The Decisive | Season 6 Ep.3 - Governance Stress Tests: Key Elections in 2026

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Kristen Hallam:

You're listening to The Decisive Podcast Insights and analysis to empower confident decision making. Hello and welcome. I'm Kristen Hallam, your host for this discussion. Elections across key economies in the Americas and Africa through mid to late 2026 are set to reshape government stability, economic policy and geopolitical risk into 2027 and beyond. From the US midterms to general elections in Brazil and Ethiopia, political outcomes will shape trade, supply chains, and the regulatory environment faced by global businesses. Our S&P Global Market intelligence experts will share their insights on how upcoming elections could drive market volatility. Let me introduce them now.

John Raines, head of North America Country Risk; Rafael Amiel, head of Latin America Economics; and Jordan Anderson, Principal Analyst, Sub Saharan Africa Country Risk.

So let's start that discussion by looking at what these elections mean for government stability. Jordan if in Ethiopia's general elections in June, the incumbents remain in power, that would mean policy continuity in the near term.

But what about stability? What domestic forces are at play and what would be the clearest sign that stability is starting to erode?

 

Jordan Anderson:

Thank you very much, Kristen. It might be useful just start a little bit with why Ethiopia matters, why we're talking about it. So this is one of the fastest growing economies in Africa. Real GDP growth has grown at least 5% per year, often more, over the past decade. And we're forecasting over 7% annually real GDP growth through 2031. It's also a major exporter of coffee, oil seeds, animal products, and increasingly gold, with a growing mining sector as well as textiles, some industrial parks, a number of other sectors. And it's an economy that's going through change. It's opening up to liberalization and privatization in particular, and its telecommunications and banking sectors.

And this is in a country with 135 million people living there. These are large markets just domestically as well. This is also a country and an economy which is increasingly significant for regional politics and security, especially for neighboring Sudan’s civil war that I'll talk about a little bit later on. The risk of interstate conflicts between Ethiopia and its neighbor Eritrea, a lot of which comes down to questions of access to the sea for landlocked Ethiopia. But on the 1st of June, Ethiopia is going to hold its general elections and Prime Minister Abiy Ahmed, who has been in office since 2018, and his Prosperity Party are seeking to retain their currently overwhelming majority that they have in Parliament. There's some pretty solid prospects looking for this. It's notable that several large opposition parties have either have not registered for this election or as includes for example the TPLF, the main party up in Tigray in the north, or some of the opposition parties are alleging the for example the Oromo Federalist Congress, that they're essentially unable to campaign anywhere in the country outside of the capital city and that they blame the government for that, allegedly.

Certainly large parts of Ethiopia's two largest regions, which are the Amhara and Oromia regions, large parts of these aren't going to vote probably in the upcoming election, quite simply because there are widespread insurgencies that make it very difficult to actually hold the election itself. And in Tigray region it's governed by the TPLF, which claims it's been prevented from registering for the election. So it's very hard to see how the voting is going to happen in that part of the country as well. So it’ll be a large part of it's that simply can't take part in the polls. However, the Ethiopian government looks very intent on holding these elections anyway. A key indicator though you asked about threats to government stability. A key indicator of that would be the government struggling to hold elections in the major cities themselves, especially if the insurgents in Amhara or Oromia regions are able to prevent the government from holding the elections and the voting in the urban centers, that would be a real deterioration or indicate a real deterioration in the security situation where up till now the government's mostly been able to hold the urban centers against more rural insurgents. So the government losing control there would certainly indicate a significant threat to Ahmed's administration's ability to govern post elections if it can't even maintain the security in the major cities around voting day.

And really the most likely threat actors to cause this would be the Fano insurgents in Amhara region and the Oromo Liberation army or OLA insurgents in Oromia region, both of whom have denounced the current election process, which they allege is manipulated by the government. So what that means, in short, is Ethiopia looks set for continuity of government and policy post-election, but with major security challenges posing considerable threats to this fast-growing economy.

 

Kristen Hallam:

All right, thank you for that. Jordan. Rafael, Brazilian President Lula is running for reelection in October, which if he wins, could ensure government stability and policy continuity. What would stay the same and what would look different under a second term for Lula?

