Country Risk Month Ahead: September 2021

Taliban government in Afghanistan

US and NATO forces are scheduled to have withdrawn fully from Afghanistan - including from Kabul international airport - by 1 September. This timeline is unlikely to change despite an attack at the airport on 26 August. Having defeated the Afghan government militarily and negotiated the departure of foreign forces from the country, the Taliban's focus will shift to forming a government, demonstrating governance capability, and securing international recognition. These objectives are likely to dictate whether Afghanistan transitions to an orderly post-conflict scenario. The Taliban's political leadership has sought to project a pragmatic outlook, outlining intent to govern the country with consensus, accord rights to women and minorities and establish positive relations with it, along with Western governments and multilateral institutions.

The Taliban's political leadership's intent appears to be broadly credible, since engagement with domestic non-Taliban stakeholders and foreign governments and institutions will be essential for the Taliban to consolidate power in Afghanistan and to access international financing, with the International Monetary Fund having frozen the country's new grant of Special Drawing Rights. The Taliban's rank-and-file, however, are likely to resist the political leadership's apparent willingness to adapt some of its stricter tenets in practice, especially considering the Taliban's comprehensive military success. Lower-ranking commanders are particularly likely to resist overtures for domestic reconciliation, dilution of the Taliban's Islamist social agenda, or attempts to curtail the activities of al-Qaeda-aligned militants within Afghanistan's borders.

Indicators to watch:

• Appointments of Tajik, Uzbek, and Hazara groups in government - especially at the head of ministries - would indicate the Taliban's intent to share power with non-Taliban political groups and therefore mitigate the likelihood of organized resistance emerging to Taliban rule.
• Inability to ensure the provision of basic services - including water, electricity, telecoms, and banking - because of foreign institutions being unwilling to provide critical support, and local employees refusing to work under the Taliban - would exacerbate public resentment against the Taliban.

Germany's general election

Germany will hold the most competitive and open general election in decades on 26 September, with considerable uncertainty about who will follow Angela Merkel as chancellor and the composition of Germany's next coalition government. Recent shifts in voting intention indicate a heightened probability that Germany will be governed for the first time at the national level by a tripartite coalition. Three candidates have a viable chance of becoming chancellor: Armin Laschet, the joint candidate of Merkel's center-right CDU and the Bavarian CSU; Olaf Scholz, running for the center-left SPD; and Annalena Baerbock, nominated by the Green Party. With multiple possible coalition options, forming the next administration is likely to take at least several months. A key priority for all feasible coalitions will be tighter environmental regulation to strengthen the fight against climate change and the related transition to a greener economy. Other focus areas will be large-scale investments in digital infrastructure and transport, labor market and social policies, public health, and education reform. The new government will have to manage economic and social recovery from COVID-19, with a heightened risk that this - and policy implementation - will be hampered by further pandemic-related restraints.

Indicators to watch:

• Given the complex nature of Germany's electoral system, results on election night might be vulnerable to initial misalignments between the distribution of votes and seats and face subsequent adjustment.
• The closer the election results are for CDU/CSU, SPD, and the Greens, the more difficult it will be to reach an agreement on which of their candidates should be mandated as chancellor.

Mexico-US High-Level Economic Dialogue

The High-Level Economic Dialogue (Diálogo Económico de Alto Nivel: DEAN) between the governments of Mexico and the US will be hosted in Washington, DC, on 9 September. The Mexican delegation will comprise Mexico's Foreign Minister Marcelo Ebrard, along with Economy Minister Tatiana Clouthier and Finance Minister Rogelio Ramírez de la O; the US will be represented by officials from the Departments of State and Commerce, and the US Trade Representative. Four issues will be on the agenda: relocation of supply chains to strengthen bilateral trade; emergency coordination mechanisms; co-operation for development in southern Mexico and the Northern Triangle countries in Central America; and border infrastructure. The DEAN was established by former presidents Barack Obama and Enrique Peña Nieto in 2013 to streamline bilateral priorities for the two countries' trade and development agenda, though it was deactivated during the administration of former President Donald Trump. President López Obrador's push to resume the dialogue indicates that, despite deterioration in bilateral ties for security cooperation and intelligence-sharing in 2021, as well as the potentially contentious issue of Mexico's enforcement of the United States-Mexico-Canada Agreement (USMCA) labor provisions, he remains sensitive to Mexican economic reliance on the US for post-pandemic recovery. The US takes more than 80% of Mexico's exports, and IHS Markit forecasts that Mexico will surpass mainland China as the US' top trading partner in 2021.

