through municipal bond sales. These measures will be crucial for stabilizing and reforming the housing sector.
Evaluation: In May 2014, China began a municipal bond pilot program in 10 regions and municipalities throughout the country. On Dec. 1, it imposed a value-based resource tax on coal production. In December, Beijing issued rules for a national property registry, a key step towards widening property tax schemes currently being piloted in Chongqing and Shanghai.
Outlook for 2015: This will be a decisive year for fiscal reform efforts in China, with new property registration rules set to go into effect March 1 and further expansion of municipal bond and property tax programs likely to follow.
Argentina's Economic Woes
Prediction: A debt, inflation or current accounts crisis does not appear to be on the one-year horizon, but the economic situation will nevertheless continue deteriorating throughout 2014. Buenos Aires will continue to make piecemeal concessions to attract investment, particularly into its energy sector. However, overall the government will be constrained from deviating from the protectionist, interventionist economic policies it has systematically implemented over the past decade.
Evaluation: Stratfor correctly forecast that Argentina would not face any kind of crisis related to its debt, mounting inflation or strained public finances in 2014. Argentina faced a default on foreign debt because of a U.S. federal court decision, not because of an inability to pay. Inflation increased steadily, although not to critical levels, and the country did not enter into a current account crisis. Argentina continued tentative steps toward eventually developing its energy sector, particularly its shale deposits, but high inflation and restrictive regulations on foreign direct investment hampered the country's ability to make meaningful progress in developing its energy sector.
Outlook for 2015: Argentina will begin negotiating with holdout creditors with the intent of reaching a deal that will allow Buenos Aires to exit its state of default. These negotiations will be lengthy, and a deal will not necessarily be reached in the coming year. Inflation, the state of default, and the country's restrictive domestic regulatory environment will continue hampering foreign direct investment throughout the year.
The Islamic State
Prediction: Regrettably, Stratfor was remiss in excluding a specific forecast on Islamic State in the 2014 Annual Forecast. However, just prior to the publishing of the Annual Forecast, Stratfor forecast in December 2013 the growing threat of the group as well as the potential for a U.S. intervention in our "Gauging the Jihadist Movement" special series:
In terms of terrorist tradecraft, insurgent forces and control of territory and revenue from oil production, the Islamic State in Iraq and the Levant is growing in power; if left unchecked, it has the potential to be the next jihadist group to establish an emirate. While the organization has not yet demonstrated an interest in attacking beyond its core territory, the group's rising power will undoubtedly attract the attention of the Unites States and its allies, who do not want to permit the emergence of a jihadist emirate in the heart of the Middle East.
Evaluation: The Islamic State has certainly grown on the ground in Iraq and Syria by absorbing other groups and by recruiting new local and foreign fighters. We simply did not foresee the organization being able to conquer as much land in Iraq as it did, and we were surprised by how quickly the Iraqi army broke in the north. However, we have not seen the group expand beyond its core areas of operation in a meaningful way.
Outlook for 2015: The split between al Qaeda and the Islamic State has divided and weakened the jihadist movement globally, making a significant expansion of Islamic State's capabilities on a transnational level highly unlikely. The Islamic State will remain concentrated in the Iraq/Syria theater of operations and the fight against the group, carried out primarily by local forces, will be slow and uneven. Even as the group will retain its ability to carry out conventional and terrorist attacks in existing areas of operation, the Islamic State will not be able to mass forces and significantly expand its territorial control.
The Ukraine Crisis
Prediction: Russia's moves in the former Soviet periphery this year will mostly involve defending and consolidating the gains it has made thus far. This will be a politically volatile year for Ukraine in the run-up to the presidential election slated for early 2015, and protests against the president will occur periodically throughout the year. Germany and the European Union will try to maintain some influence in Ukraine through their support of opposition leaders like Vitali Klitschko, but Russia will maintain the upper hand in Ukraine overall.
Evaluation: Stratfor has long emphasized that a U.S.-Russia standoff was inevitable and that Ukraine would be a key battleground. However, we shared in Russian President Vladimir Putin's intelligence failure in reading the intentions of the United States. When we gamed out this forecast, Russia had already compelled the Ukrainian leadership to not sign the EU association agreement, and we did not believe that the United States and certain European countries were prepared at the time to trigger a confrontation with Moscow over Kiev. Once the crisis broke out, Stratfor correctly predicted in quarterly forecast updates the limits of Russia's military thrust into Ukraine and the unlikelihood of a broader European natural gas cutoff.
Outlook for 2015: The tension between Russia and the West will persist but will de-escalate. With Russia's economic vulnerabilities growing, Russia will temper its actions abroad and avoid making a major military push into Ukraine, opting instead to keep the conflict in eastern Ukraine frozen with the potential for the separatist territories to resume economic ties and political contacts with the rest of the country. While we expect an easing of European sanctions on Russia by mid-year, conventional military posturing between the United States/NATO and Russia will continue.