 

Rafael Amiel:

Thank you very much, Kristen. Just to be clear, Lula was president for two terms, 2003, 2010, and this is his third term. So in rigorous terms he'll be his fourth term. And that shapes the answer to the question: What can stay? Certainly, the government has the view that they want to centralize certain economic decisions. That's going to stay. Social programs, they're going to stay regardless of Lula. But the increasing of benefits to the most vulnerable may be something he keeps doing, even if he would be the last term because Lula is 81-year-old. If he wants to go for a reelection, it will be when he's 89.

And that's unlikely. And one other thing that will be for sure part of the policy is the assumption that oil is a key driver of energy transition, especially oil in the equatorial margin, which is very, very good news for Brazil in terms of possibilities to expand oil production. What can be different? Well, as a seasoned politician, if this is the last time he's going to be president, maybe he would like to embark on mega projects on infrastructure and he would like to lead the legacy to generations going forward. In his first term in 2003, 2008, one oil field, huge oil field in the pre salt basin was named after Lula. Oil Field now he changed the name, but you know, something on those lines we can see, we can expect. But certainly what has to be different is he will need to make some sort of commitment to improve public finances. And not only Lula is elections are general elections. Two thirds of the Senate are going to be elected and then all 513 seats in the Chamber of Deputies, which is equivalent to the House of Representatives in the US. So that also can change a little bit the composition. The Congress in Brazil is very heterogeneous by default, but they have managed over the years, over the past 10 years, I will say, to come to some consensus and pass structural reforms.

So I'll say that will stay. Congress supporting structural reforms, of course, diluted, and they will have to re-engineer and revote it. That's normal in Brazil. But that's my call about our reelection for Lula.

 

Kristen Hallam:

All right, thanks for that, Rafael, and let's stay with you for a moment. What would you say are the main challenges to Lula's bid for another term? And what would government stability look like if he does not win? And I'll sneak in another question there. Where do you see the main areas of potential policy discontinuity?

 

Rafael Amiel:

Okay. The main challenge is the opposition. If you ask this question three months ago, people will answer that the polls will say Lula is for sure going to be reelected. But now the polls are calling for a technical tie between Lula and Flávio Bolsonaro. Bolsonaro. Flávio is the son of Jair Bolsonaro, president from 2018 to 2022, currently under house arrest. But the rise seems to be, you know, aligning with Flávio Bolsonaro because other candidates couldn't make an impression on the voters. There is, as you mentioned in the questions, there's incumbency fatigue.

And in general in Latin America, voters seem to be very tired of left-learning administrations or those that try to concentrate economic decisions, centralize economic decisions on the government. So that's the major challenge to Lula. What will change? Well, definitely what I said about if Flávio Bolsonaro wins market-oriented policies, structural reforms that favor the private sector are on the line trying to use prices as a signal for scarcity, as a signal for business opportunities. That's what's going to change rapidly if the right government wins the elections. Now, as I said, Congress is very dispersed. You have to make a lot of negotiations and alliances in Congress to get through on reforms. And I don't think the celerity or the speed at which reforms happen will change radically.

 

Kristen Hallam:

Right. Thank you, Rafael. So turning to the U.S. now, John, we're about seven months out from the midterm elections. What is the most likely outcome in our view at this point in time? And if Democrats retake the House and the Senate is in play, how could that impact government stability?

 

John Raines:

Yeah, thanks a lot, Kristen. I appreciate that. You know, it's anybody's ball game, as they say. But we have, if we do look into our crystal ball, we have a bit of a understanding of where things might go. And part of the reason for that is from historic analogies. For example, what we can see is that traditionally the party out of power has won anywhere between 22, 23 seats in a given year. And so therefore, Democrats need three seats in the House of Representatives, which means that they're in pretty good shape in order to win the House. There are reasons to believe the Republicans could come back. But if we're looking at things like the generic ballot, Democrats are currently favored.

If we look at special elections, Democrats have been overperforming in those. You have these historic tendencies. You have the Donald Trump himself, not that popular, everything tending to go the Democrats way. So House of Representatives likely to go Democrat. The big question, really, and you brought it up, is what happens to the Senate? Right now, Republicans have a 53-47 majority in the Senate. Of course, the vice president breaks all ties. That means Democrats need to pick up four seats. And the problem that the Democrats have is, is that despite if you look at a map in general, Republicans are defending 22 seats, Democrats only 13.

