FrontierView recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition covering the impeachment investigation against President Trump, increasing optimism from Russia’s executives, and the latest outlook for South Africa. For the full newsletter, subscribe today.
US Democrats launch Trump impeachment investigation
- Following notification to the US Congress that a whistleblower report had been filed concerning President Donald Trump’s conduct of foreign policy with Ukraine, the US House of Representatives announced the opening of an impeachment inquiry.
- The White House released a record of a call between Trump and the Ukrainian President, in which Trump asked him to investigate the Ukrainian business dealings of Hunter Biden, the son of former Vice President and Democratic Presidential candidate Joe Biden.
- Trump asked the Ukrainian President to coordinate with his Attorney General, William Barr, and his personal lawyer, Rudy Giuliani.
- The phone call came about a week after Trump decided to withhold planned military aid to Ukraine.
We expect a continued period of partisan politics will prevent the passage of any meaningful legislation. Even if the Democratic House decides to impeach Trump over these allegations, impeachment does not mean removal from office. Only the Senate–which is Republican controlled–can follow up on an impeachment proceeding and decide to remove a sitting President from office. That outcome remains very unlikely.
As we long expected would be the case, an ongoing impeachment process will make it very hard to get any significant legislation implemented through 2020. The most obvious bottleneck is that the replacement for NAFTA –already signed by the US, Mexico, and Canada–will not be ratified by the US Congress through 2020. Should an economic downturn happen in 2020, it will be hard for the Congress to pass any sort of meaningful fiscal stimulus.
Ryan Connelly, Practice Leader for Global Economics and Scenarios
FrontierView clients: See our Global Outlook for 2020 for more on preparing for next year’s business environment
Russia executives are becoming optimistic about 2020
- FrontierView via its new offering, RussiaView Executive Network, conducted its quarterly survey of 150 Russia C-Suite executives of multinational businesses with profit and loss responsibility.
- Russia executives have developed considerable confidence in their expectations for hitting 2019 sales targets, as well as in the 2020 outlook.
- Most firms intend to win by stealing market share to drive bottom-line growth.
- B2C firms are more confident in their outlook than B2B firms.
- Firms are focusing on digitization and the broader omnichannel strategy to properly and efficiently engage customers.
This business optimism is encouraging but also potentially excessive. Russia’s growth will only slightly improve next year and firms cannot rely soley on rising demand to high sales targets, indicating that firms are extremely confident in their own teams and believe they can execute better than the competition to win market share – typically a very difficult proposition. 2020 will prove to be an increasingly competitive environment.
MNCs need to make a strong business case to corporate to secure specifically sales and marketing resources for 2020 in order to hit rising sales targets and win among the mass market, key customers, and the premium segment.
Mark McNamee, Practice Leader for Europe
FrontierView clients: See our most recent RussiaView Executive Network Survey for further insights
South Africa’s largest bond issue exacerbates fiscal pressure
- South Africa raised US$ 5 billion in its largest Eurobond sale ever, split between two tranches. The first raised US$ 2 billion at a yield of 4.85% with a 10-year maturity; the second raised US$ 3 billion with a 30-year maturity at a yield of 5.75%.
- Debt-servicing is the fastest-growing component in the government budget, reducing resources available for other expenditure areas. The finance minister planned for public debt levels to peak in 2024, but debt stabilization targets have regularly been missed; the target date has since been pushed back to 2025.
- The government faces a severe fiscal squeeze due to underperforming tax revenues and rising demand on its resources–notably from the cash-strapped state electricity supplier Eskom. Concerns on the fiscal outlook drove average yields on dollar bonds to rise to 4.98% in late September versus 4.7% in the first eight months of 2019.
GDP is expected to grow by 0.5% and 0.7% YOY in 2019 and 2020 respectively–less than half the rate assumed in the finance minister’s budget speech in February. His mid-financial year update in October is likely to reveal underperformance against tax revenue targets, even with new borrowing likely to push debt stabilization beyond the mid-2020s. We expect government spending cuts.
Executives should expect soft procurement demand from public sector customers, with the exception of areas such as education and public healthcare, and closer scrutiny of B2G deals. Tax increases are probable, particularly on alcohol and fuel, which together with high unemployment means consumer demand is likely to be subdued through Q4 2019 and 2020.
William Attwell, Practice Leader for Sub-Saharan Africa
FrontierView clients: See our How to Win in a Slow-Growth South Africa report for further insights