2021 Geopolitical Risk: The year ahead
As we settle into 2021, PGI’s Geopolitical Intelligence team have put together a list of some of the key risks for the coming year. From ongoing COVID-19 challenges to election-related unrest across South America, these are the areas that our Analysts have identified as potentially having significant impact on the economy and business operations.
COVID-19 poses ongoing challenges
Despite the development of vaccines, the COVID-19 pandemic will continue to have a profound impact on public health worldwide. Confirmed cases and associated deaths are still rising in many countries, notably in Europe and North America, which is a trend that is unlikely to subside substantially in the first quarter of 2021. As the year progresses, developed countries may struggle to meet vaccination timelines, while many developing countries could struggle to procure and administer enough vaccines due to insufficient financial resources and poor healthcare infrastructure.
The pandemic will continue to cause severe economic disruption. Lockdowns and other COVID-19-related restrictions will have a negative impact on global growth rates for at least the first half of 2021. Low or negative growth and government stimulus packages will increase debt burdens substantially, putting pressure on countries to cut public spending, especially in emerging markets. Meanwhile, travel bans and enhanced checks at ports and border crossings will continue to disrupt trade and global supply chains.
There is an increased risk of civil unrest due to the economic fallout of COVID-19. The risk is highest in countries which have experienced significant outbreaks of the virus, and where governments have implemented sweeping reforms to mitigate the economic impact of the pandemic or cannot offset the fallout with substantial stimulus packages. In developed countries particularly, there are likely to be more anti-lockdown and anti-vaccination protests.
Central African Republic: Rebel militia activity likely to increase after disputed presidential election
The threat posed by political violence in the Central African Republic (CAR) has increased in the wake of the presidential election in December 2020. A coalition of six rebel groups loosely affiliated with former president Francois Bozizé threatened to march on the capital Bangui after Bozizé was barred from standing in the election. Subsequently, the government accused Bozizé of orchestrating a coup.
The election went ahead and President Faustin-Archange Touadera was re-elected with 53.9 percent of the vote. Government forces have been bolstered by the arrival of troops, military instructors and equipment from Rwanda and Russia, and – with support from 12,800 UN peacekeepers in the country – will likely be able to thwart any attempts to capture Bangui.
However, the rebel coalition may attempt to blockade Bangui, which would further undermine Touadera’s authority, increase food and resource insecurity, and bolster rebel group activity in areas outside of government control. UN peacekeepers have reportedly agreed to protect truck convoys bringing supplies from Douala to Bangui. However, there is a high risk of further disruption along the main trade routes into Bangui, which could lead to shortages of foodstuffs and other necessities in the capital.
The clashes between government forces and the rebel coalition brings the February 2019 Khartoum peace agreement back to square one. The disparate rebel alliance will likely disintegrate in the coming months, leading to increased inter-rebel clashes as groups compete for control of territory outside of Bangui. The government controls as little as 20 percent of the country and, as a result, will likely remain powerless to impose its will outside of Bangui.
Mali: Islamist militant attacks likely to intensify
Political violence in Mali increased in intensity throughout 2020, which is a trend that will likely continue this year. Last year marked the deadliest year on record in Mali, with Islamist militant groups stepping up attacks against local and foreign security forces and civilians.
High-profile, high-impact attacks from Islamic State in the Greater Sahara (ISGS) and Jama’at Nasr al-Islam wal Muslimin (JNIM) are likely to continue in 2021. In late December 2020 to early January 2021, JNIM killed five French soldiers in two separate IED attacks in Mali’s Menaka and Mopti regions. One factor behind the escalation in violence is the internecine war between JNIM and ISGS. Both groups have stepped up attacks in an effort to signal their superiority and influence throughout Mali and the wider Sahel region.
The uptick in militant activity will continue to pose a threat to Mali’s extractive industry, particularly its gold mining sector. Militants could carry out road ambushes and kidnappings targeting employees near mining sites in southern and western Mali in order to deter further foreign investment.
Increased militant activity in the wider Sahel region has also led to warnings of a heightened risk to foreign nationals in West African coastal cities, such as Accra, Abidjan and Dakar. Travellers in coastal cities are at an increased risk of being targeted by militants at hotels and other venues frequented by foreigners.
Mozambique: Islamist militants likely to expand operations
Militants affiliated with the Islamic State (IS) group stepped up attacks in Cabo Delgado province in late 2020. In August, the group occupied Mocimboa da Praia, subsequently using the strategically important port town as a base from which to expand operations. In November, militants then temporarily seized multiple settlements in Muidumbe district, executing at least 50 civilians in the area.