But if you look at that map, what you'll discover is only one of those 22 Republicans are from a state that Kamala Harris won. And that's Susan Collins out of Maine. And she has defied all types of predictions in the past of her demise. She, you know, continually wins these elections in a Democratic state like Maine. So the question is, where are these things coming from? At this point, it's kind of a coin flip as to whether the Democrats will win. If you look at betting markets right now, it's about 50-50. And which is a pretty significant turnaround from where we were, say, a year ago where I think most expectations were, if you look at, you know, political pundits, they were saying anywhere between 5% chance, 10% chance.

And again, it's those fundamentals that we spoke about before, everything kind of going in the Democrats’ direction. And what that's done is it's put in states into play, such as Maine, North Carolina, and then the map really has to expand. And you're looking at places like Alaska where the Democrats now have a chance, places like Iowa, Ohio. Some of this is candidate quality that the Democrats have gotten, but really it's more of a national wind that's blowing in the Democrats’ direction. So at this point, House looks like it's headed towards the Democrats most likely, unless something, you know, out of the expected happens. Senate a bit more in play. So we'll have to see where things go there. As far as government instability issues—a bit modest, right? So we saw last time when the Democrats controlled the House of Representatives and you had Donald Trump as your president, Democrats impeached him twice.

So I think the odds of some type of impeachment likely to happen in this second term, also pretty high. The issue is going to be how do you get conviction. So even if you have, you know, an impeachment inside the House, you will have a trial in the Senate. And at that point, Democrats would need probably, even if they controlled the Senate, you'd probably need about 15 different Republicans to switch sides. That seems like it's a pretty uphill battle for the Democrats to climb. So therefore conviction seems unlikely. I think what's more important probably if the Democrats gain control of Congress is that they're going to be able to do a few things. Number one, first and foremost is that they're going to be able to conduct investigations. So they're going to do investigations on the heads of executive agencies, Trump family dealings, et cetera. And they're going to be, you know, using this as a, as pretty about a platform in order to really embarrass the administration.

 

Kristen Hallam:

Right. Thank you, John. And let's stay with you as we pivot now to economic and fiscal policy. So, John, how could the outcome of the 2026 midterm elections influence the direction of US fiscal policy, especially regarding government spending, taxation and deficit management?

 

John Raines:

Yeah, I mean, it's a great question. It's a hard one to answer. I think currently what you're finding is that neither party really wants to take the steps that are needed to address these fiscal deficits of, you know, 6% plus. I mean, it's you need Republicans to suddenly start saying, hey, listen, we need to start increasing taxes. You need to start to hear from Democrats, we need to talk about some pretty major entitlement reform. Neither party wants to go down that direction. So I think eventually the United States is going to have to address this, especially if, you know, financial markets are pushing the US to do it. But I don't know if that's going to happen within the next two years.

In fact, I kind of doubt it. What you could see is that there's some kind of things the Democrats could do on the margin. So, you know, maybe a little bit less spending for defense, less money for immigration, much like we've seen called for in the past. And that's part of the reason that you've seen Republicans come on in the Big Beautiful Bill last year and these supplementals that they've announced most notably and through reconciliation to start funding these type of programs, with the idea being that it can be far more difficult down the road if the Democrats get control of Congress. You might see some modest moves like limits on entitlement growth or some spending caps or perhaps maybe some cutting of some tax loopholes, but not really expecting anything major. What we are expecting is the possibility of risk of a government shutdown. Now, we went through longest shutdown in US history just recently. I would expect something like that to happen again with brinksmanship, both by congressional Democrats and the president in the year or in the years ahead as we get towards 2028.

And again, you know, I would expect also Democrats to utilize this as an opportunity to pass some maybe symbolic bills or at least to pronounce them, which would include, you know, higher taxes on corporates or higher taxes on high income earners. But again, very unlikely that we're going to see real movement here by this administration to pass those. I think some vetoes are the most likely outcome.

