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You're listening to the Economics & Country Risk Podcast from S&P Global Market Intelligence. In each episode, our experts will provide you with the where, how and when to make decisions that transform your business.

Kristen Hallam

National interest objectives will influence reordering of relationships between countries and in multilateral forums impacting global challenges, flows of trade and investment. Countries will cooperate where objectives align, but areas of competition will likely increase. How faster-growing economies exercise their rising economic and geopolitical influence will be key.

An important indicator underlying the direction of these risks in 2024, will be the outcome of dozens of scheduled elections. With so many poles globally, we're elevating these select elections because they touch on the economic fragility we see in the world and are most likely to impact business. India, the world's biggest democracy, where more than 900 million voters will decide whether to give Prime Minister Narendra Modi a third consecutive term.

South Africa, where the African National Congress, which has been in power for 30 years, may lose the outright majority for the first time. The EU, which will hold the first parliamentary election since 2019, which was before the pandemic and the War in Ukraine.

The U.K., where the opposition labor party could regain control of the government after almost 15 years of conservative leadership. And Mexico, which will elect a successor to President Andrés Manuel López Obrador and the complete Federal Congresses up for grabs as well as more than 19,000 state and municipal offices.

I'm Kristen Hallam, lead content strategist for global intelligence and analytics at S&P Global Market Intelligence and your host for this episode of the economics and country risk podcast. Joining me are my colleagues from Market Intelligence, Deepa Kumar, Head of Asia-Pacific Country Risk; Laurence Allan, Head of European Insights and Analysis; Jose Enrique Sevilla-Macip, Senior Analyst for Latin America; and Lange Malimela, Head of Country Risk, Sub-Saharan Africa.

Now let's identify for our listeners where they should focus their attention by pointing out where the greatest potential for change is. Deepa, what policies could see a significant change or shift depending on the outcome of the elections in India?

Deepa Kumar

There are 2 aspects about the outcome of the election, which will influence both the direction of the change and the intensity of the change, if at all. First is whether a new government that comes to power under Prime Minister Modi or not comes with a full majority in parliament or in coalition that decides the stakeholder interest and where that sort of influences India's policy meeting.

And second is, depending on the composition of the new government, what does the new cabinet look like. Assuming a third consecutive term for Prime Minister Narendra Modi, it's still very likely that the cabinet ratio will happen, which means most of India's key portfolios now go under different ministers who might have some changes that they want to bring into policymaking.

Having said that, I'd say there is a structural policy direction that India has adopted now in the last 10, even 15 years, which is unlikely to change even with the government change. And there are 3 kind of pillars to it. First is the impetus for infrastructure development. Second is the 'Make in India' initiative and sort of transitioning India's economy from a services dominated economy to manufacturing one.

And the third is navigating climate, which is a very big term for saying that everything that comes with it, be it transportation, be it energy security, be it energy transition. These are going to remain the fundamental pillars of Indian policymaking irrespective of what the new government looks like. What will change, of course, is policies within these broader buckets, depending on who the new ministers are, what they'd like.

Even then the campaign of the current government going into elections is "Modi's guarantee". So it's fair to say, even then that the Prime Minister's office is going to have a large role in policy making. The 2 things that we are looking at is, how does the government sort of either incentivize. So do they use tariffs, or do they stick when it comes to encouraging private investment.

Because that's one of the things that the government really needs to do, which is transition from a government-led growth or a government-led development model to a private investor led development model. So for instance, if I just take the Production Linked Incentive Scheme, which is India's flagship industrial policy at this time.

It has elements of both where the government imposes import duties to kind of forced investors in India to manufacture in India, but at the same time, even offers incentives, which encourages our private investors to manufacturer in India. So those kind of policies and whether they either are asking these national champions to be present in a larger sector of fields, is something that we will have to watch for. But yes, a fundamental shift away from India's current policy direction is unlikely even after the elections.

Kristen Hallam

Okay, thanks for that, Deepa. As you did touch on this a bit, but what could that mean for India's economy?

