Persistent Crises:

Main projected trends for developing countries in 2021
Persistent Crises:
June 12, 2021

Most African and Latin American developing countries are plagued by numerous economic issues, and slow rates of vaccination and unclear prospects for economic recovery are fueling political and social problems. The following are the main projected trends for developing countries in the second quarter of 2021:

1- Modest recovery in African economies: A slow recovery in most African economies in the second quarter of 2021 is likely, given the continent’s major lag in vaccination campaigns against COVID-19. Rising prices for basic goods are expected to reduce short-term financial pressure on exporting countries such as Angola and Nigeria, but this will still fall far short of what is needed for any significant improvement over years of accumulated financial stress.

2- Attempts at structural economic reform in South Africa: The economy of South Africa is expected to benefit from rising prices for basic goods. Nevertheless, a host of factors will hinder economic recovery in the country, chiefly challenges in the labor market and the manufacturing sector, as well as the slow COVID-19 vaccination rollout. The South African government is expected to continue to push for structural economic reforms, including austerity and privatization efforts, thus further damaging its relationship with unions.

3- Ongoing pressure on the opposition in Ethiopia: Despite international pressure, federal forces are not expected to withdraw from the Tigray region. Moreover, the government is likely to put strong pressure on opposition parties before the elections scheduled for 5 June 2021. Prime Minister Abiy Ahmed believes that offering concessions on these issues would weaken his political coalition with the Amhara political elite.

4- Ethiopia’s ongoing inflexibility on regional issues: Ethiopia will likely persist in its positions regarding negotiations on the Renaissance Dam and will move forward with the second filling of the dam’s reservoir without concluding binding deals with Egypt and Sudan. The Ethiopian military build-up on the Sudanese border in the Al-Fashqa region is also expected to continue. Ethiopia’s rigid position on these two files is driven, in large part, by domestic electoral calculations in Ethiopia.

5- Latin American’s major reliance on Russian and Chinese vaccines: Russia and China are expected to continue to use donations and sales of COVID-19 vaccines to strengthen diplomatic and trade relations with Latin American countries. Argentina, Brazil, and Chile rely heavily on China’s Sinovac vaccine and Russia’s Sputnik V vaccine. Furthermore, the president of Mexico has announced his plan to purchase large amounts of the Sinovac vaccine in the next few months. Several other countries in the region are also likely to announce major purchases of these two vaccines.

6- Argentinian economy continues to suffer: Argentina is expected to see a decrease in foreign direct investment inflows and an increase in public spending, possibly leading to an increased rate of inflation. While rising soybean prices may give the country financial flexibility, Argentina will likely continue to struggle to return to rising growth rates.

The Argentinian government is also expected to postpone a deal with the International Monetary Fund to restructure its debt, lest the deal lead to a decline in the financial situation and a further deterioration of the business climate. The deal will be postponed until after the legislative elections for fear of affecting the government’s popularity. Meanwhile, the government will continue to hold talks with the International Monetary Fund in order to calm investor anxiety.

7- Expected rise in inflation rates in Brazil: The Brazilian government will likely implement costly populist policies before October 2022, at the expense of economic reforms, which could lead to higher rates of inflation in the country. Financial reforms are also critical to the Brazilian economy, where the debt-to-GDP ratio is 89%.

President Jair Bolsonaro is also expected to seek to increase financial spending, freeze domestic oil derivative prices, and transfer financial burdens to the state, particularly with the entry of the leftist former president, Lula da Silva, as a potential main competitor to Bolsonaro. These issues are likely to increase inflation and make matters very difficult for the government.

8- Weak position of Venezuela’s opposition: Venezuelan president Nicolás Maduro is expected to retain control of the political situation in the country, while the Venezuelan opposition has fractured following growing doubts over Juan Guiadó’s ability to lead the opposition. The Venezuelan Parliament also supports Maduro, and the COVID-19 vaccination campaign has begun. These steps are contributing to the weakening of the anti-government camp, while greatly helping the regime control the country’s political situation.

9- Potential changes to Mexico’s energy sector laws: Mexican president Andrés Manuel López Obrador and the National Regeneration Movement (MORENA) are likely to push for changes to the electricity laws in the Mexican Congress ahead of the upcoming June legislative elections, which may undermine the private sector. Some experts believe that if the president of Mexico can secure six new seats in the legislative elections scheduled for June 2021, he might push for amendments to the Mexican constitution and cancel many of the energy-sector reforms approved in 2013.

Finally, if the president implements these amendments, food and automobile factories and other manufacturing sectors will face increased operating costs. Reportedly, the president of Mexico has already succeeded in drafting a bill that gives preferential treatment to state-owned energy companies over their private-sector competitors. The law has been delayed pending a ruling from the Constitutional Court.


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