 

Kristen Hallam:

Right. And one more question for you at this point, John. Where could we see changes in foreign policy if the Democrats do win Congress?

 

John Raines:

Yeah. So I mean normally we think of foreign policy, we think Congress has kind of a limited role there, right. I mean, the President is the commander in chief. So I, I think first and foremost what we need to recognize is regardless of what happens in the midterms is that the overall policy framework is likely to continue. So you know, increased protectionism that's going to continue. this Western Hemisphere focus that we've seen, likely to continue. Middle East security operations, you know, kind of an anti-NATO, anti-EU type mentality, likely to continue. And kind of that marginally pro-Russia, anti-international organization. Again, those themes are likely to be in our immediate future. Where Congress can play a role though is really on the margins and it's really in the power of the party groups. So you know, for example, if we see the Republicans are able to maintain their majorities which again not necessarily baseline for the House, but it could happen if that were to happen again, you know, supplementals for if there is a continuing war in the Middle East, likely to continue, support for Israel likely to continue these Latin American security operations, whether they be Eastern Pacific in the Caribbean or even now recently with Ecuador, again likely to continue.

And what you're going to find, of course, is that if the Democrats take control of Congress, it's a 180 on all of those. So again, less support for those, less funding for those and more support, right, for Ukraine, more support for international organizations, more support for foreign aid, more support for climate funding. So those could be part and parcel. Now they're not going to get all of those, but what they can do is try to include those in must-pass budgetary legislation, whether it's the defense appropriations or just, you know, the budget in general. And what we can see is some movement on those issues in which the White House kind of gives some way and gets the administration or gives the Congress the ability to enact some policies that are, you know, on their hit list that they'd like to achieve. The other thing we could see is like maybe on nominees could be an issue, I mean, not huge because this is a very White House centric government. But you know, I mean it's possible he and the Republicans are going to be looking for a new Secretary of State, especially if that Secretary of State is running for president in 2028. And again Democrats could, you know, have some leeway there, that kind of gear the president in a direction more to the liking.

On trade policy, you know, I think that you're going to see some symbolic there bills there, kind of reining in the President's policy on his capacity to enact tariffs. But probably more importantly is that if we see actually, you know, some type of congressional approval needed for USMCA or AGOA, a USMCA is supposed to be passed this year. Right?

But I mean, it's possible to get pushed off. If that's the case, Congress could really institute new, you know, provisions on labor, provisions on environmental issues. Those could come into the forefront and again, the administration might have to swallow those because at this point, you know, fast track is no longer really viable. And then finally really looking at other issues, like looking at alliances, you know, the President has talked about, you know, withdrawing from NATO. There's a law in the book saying that no, US can't do that. You could see some pushback there. Right?

So if Donald Trump goes in that direction, I think, you know, if you have a Republican Congress, less of a, you know, less of a desire to confront the President as far as foreign policy, certainly much more so when you're dealing with the Democrats. And then finally, of course, the hearings. Right? Again, I mentioned hearings before. You're going to see all types of hearings on foreign governments and how they dealt with this administration and the various decisions that it's done. At a minimum, what it's going to do is it's going to signal to other governments in multinational corporations across the board that they need to start hedging. Right? That I think for the first year of the administration, there was really kind of a lot of buy in to the Trump administration and the White House.

And there's going to be a realization that we will have presidential elections in 2028. So therefore, hiring more Democratic K Street lobbyists, you're going to see more campaign donations and more importantly, I think kind of like as far as like, you know, meeting the demands of the administration, kind of playing both sides and not necessarily veering one direction or the other.

 

Kristen Hallam:

All right, lots of food for thought there. Rafael, let's come back to you and talk about Brazil's fiscal deficit. Brazil has a significant fiscal deficit as you mentioned earlier. What's the most plausible post-election path for Brazil's fiscal framework and what would convince markets that the next administration can stabilize debt dynamics rather than just delay adjustments?

 

Rafael Amiel:

Well, that's the key about Brazil's politics and economics. The fiscal deficit is over, well, it's under 8% of GDP. It's significant, is by far the highest in Latin and South America. And you know, the possibilities to fix the fiscal deficit rely on cutting spending because the tax take in Brazil is very high by regional standards, is 35%, is close to the one that developed economies have. So there is little space to increase revenue. Now in terms of cutting spending, there's not much space. I mean, what we call fiscal flexibility, meaning capital investment or public investment, is very narrow. It’s 2, 3% of the total budget in Brazil.