Deepa Kumar

So India's economy and the fact that it is in the strong position that it is in today drives the kind of stability that we are finding in Indian policy direction. We're looking at an average 6% plus GDP growth for India over the coming decades. So it's a sustained period of high growth. One of my colleagues likes to say that India has had periods of strength in growth, but what India now needs a marathon.

So we are at that starting phase of the Marathon. So India can sustain that for the next 10 years, it would be good. Within that 6% plus growth to, what is important is that both urban India and rural India grow in a sustainable way. So growth has to be inclusive, not just driven by a particular part of the Indian economy. So that's something that we're looking at.

And more immediately, the budget that the government presented last week, where they said that India's fiscal deficit this year is 5.8%. And they have a pretty aggressive target of bringing it down to 5.1%. Now that kind of a target is difficult to achieve within the year unless there is some major trimming happening in government spending, which we are thinking perhaps comes from social welfare schemes, which actually Prime Minister Modi's government has expanded.

So what we're likely to see is some of the social welfare schemes go back to the Indian state, if the government wants to make that 5.1% target. But overall, it's in a good stead the Indian economy. We do expect infrastructure, so capital expenditure for infrastructure to go up as well. But yes, the 2 things we watch for is, one is that rural urban balance.

And second is what does India do with that labor dividend or that -- which many people would have heard the demographic dividend of the Indian society. Because the next 5 to 7 years is kind of the sweetest period for India in terms of maximizing what they can do with labor.

Kristen Hallam

Demographic dividend, I do like that. And Deepa, what impact could the election have on India's stated aim of leading the global south and on its alliances, including but not necessarily limited to the BRICS alliance?

Deepa Kumar

So Indian foreign policy, especially in the last term of this government, right, which is post-COVID and post Russia-Ukraine, you've gone through a shift in a doctorate. And it's a very nuanced shift, so Indian foreign policy was under the bracket of non-alignment very famous before it. But now it's strategic autonomy. And they might seem like 2 sides of the same point, but they are not.

It does point to more agency in Indian foreign policy, now where they cooperate with countries where they need to and compete even with the same countries where they need to. So in that sense, given that it's a doctrine level shift and given that we're looking at some broader level of policy continuity, a major break in Indian foreign policy is unlikely at least influenced by domestic elements.

There could be things that happen in the world. So for instance, how other countries want to change their alliances with India, to the U.S., or any other partners want to reduce or increase cooperation with India, which could influence India's decision-making, what I like to call the concentric circles of India's strategic priority, which talks about India at the center and then the Indian neighborhood in the first circle outside of it.

Then the emerging markets on one side and the developed countries of the west on the second type and then the rest of the world, that kind of balancing act between say the [ cord ] at one end and the BRICS at the other end, is something that India is going to very likely continue doing. What India will want though -- or at least something that they argue more for is multilateral reforms.

So there are still difficult conversations that India will have in these forums, "climate justice" for them, we've said this even before energy is not just a transition or a security question, it’s also a climate justice question. So be it Russia, be it China, be it the U.S., be it bilateral or multilateral forums, these are the roles, India will play and of course, seeing itself as the leader of the global south. So not that they're just doing this for themselves, but they are first among the many emerging markets that wanted.

Kristen Hallam

Great insights there. Thank you, Deepa. Heading over to South Africa, Lange what policies could see a significant change or shift depending on the outcome of the election there?

Lange Malimela

There are 2 major areas to look at. Again, much depends on the actual outcome in these various nuances given the African National Congress are potentially moving from being in an archived majority to then having to potentially partner with a smaller part in order to be able to form a government. If the ANC fails, we should not outright majority, does it only marginally fail and therefore, partner with a small and significant party, which in turn, doesn't necessarily knock it off its broad policy part.

Or does it fall so far that it actually needs to team up with the likes of the economic freedom prices who are the divergent when it comes to certain key policy areas that the ANC then potentially is forming a government, where policy will be far more contested than we could see some more radical changes. So those are the things that are likely to shape. But certainly, what's going to happen to key state and enterprises is at the heart of this.