The militants also continued to encroach on Palma town, which was likely an effort to cut off Total’s Afungi LNG facility. On 28 December, militants attacked Monjane town, just 5 km from the facility, forcing the energy company to evacuate staff. The militants now largely control key routes into Palma, giving them further opportunities to expand northwards and eastwards.
Militants expanded their geographical reach and operational capabilities in 2020, suggesting a prolonged conflict is likely this year. In late 2020, the group launched multiple cross border attacks in neighbouring Tanzania, which were the first such incidents since 2019. Militants have also significantly stepped up raids targeting islands off the coast of Cabo Delgado and, in November 2020, seized seven sailboats transporting food supplies from Pemba, demonstrating their growing maritime strategy and capabilities.
The overall security situation is likely to worsen throughout 2021. The ill-equipped Mozambican security forces are unlikely to be able to contain the militants without international assistance, which is highly unlikely in the foreseeable future. Militants will continue to attempt to seize key settlements and sustain attacks on civilians and security forces. The insurgency poses a considerable risk to Mozambique’s ambition to become a major energy producer, with the Total-operated project likely to be delayed due to deteriorating security conditions around Palma.
Cuba: Leadership transition could signal political and economic reforms
A change in the country’s top leadership in April increases the potential for political and economic reforms in the year ahead. On 19 April, Raul Castro will step down as the Communist Party’s First Secretary to make way for President Miguel Diaz-Canel, who will become the first person outside the Castro family to preside over Cuba in over 60 years.
Diaz-Canel’s election suggests the influence of the reformist wing of the party is growing. When he became president in 2018, Diaz-Canel promised to introduce reforms while maintaining the country’s communist system. His position as a strong advocate for allowing internet access in Cuba also suggests the country may embrace a more moderate direction. Reforms would likely be supported by the incoming US administration of Joe Biden, who has previously said he intends to reverse the Trump administration’s hard-line policies towards Cuba.
Potential reforms will, however, likely face internal resistance from the traditional wing of the party. Furthermore, there is a heightened risk of civil unrest if reforms fail to keep pace with Cubans’ aspirations. In an unprecedented demonstration of dissent, over 300 people rallied outside the Ministry of Culture on 27 November 2020 to protest the eviction of dissidents belonging to the San Isidro Movement, highlighting Cubans’ increasing willingness to organise public protests and demand greater freedoms.
South America: Election-related unrest likely in Chile, Ecuador and Peru
There is an elevated risk of civil unrest in Chile, Ecuador and Peru in the year ahead due to upcoming national elections. The elections, and the economic fallout of COVID-19, are likely to exacerbate socioeconomic grievances and concerns about political corruption, increasing the risk of significant unrest.
Ecuador experienced mass protests over unpopular gasoline subsidy cuts in October 2019, and the country’s 7 February general election could reignite social tensions stemming from the issue. The unrest highlighted the unpopularity of President Lenin Moreno, particularly among indigenous groups, who overwhelmingly supported populist former president Rafael Correa. If Correa’s preferred candidate, Andres Arauz, fails to win the presidency, or if the result is disputed, unrest among his supporters is likely to be high.
Chile’s November presidential election, and election of a body to draft a new constitution, could reignite mass protests this year. Mass protests triggered by a rise in subway fares erupted in October 2019, but quickly developed into wider unrest over long-term socioeconomic grievances. President Sebastian Piñera responded by holding a referendum on whether to change the constitution, which was approved by voters. A resurgence of protests is likely if Piñera or the elected constitutional convention stall in implementing sought-after reforms.
Peru’s 26 January legislative elections and 11 April presidential election are potential flashpoints for civil unrest following the controversial removal of the former president. Mass protests broke out in November 2020 after Congress impeached popular former president Martin Vizcarra on alleged corruption charges. The election will likely reignite tensions over the impeachment, particularly if it brings victory for Keiko Fujimori, the daughter of the imprisoned former president Alberto Fujimori who is herself being investigated for corruption.
United States: Unrest likely to continue following presidential election
There is an increased risk of civil unrest following the divisive November 2020 presidential election. Riots broke out in Washington, DC, on 6 January as supporters of former president Donald Trump stormed the Capitol Building to disrupt Congress’ certification of Joe Biden’s victory, leaving five people dead. The incident highlights the potential for further violent protests and unrest, amid increasing political polarisation.