So you mentioned fiscal framework, and that's exactly what happened when Lula came back to power in 2023. Previous to that, interim President Temer in 2016 has passed a law for 20 years that constrain fiscal spending to zero growth in real terms, meaning only spending can be adjusted by inflation of the previous year. So in real terms, zero increases in spending. But the new fiscal framework, the new Arcabouço Fiscal as they call it in Brazil, gives more flexibility, more leeway, and then we're back to primary deficits.

So what I'm trying to say here is Brazil must return to primary fiscal surpluses, which is excluding interest payments. That's the equation for fiscal deficit, excluding interest payments on debt. Brazil has to put, to post surpluses. That would tell markets, look, I can pay my bills and still I have money to pay the interest on debt. At least some part of that. That's the key signaling that Brazil has to send in the future if they want to move to a path of sustainable, of fiscal sustainability.

 

Kristen Hallam:

Right. Thank you for that illustration there, Rafael. So how much room would you say Brazil realistically has for less restrictive monetary policy without reigniting inflation or weakening the currency? And how dependent is that on fiscal consolidation and the perceived independence of the central bank?

 

Rafael Amiel:

Great question. There's ample room. The policy rate is 14.75%, was 15% up until a month ago. And despite the inflation shock from the rest of the world, the central bank reduced a little bit of quarter of a point. Inflation in Brazil is around 4 plus percent. So the difference between the policy rate and inflation is almost 10%. 10% response, a neutral rate will call for 4%. So there is ample space from 10 to 4 to cut the rate before going into an expansionary monetary policy.

And It's a great question that you brought up the policy, the monetary policy, because you know, it has come to a sort of a vicious cycle. Most of the debt of the deficit, the 8% of GDP that I mentioned, which is most interest payments, although there is a primary deficit there, is financed domestically, meaning Brazilians financing the government deficits get 8% of GDP as income, which fuels consumption and then maybe fuels inflation. So then having this very restrictive monetary policy is okay because fiscal policy is expansionary. But at some point the monies from the interest payments of the government are going back into consumption, into fueling consumption. So we assess there is room—3, 4 percentage points—to cut the policy rate without moving in any ways, in any fashion into an expansionary or inflationary monetary policy. And here I want to say something about this because we think Brazil is a country with problems, Brazil, the country of the future. Back in the early 2000s, the idea of BRICS — Brazil, Russia, India, China plus South Africa later —came and said, you know, we have these countries that will be the countries that will shape the global economy in 50 years. That was in 2000.

And what was the, what were the conditions for the BRIC economy? A very large country with a very large geography, with a very large size of the population, with a large middle class, with abundant natural resources. And the demographics went with the label with a demographic bonus in the sense the labor force was growing. All of that is still there. What is missing about this enthusiasm about Brazil is some macroeconomic management. Brazil has an unbalanced macroeconomic policy. You mentioned a restrictive monetary policy. Then there is an expansionary fiscal policy that they have to balance. And then Brazil will receive all the investment it needs. Because as I mentioned before, structural reforms happen gradually, but they do happen in Brazil.

 

Kristen Hallam:

Thank you, Rafael, especially for that additional context there. So Jordan, let's come back to you and back to Ethiopia. Given Ethiopia's significant external debt, especially to mainland China and its engagement with the IMF, what are the main fiscal risks and opportunities facing Ethiopia after the elections? And what, if any, are the implications for the wider reach?

 

Jordan Anderson:

So mainland China does hold most of Ethiopia's foreign debts. So just earlier this month, we saw Ethiopian and Chinese finance ministers meeting in China to renegotiate Ethiopia's debt framework, particularly around issues surrounding Ethiopia's $1 billion Eurobond, sorry, Eurobond, for which some creditors claimed Ethiopia missed a $33 million coupon payment back in 2023. And yes, since 2024, the IMF has had a four-year, $3.4 billion extended credit facility arrangement for Ethiopia. And this, the IMF is doing this. It's designed to support Ethiopia's homegrown economic reform agenda, which is focusing on again liberalizing the economy, increasing privatization as well. And with the incumbent, the Prime minister, and the Prosperity Party seemingly on course for reelection of its heavily reduced opposition participation in the elections, this indicates likely a continuity in the government's pro FDI, pro investment economic liberalization agenda as well.