Indicators to watch:

• If the two governments agree on a joint plan to nearshore manufacturing supply chains, primarily from East Asia, this should boost Mexico's standing with foreign investors significantly, despite the likelihood of continuing policy instability and ongoing concerns regarding Mexico's high levels of criminal violence.
• President López Obrador provides a positive assessment of the Dialogue after its conclusion, which would signal Mexican willingness to engage in discussions to renew cooperation mechanisms in other policy areas, notably security.

Australia-India-Japan-US Quad summit

US President Joe Biden proposed an in-person Quadrilateral Framework (Quad) meeting be held in Washington in late September. If confirmed, this would be the first in-person Quad meeting between the leaders of Australia, India, Japan, and the United States, although all met virtually in March 2021. All four members have indicated - individually and jointly - that the Quad will be a key vehicle for collaboration on regional initiatives given the increased crossover of each country's strategic objectives, particularly regarding China. Quad members are likely to issue a joint statement pledging enhanced security coordination following the September summit, particularly for maritime and ground security.

The meeting is also likely to include efforts to establish a joint Quad position following the US withdrawal from Afghanistan and the subsequent Taliban takeover. The Quad's ability to assert a unified strategic influence in response to events in Afghanistan and other geopolitical developments is currently limited by differences between their individual approaches and differences in each country's bilateral relations. In addition, US Secretary of State Antony Blinken said on 28 July during a visit to India that ''the Quad is not a military alliance", indicating that mutual defense arrangements between Quad members are currently unlikely. Tangible commitments are more likely to include enhanced coordination on COVID-19 vaccine development and distribution in the region, alongside infrastructure development initiatives.

Indicators to watch:

• Early recognition of the Taliban government by China - with limited conditions attached to the Taliban's domestic political agenda - would increase Quad incentives to establish a more coordinated approach towards Afghanistan.

Morocco's legislative elections

On 8 September, Morocco will hold legislative elections to elect 395 members directly for parliament's lower house, the Assembly of Representatives, for a five-year term. For the first time, regional and municipal elections will be held concurrently, an arrangement potentially designed to bolster voter participation given the historically low turnout in prior legislative polls. These elections will determine the policy agenda over the next five years, deciding both the distribution of seats in parliament and the future composition of a likely coalition government, with the King appointing the prime minister from the party that secures the most seats.

In March 2021, Parliament voted for a new electoral law modifying the quota system, with the new quota based on the number of registrants and not of voters. The new system appears intended to increase party participation, particularly to encourage the involvement of smaller parties. The new quota configuration means that a parliamentary coalition will be required as no party individually can win enough seats to form a majority. This will forcibly reduce the representation for and popular participation in traditionally larger parties, ultimately weakening any coalition's strength. Whatever the electoral outcome and the composition of the subsequent governing coalition - which is very likely to include the main pro-monarchy parties - the election is unlikely to signal a significant shift in Morocco's overall policy agenda. This reflects the significant influence of the King and his unofficial and unelected political body of advisors, known as the Makhzen, on the political agenda. Royal influence significantly reduces the likelihood of policy change that is not aligned with the preferred policy direction set by the King and the Makhzen. Policy priorities are likely to include efforts to attract foreign investment for the aviation, automotive, renewable energy, tourism, and agriculture-related technology sectors while focusing on economic recovery from the COVID-19 pandemic and socially orientated policies designed to reduce the risk of intensifying protests.

Ethiopia's delayed elections and conflict

Ethiopia will hold delayed elections on 6 September in the country's Somali and Harari regions, where the polls were postponed beyond the 21 June 2021 election day - which went ahead in all other regions - due to alleged irregularities relating to ballot papers. Advances by anti-government insurgents in Tigray, Amhara, Afar, and Oromia regions will have a thinly stretched security presence in the Somali and Harari regions, negatively affecting the security forces' ability to suppress civil unrest and militia violence. Incumbent Prime Minister Abiy Ahmed won an overwhelming majority on 21 June and is likely to obtain similar results on 6 September, but insurgent advances towards major cities and key roads increase the risk of Ahmed's forced removal through a coup. If the Tigray Defense Forces (TDF) armed group succeeds in capturing Gondar, Bahir Dar, or Semera (and the A1 highway to Djibouti), then a coup against Ahmed would be likely in the subsequent month. Similarly, if the TDF-allied Oromo Liberation Army (OLA) succeeds in blocking road access to Ethiopia's capital Addis Ababa via the A1-A5 highways for longer than two weeks, a coup would also become likely. The most likely replacement for Ahmed would be a military-backed administration looking to negotiate with the TDF and OLA.

Posted 09 September 2021 by James Petretta, Country Risk Director, Economics & Country Risk, S&P Global Market Intelligence and

Lindsay Newman, Director, Economics & Country Risk, S&P Global Market Intelligence