Unrest among Trump’s supporters is unlikely to subside substantially in the year ahead. Trump and his allies in the Republican Party will likely continue to make unfounded allegations of electoral fraud to delegitimise Biden’s victory, fuelling further unrest and potential violence as the year progresses. The fallout from Trump’s impeachment and other potential legal proceedings will likely further exacerbate tensions.
Social media companies will likely come under more pressure to crack down on harmful content. In response to the Capitol riots, Twitter banned over 70,000 accounts linked to the QAnon conspiracy theory and Facebook blocked Trump’s account until Biden’s inauguration. However, the effectiveness of such efforts is likely to be limited, as groups such as QAnon and Proud Boys may just move to alternative platforms. It could also reaffirm the commonly held view among these groups that mainstream media and social media platforms are censoring conservative viewpoints.
China: Relations with US to reach new lows
The administration of former US President Donald Trump has used sanctions, tariffs, and blacklists to target Beijing and its commercial interests. The series of unilateral actions will make it difficult for President Joe Biden to significantly change the downward trajectory of relations between China and the US.
However, Biden’s domestic-focused, pro-multilateralism policy stance suggests that he is unlikely to take the same approach as the Trump administration. Instead, the Biden administration is likely to refrain from taking any unilateral action against Beijing beyond January, which will briefly ease tensions with China.
That said, the challenges in relations between the two countries are structural and deeply rooted. Bilateral tensions are likely to move further from economic to security issues in 2021, with the main flashpoints being human rights concerns, the South China Sea and Taiwan. In the absence of effective dialogue mechanisms, intensifying friction in bilateral relations has wide-ranging implications for the Indo-Pacific region. The risk of military conflict over Taiwan continues to grow, while Chinese foreign policy will become more aggressive. Thus, growing tensions between China and the US will increase the risk of miscalculation and drive bilateral relations to new lows.
North Korea: Ongoing risks from Pyongyang’s weapons programme
The risks posed by North Korea’s weapons programme are likely to persist in 2021. The risks were recently highlighted by leader Kim Jong-un’s threat to further expand North Korea’s weapons modernisation programme and hostile remarks towards South Korea and the US at a meeting of the Workers’ Party congress in Pyongyang, which is the country’s largest political event. The North Korean leader’s comments are likely an effort to put pressure on the incoming US administration of Joe Biden to engage with Pyongyang.
North Korea’s relations with the US and South Korea have been strained due to a prolonged impasse in talks over Pyongyang’s missile and nuclear weapons programme. Each side has been unable to agree upon what denuclearisation by Pyongyang entails or over whether North Korean denuclearisation or sanctions relief by the US and South Korea should come first. Meanwhile, Pyongyang has continued to advance its nuclear and missile capabilities. North Korea has previously relied on weapons tests to garner international attention and force negotiations with major powers, particularly the US.
But given the various competing global and regional challenges, Pyongyang would have to carry out a major provocation to successfully employ those tactics this year. The longer it takes the Biden administration to put together a North Korea engagement strategy following his inauguration, the higher the possibility of an attention-grabbing missile launch or nuclear test. Any tests or launches would increase the risk of miscalculation and escalation, which may lead to limited interstate conflict.
United Kingdom: Withdrawal from the EU to create new challenges to UK trade
The UK’s trade deal with the EU will pose new regulatory challenges to UK trade. London signed a trade deal with the EU on 24 December and ended its withdrawal period on 1 January. Though the agreement ensures that there will be no tariffs and quotas on trade in goods, independent bodies will monitor trade to ensure competition is fair, creating a notable regulatory burden.
Trade operations with the EU, as well as between Great Britain and Northern Ireland, will require more paperwork, which could overburden local businesses and damage commerce. Particularly in the first half of 2021, as businesses adapt to the new regulations, trade could suffer from added costs and delays. Scottish fishermen have already halted exports to the EU over criticisms of the new requirement for health certificates, customs declarations and other paperwork which add days to delivery times and hundreds of pounds in costs.
Uncertainty around sectors of the UK economy could stifle investment. The withdrawal agreement does not address services, which comprise 80 percent of the UK economy. The UK and EU are likely to form another agreement over services in the year ahead, though it is unclear what its terms will be and how they will affect the UK economy. Negotiations could take several months and harm investor confidence. If the UK lowers tax rates and diverges from EU regulations, which is more likely in the second half of the year, the business climate could become more appealing to investors.