And again, remember, this is a very large domestic market. Again over 135 million people who are in this country. One of the things the Ethiopian government is going to be looking at issuing in the coming years is a second license for the telecoms market. So this would be allowing a second player to come in into what was previously though still the largest state owned telecoms monopoly in Africa. And in a country where there's a great deal of demand for data, mobile phones and telecommunications, it’s big business. So all of that is going on. But the biggest threat to these debt renegotiations, the IMF program and the continuation of the economic liberalization agenda is probably the risk of interstate conflict, so of war between Ethiopia and Eritrea, its neighbor next door. Where this is coming from is since 2023, Prime Minister Ahmed in Ethiopia has been increasingly vocal in seeking what he terms access to the sea for the landlocked country of Ethiopia.

Ethiopia continues to insist this is a peaceful process that they're talking about, but which a number of the neighboring countries around Ethiopia, most prominently Eritrea, have essentially perceived as a threat to their territorial integrity and independence. The Eritrean government has been quite blunt about that. They see this rhetoric out of Ethiopia as a threat to, they perceive, of Ethiopia wanting to take some of their territory and their ports. Eritrea was actually formally part of Ethiopia from just after World War II until the early 1990s. The two countries also fought a border war between 1998 and 2000. That's relevant history for why Eritrea perceives it in this way maybe. We continue, as S&P, we continue to forecast that war between Ethiopia and Eritrea is unlikely. So probabilistically speaking, we think it's less likely to happen than it is to not happen.

And this is despite the heated rhetoric coming from both governments. What helps drive this assessment that it's unlikely that we're going to see this conflict is some of the major restraining factors which just include Ethiopia's own domestic security challenges, those major insurgencies I talked about that the Ethiopian military is busy fighting at home, which makes it quite hard to fight a war against Eritrea. At the same time. Also just the probable disruption that a conflict would cause to the IMF program. Likely you might see some of the suspension of that funding coming to Ethiopia if it were to go to war with Eritrea. Also just diplomatic pressure from the US, from China, from Saudi Arabia, among other partners on both governments, trying to get them to avoid conflict here. However, in what we'd consider the unlikely but feasible scenario that Eritrea-Ethiopia conflict occurs, there's a very high risk that this would become intertwined with the ongoing civil war again in neighboring Sudan, which touches both Ethiopia and Eritrea. So Eritrea, the governments of Eritrea and Ethiopia are actively supporting the opposing sides of the Sudanese civil war, one of which is the Sudanese armed forces.

So the formal military, the other the rapid support forces or the paramilitary side of Sudan's military. Again with the Eritrea leaning towards the SAF, the formal military, Ethiopia towards the RSF, the paramilitary. So any scenario where you have Eritrea and Ethiopia going to war with each other and this then becoming enmeshed in the Sudanese civil war, this is going to pose very high disruption risks to neighboring countries, neighboring Djibouti as well. Neighboring, that's the country that currently over 90% of Ethiopia's external trade passes through the port in Djibouti. Also widespread disruption to Eritrea's ports, likely from Ethiopian military action during the conflict. It's also likely this sort of conflict is going to trigger mass population displacement potentially in the millions of refugees in Eritrea and Ethiopia, some of whom are likely going to try to relocate outside of the Horn of Africa. That's going to put pressure on kind of regional and farther away countries as we see those, potentially, those flows of people.

So the most likely scenario that we're talking about is an economy with continuing opportunities. Again, newly privatized liberalized markets in Ethiopia, large domestic population, large market there, increasing gold mining. Again, all this happening post elections, but with a less probable but downside scenario of escalation to conflict with neighboring Eritrea, escalating into a regional conflict which is, would hold predictable widespread business disruption risks across the region.

