September 2020

Country Ranking Trends

  • Magni recently completed a review of Market Integrity. China has made some progress in implementing prior commitments, thus justifying a small upgrade. The Philippines also made some progress in a few areas; however, material deficiencies remain unaddressed. These deficiencies prevent Magni from upgrading the country’s Market Integrity score.

Everything About Brexit is so Hard

  • Prime Minister Boris Johnson’s decision to propose legislation that would change the Brexit withdrawal agreement unilaterally is the latest complication in the arduous process of the United Kingdom leaving the European Union. The draft Internal Market Bill describes how England, Scotland, Wales, and Northern Ireland will set rules and standards once those powers are repatriated from Brussels. One of the most contentious topics relates to the treatment of the border between Northern Ireland and Ireland. To prevent placing a hard border between the two countries, the signed Brexit withdrawal agreement stipulated that Northern Ireland would continue to follow some EU customs rules post Brexit. The specifics of how the border will operate currently are being negotiated — in parallel with the ongoing trade talks. The draft UK bill would override some of the withdrawal agreement’s provisions, if there is no agreed deal on the Irish Sea border. The EU has threatened legal action if the Internal Market Bill isn’t withdrawn or changed. Britain has described the bill as a “safety net”, saying it hopes never to need to use the proposed powers. Negotiations are continuing while the bill makes its way through Parliament. It is not expected that the bill will be adopted before Johnson’s deadline for reaching an agreement, October 15, when an EU summit is scheduled. Any agreement must pass with enough time for implementation by January 1.
  • Implications: Some things about Brexit have been true since the aftermath of the original vote. Every step forward is fraught with complications. Deadlines become vehicles for forcing agreements. Agreements resolve a subset of the issues, while leaving major issues unresolved. Often deadlines are deferred to avoid a failure to achieve agreement. Ultimately, the UK will be fine, though there will be more disruption and there is a distinct possibility that one or more commonwealths, such as Scotland, may leave the UK. Brexit remains a distraction for the EU as other issues have more existential impact on it, though the EU fights to avoid precedents in any agreement with the UK that would make exiting the EU attractive for other member states.

Poisoning Navalny Makes Russia Issues Worse

  • Russian opposition leader Alexei Navalny is recovering from a poisoning that occurred while he was campaigning for opposition candidates in Russia’s far east. Navalny gained prominence ten years ago as a blogger whose investigations exposed the corruption of some of Russia’s most senior politicians. He fell ill on a flight from the Siberian city of Tomsk; he was evacuated later to Germany where he underwent more than a month’s treatment before being released from a Berlin hospital. German tests, later confirmed by French and Swedish labs, showed that Navalny had been poisoned with the Soviet-era nerve agent Novichok. Russian officials have vehemently denied any responsibility. Putin reportedly suggested in a phone call with French President Emmanuel Macron that Navalny may have poisoned himself. However, given the substance used, there can be little doubt about Russian state involvement. The larger question involves the consequences for Russia. There already had been opposition to the nearly completed Nord Stream 2 pipeline, a project that would double Russia’s gas exports to Germany. So far, German leaders have resisted scuttling the project, but this latest incident could force them to rethink their position.
  • Implications: Putin has pursued an elimination, or at least softening, of existing sanctions against Russia (e.g., those resulting from the intervention in Ukraine). This poisoning of Navalny has stalled any momentum he may have built, while sanctions may increase or be added in new areas. As mentioned last month, Russia faces multiple structural challenges. Despite the potential positive impact in reducing the challenges, reforms that would increase its Magni Country Governance Score likely will be viewed as a luxury that Russia cannot afford. In addition, such reforms remain a threat to the continued corrupt stealing of Russia’s wealth by Putin and his allies. Russia likely will retain its low Magni Country Governance Score.

While Abe was Able, will Suga Continue Reforms?

  • Yoshihide Suga was elected overwhelmingly by the Japanese parliament to be the new prime minister. After having been selected to head the ruling Liberal Democratic Party, which holds a majority in the lower house, the Diet, his win was expected. Suga served as Prime Minister Shinzo Abe’s longtime chief cabinet secretary – the government’s most senior role after the prime minister. Abe had been Japan’s longest-serving prime minister, but he was forced to resign recently because of poor health. Suga is expected to maintain Mr. Abe’s policies with an emphasis on continuity. He has kept most of the Cabinet members in place. He also promised to continue the previous administration’s economic reform program, dubbed “Abenomics,” which consists of expansionary fiscal and monetary policies along with structural reforms to improve productivity. Suga could attempt to solidify his mandate by choosing to call an early election, but there is no requirement to hold a vote until October of next year.
  • Implications: In addition to his long service, Abe led Japan through significant change. The reforms implemented under his leadership moved the country’s Magni Governance Rank from 28th to 14th. The rate of improvement was more than four times faster than the average for all investible countries. Magni will be watching to see if Suga can continue reforms to further improve Japan’s governance.

Are the Abraham Accords a Big Deal?

  • Israel has signed deals to normalize relations with the United Arab Emirates and Bahrain. The agreements, known as the Abraham Accords, were brokered by the Trump administration and are the first such agreements between Israel and any Arab state since 1994, when Jordan and Israel signed a peace treaty. The countries agreed to open embassies and establish other diplomatic and economic ties, including tourism, technology, and energy. The agreements do not address the Palestinians, so there is no resolution to the ongoing conflict. Rather, long-standing clandestine relationships between the countries are now acknowledged and public. Israel and the Gulf’s Sunni Arab monarchies have long had security ties against a common enemy, Shiite Iran. The UAE agreed to move forward in exchange for Israel dropping plans to annex West Bank territory that Palestinians hope will be the part of a future state. Netanyahu has said Israel has only “suspended” its plans, and the agreements have been condemned by the Palestinian leadership. Access to military equipment also was a factor in bringing the deal to fruition. Following the signing, the UAE submitted a formal request to the Trump administration to purchase next-generation F-35 jets. The U.S. will sell only to countries at peace with Israel, to preserve Israel’s qualitative military edge in the region. Netanyahu has objected to the sale.
  • Implications: Given the long, troubled, and extremely complicated history of the region, people trying to predict the future should be cautious. Transformation of the Middle East will require more countries joining the ultimate agreement, as well as resolution of the Israeli conflict with the Palestinians. A key country is Saudi Arabia, a nation reticent on these topics. All countries in the region have relatively low Magni Country Governance Scores. The optimist’s view is that this deal becomes the catalyst that leads to peace, and then reforms are launched to improve the governance of the respective countries and the lives of the people in those countries.
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