Armenia: PM Pashinyan to face continued challenges over the 2020 Nagorno-Karabakh ceasefire
There is a risk of increased civil unrest in the year ahead following Prime Minister Nikol Pashinyan’s agreement to a 9 November ceasefire with Azerbaijan over the Nagorno-Karabakh (NK) region. The ceasefire resulted in Armenia ceding much of NK, including the region’s second largest city of Shusha, and surrounding districts to Azerbaijan. Many Armenians view NK as symbolically and culturally important. Protesters have denounced Pashinyan as a traitor and demanded his resignation.
Opposition parties will likely exploit anti-government sentiment to gain support and organise protests. Opposition parties lack widespread support because of their association with the unpopular former government of Serzh Sarkisian, which used lethal force to suppress dissent and was allegedly involved in the embezzlement of state funds. Discontent over the details of the ceasefire could allow opposition parties to reshape their image and mount a stronger threat to Pashinyan.
Pashinyan is likely to shuffle government ministers to consolidate his support base. The prime minister has faced rebellion from members of his coalition, resulting in the resignation of important ministers. Pashinyan has replaced resigned ministers with long-standing political allies and is likely to continue to do so in the coming months.
The ceasefire deal could generate economic benefits to Armenia, relieving pressure on Pashinyan. Armenia has suffered from high unemployment and a weak economy in recent years. Under the ceasefire terms, Yerevan will build a corridor from NK’s capital Stepankert to Armenia, and from the Nakhchivan region to Azerbaijan. Turkey has also suggested including Yerevan in a regional cooperation platform alongside Russia, Iran, Azerbaijan, and Georgia if the country is perceived to pursue regional peace.
Middle East and North Africa
Iran: Regional tensions likely to continue ahead of possible nuclear renegotiations
Continued tensions between Iran and the US and its allies are likely to pose a significant threat to regional security in the year ahead. Incoming US President Joe Biden intends to renegotiate the Joint Comprehensive Plan of Action (JCPOA) nuclear deal, which would reduce tensions from their current high level. Despite Tehran’s desire to get rid of crippling US sanctions, any renegotiation is unlikely in 2021 due to Washington’s domestic priorities and Iranian presidential elections in June.
Tehran will likely sustain aggressive foreign policies to increase pressure on the US ahead of potential renegotiations. Iran is likely to continue using Yemen’s Houthi rebels to target tankers, ports and other energy infrastructure within Saudi territory and maritime boundaries. Tehran-backed militias in Iraq are also expected to continue with rocket attacks on US assets and IED attacks on coalition convoys.
The Iranian navy is likely to continue harassing seaborne trade passing through the Strait of Hormuz. On 4 January, the Iranian Revolutionary Guard Corps seized a South Korean vessel in the Persian Gulf before demanding that Seoul release USD 7 bn of funds currently frozen due to US sanctions. The increased tensions imply an elevated risk for energy and maritime logistics in the Persian Gulf and the Red Sea.
Fearful of Tehran’s ambitions, Israel will likely continue to disrupt any potential rapprochement between the US and Iran. In July 2020, Tehran blamed Tel Aviv for a fire at the Natanz nuclear facility, and for assassinating Iran’s top nuclear scientist in November 2020. Israel is likely to conduct further covert sabotage activities to undermine, or as insurance for, future renegotiations between the US and Iran, which could prompt reprisal attacks from Tehran in the year ahead.
Iraq: Mass nationwide protests likely
There is a heightened risk of violent anti-government protests across Iraq in the year ahead. Protests declined in early 2020 due to the COVID-19 pandemic but returned as restrictions were lifted. Early general elections planned for 6 June are likely to reignite civil unrest. Protests are likely to be violently suppressed by security forces and pro-government militias.
The elections are likely to reignite grievances over living standards, public services, and corruption. These grievances were previously highlighted when authorities stopped paying public sector wages due to an economic crisis caused by low oil prices and financial mismanagement. Even though oil prices are expected to rise as worldwide lockdowns and travel bans are lifted, the economy is unlikely to recover in the near-term, meaning there is a high risk of election-related nationwide protests, particularly in Baghdad and the southern regions. Civil unrest in the south will continue to pose significant threats to the energy industries as protesters regularly attempt to block oil fields. There is also a potential risk of unrest expanding to Kurdistan.
The election-related unrest is expected to spark a harsh response from security forces and government-aligned militias. In 2020, several cities saw Sadrist militiamen raiding protest camps and shooting protesters. Tehran-backed militia groups are also likely to continue abducting and assassinating anti-government activists, which may prompt retaliatory attacks on Iranian diplomatic missions and businesses.
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