 

Kristen Hallam:

All right, thank you Jordan, lots to keep an eye on there. And speaking of ports and trade, Jordan, what would you say are the most critical challenges and opportunities for Ethiopia's export driven growth strategy? You know, you mentioned gold, agricultural products, textiles are also big import—exports, rather, in the context of post-election, economic policy and particular potential regulatory changes.

 

Jordan Anderson:

So opportunity wise, key things are include the I've mentioned the liberalizations Ethiopia's telecoms and banking sectors. Also of note is that in January of this year the Ethiopian government broke ground on the construction of the new $12.5 billion international airport project which is— the aim of the project is create Africa's largest aviation hub by 2030, particularly serving the state owned Ethiopian Airlines, arguably Ethiopia or arguably Africa's largest airline and certainly an entity, it's state owned. The Ethiopian government is counting on continued growth from that sector and from the aviation sector for earnings for the country. Longer term, the Ethiopian government also plans further liberalizations and privatizations in the logistics sector, industrial parks, state owned enterprises, potentially some privatizations there. But the timeframe for all of these is very much going to depend essentially on market appetite, whether the government is satisfied with the scale of investor interest and with the revenue that they would get from those privatizations or from opening those sectors up. So the timeframe from one of those is very much being worked out. That for example, is one of the big delaying factors around the second telecoms license. Is there enough investor interest and is the Ethiopian government going to get the price that they want for allowing a second private operator into that market? I'd say that the two most pressing and immediate challenges though in this context are disruption for the domestic insurgencies that I mentioned before.

Also there's currently a critical fuel shortage triggered by the ongoing conflict in the Middle East. So one thing we understand from our in-country source network in Ethiopia is a number of foreign private operators in the country have already had to suspend or significantly cut back their operations in Ethiopia due to a lack of fuel. And this is also including fuel for generators that are powering their factories as well as just challenges to their transportation. Electricity grid disruptions have increased within Ethiopia since we've seen the onset of the conflict in the Middle East and this is being impacted by fuel shortages as well because it's delaying maintenance work on the grid which requires fuel to take place. Even in the capital city, we're seeing the power grid becoming less reliable for private operators and business in Ethiopia. Even in the event of a fully resumed kind of oil flows, energy flows through the Straits of Hormuz, Ethiopia is going to likely going to continue to see weeks of worsening fuel shortages simply for being lowered down and kind of the price priority internationally the resumption of those shipments of fuel. And because the Ethiopian government would likely prioritize making newly arrived fuel available for the country's military first.

Again, thinking about the conflicts in two or three regions across Ethiopia as well, wanting to make that act available for them for the troops rather than necessarily prioritizing private operators for that. So private operators could continue to see these kinds of disruptions even once fuel starts flowing back into Ethiopia. And the longer this continues, the greater you see the likelihood of significant disruption to domestic food supply chains in Ethiopia as well. And for this to trigger violent antigovernment protests in urban areas in response to surging food prices or just to food being unavailable for the population in the needed quantities. Potentially these fuel shortages also threaten preparations for the election itself. Thus far, the Ethiopian government has signaled they intend to push ahead with these elections regardless of a number of the security challenges I've mentioned. So probably they're going to push ahead regardless of the fuel challenges. But again, this may just mean that many parts of the country, electoral materials aren't available for them to take part in the voting because it's very hard to get the necessary fuel to transport the poll workers or the materials out to them.

So what this leaves us with is that Ethiopia's growth strategy has a number of opportunities, but these face pretty acute challenges from domestic security threats, from worsening fuel shortages that certainly don't seem to be immediately going away, and from difficulties faced by private operators in securing priority access to fuel within the country.

 

Kristen Hallam:

Right. Thank you, Jordan. Rafael, let's come back to you talking about trade. Brazil's oil, gas and renewables resources and rare earths create bargaining power. How do you expect Lula to use strategic commodities in negotiations with the US and with mainland China? And how would that look different if a right-leaning candidate wins the election versus Lula?

 

Rafael Amiel:

Well, that is already happening. When the U.S. imposed a 50% tariffs on Brazilian exports to the U.S. the political issues that they claim they use, that Bolsonaro, Jair Bolsonaro, who I mentioned is the father of Flávio Bolsonaro, the candidate. Jair Bolsonaro was being unfairly treated and prosecuted. And that was one of the reasons, major reason why the US imposed tariffs on Brazil. So immediately Brazil came out and said, well, we have rare earth, we have critical minerals, we have everything. And the first negotiation yielded positive results. Some of the big commodities the Brazil export to the United States, including the beef and chicken and coffee, were exempted from the tariffs.

And then negotiations continue because there are still so many items that are under 50% tariffs. So that's part of the story. With respect to China, it's very difficult to think that trade can change radically because most of the grains, corn and the soybeans especially, that Brazil produces go to China. And we don't expect that to change unless the China-US relationship changes. And then the US starts sending soybeans to China as it was in the past, before 2025, let's put it this way. So, yeah, we assess that that is a big token of negotiation that Brazil has to try to reverse the tariffs that the United States still poses. You say if the right wing, if Flávio Bolsonaro wins the elections, since will be easier. It will be easier for Brazil to say, okay, this happened.

Now it's not happening. So I want to change. And Brazil becomes like a normal trading partner with a 10% regular tariff. And that will be the outcome. That will be the easier outcome.

 

Kristen Hallam:

Right. Thank you, Rafael. I'd like to do a lightning round with each of you. So when you're monitoring these elections, what are the indicators that you monitor 30 or 60 or 90 days out from the election? Rafael, since you have the floor, let's start with you.

 

Rafael Amiel:

Yeah, I think I answered the question. We in the markets, we want to see a serious commitment to fiscal prudence from whoever wins the elections. That will change the game significantly. We mentioned monetary policy being too strict. If monetary policy goes to neutrality, let's say the policy rate goes down to 8% or 7%, immediately, the fiscal deficit because of the interest payments are lower. Because the interest rate would be lower, the fiscal deficit comes to 4 or 5%, which is much more manageable. If they start posting primary surpluses, I think they, they will, it will be a win situation for whoever is elected in and starts the government in 2027.

 

Kristen Hallam:

All right, thank you. Jordan, how about you? Indicators that you monitor ahead of elections?

 

Jordan Anderson:

Yeah. So we're especially watching the rhetoric that we see coming out of the insurgent groups, the groups fighting against the government, which is, as I mentioned before, we've had two major ones denounce the election process, essentially threaten anyone who's participating in it as well. So now we're looking at what scale of attacks or what areas are those groups able to disrupt the election within. Again, if we see them being able to expand their armed campaigns into the major cities, into the areas where investors are operating, being able to attack major mines, factories, industrial areas in the country, that's a significant worrying indicator for the stability of the government post-election. If those groups are able to carry out high profile or attacks that disrupt the elections themselves or on high profile targets around the election itself.

 

Kristen Hallam:

Right. Thank you, Jordan. And John, last but not least, what are what indicators do you monitor?

 

John Raines:

Well, there are a number, right. And of course the are going to change over time. But I think right now for me, you know, aside from polling, which is, you know, we're seeing considerable movement there, we are seeing some movement towards the Democrats. Like I said, Democrats have a lead of anywhere between five to six points in the generic ballot. Again, that looks positive for them. It should be noted in polling when they ask about which party do you support and which party is more popular. Democrats are the least popular party. They have a real brand issue.

So looking to see if that starts to change over time and we start to see the Democrats really starting to pull away from there. So starting to continue to watch the polling. But also economic, you know, the James Carville, it's the economy stupid. Do we start to see real upticks in inflation? What do we see with unemployment? What do we see with business and consumer sentiment? A lot of those things again pointing in a direction which is not really favorable for Republicans right now. Looking for the Supreme Court, any kind of major rulings they might have as well as, you know, some kind of surprise out there that, you know, we haven't even really talked about. Looking for early voting turnout and then also allegations of fraud or you know, integrity issues associated with election. We certainly heard those in 2020. So seeing if those start popping up again either before the votes get counted or afterwards.

And then finally obviously in US elections looking for that October surprise, something that happens a week, two weeks prior to the election that can kind of send things in a new direction. Impossible to predict. But certainly they almost always seem to happen.

 

Kristen Hallam:

All right, and that's all the time we have for today. Thanks to John, Rafael and Jordan for sharing their insights with us. And thank you for joining us today. Until next time. Thank you for listening to the Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.