There's a big focus on the electricity utility Eskom, which has debt in the region of USD 25 billion. And what's the future of that entity is? And is sort of trapped between two strands of thinking internationally within the country and within the real party itself in terms of doubling down on fossil fuels and the significant sort of call strength at South Africa and the region has versus shifting away and starting to develop more renewable forms of energy.

And to that extent, you've had much support at least pledged support from a financial perspective from Western Partners. But Eskom is enormous, it has lost a lot of skills in recent times and the issue of electricity, obviously is at the heart of the low growth cycle that South Africa has been trapped for some time.

The other important state-owned enterprise in this regard, facing a lot of similar characteristics or challenges is the port and rail operator transmit, which in September 2023 posted a loss of something about ZAR 5 billion. The Durban port, which is the biggest in sub-Saharan Africa and manages something like 3 million containers per year and as such important avenue for trade and earning foreign currency, has been really a shell of itself for some time.

And it's not only actual getting an institution like that out of debt, trying to attract key skills back into it, but also over the long term, having plans to be able to deal with new challenges. So what happens to state-owned enterprises? Does a new executive after this election have the political cachet to open up space for private players to come in.

Can that be privatized, and we have new players, innovative ways and create a competitive environment in terms of the transmission of energy, for example or are you going to have the usual connected crony type of allocation of important responsibilities, such as those. And again, the same goes for [transmit], had a lot of turnover in terms of leadership in recent times that’s because of the proximity of the ANC government to these institutions and the need for the right people again to be getting contracts and so on.

So at the heart of it, the electricity issue and the ports issue are really the basis of the economy and if those can't be resolved, then the anemic growth that we've seen over such a long period is likely to continue, so that is the key one. I think another is what happens in the context of what have been declining, electro fortunes for the ANC, what happens to its policies around social services and the social grant system in particular.

There is clearly a need at the moment to really rein and spending and try to manage debt. South Africa historically as the external position is usually quite good, but a lot of internal domestic data and so how does the government implement its disciplinary fiscal measures that it proposed to pause whilst being able to manage the fact that it is losing popularity.

And you had the social grant -- social distress grant, which was introduced during COVID, and there are rumors of this becoming a permanent thing. Now it's not a lot of money, but it is issued to something like 18 million South African's every month. And that's an important foothold in terms of vote to share for the ANC.

We have a lot of people who believe that if the ANC is no longer empowered, it described those with it. And so that is an important one from a fiscal point of view, it's likely that whatever happens with its declining fortunes if that is to continue to be a trend that the social distress grant becomes a permanent feature. And that obviously makes fiscal discipline very, very difficult from an economic point of view.

Kristen Hallam

And Lange, what impact could this have on South Africa's alliances, including but not limited to the BRICS alliance?

Lange Malimela

Over the past sort of year and a bit, we've seen the ANC led government take quite strong, let's call it, anti-Western so -- on the 2 major geopolitical events that have occurred, which is the Russia-Ukraine war and the Israel Gaza matter. There's a bit article we've -- in our office, been passing around by certain scribe locally, which is titled South Africa has its heart in the East and its wallets in the West.

I think it's an apt description of the dilemma that South Africa faces, which the ANC has almost profited from over a long time. ANC led governments have been able to walk both sides of the international divide often presenting South Africa as the sort of mediator presenting the Mandela doctrine, if you like, of conflict resolution on the international stage and then using and leveraging that to build partnership and alliances on the international stage.

But again, with decline in electro fortune, we've seen the ANC led government start to lean more towards these, especially in terms of foreign policy, and we're likely to see it grow in terms of its reliance on those important or more stronger, it's a BRICS partners as the quantitation for power takes place really regardless of the nuances of the election.

The reality is that it's becoming more spread in the ANC in particular, which according to our sources, is getting quite significant support from BRICS partners for its election campaign, for example, ahead of this coming poll, start to cozy up to BRICS partners even at the risk of perhaps financial institutions, trading that sanctions tightrope.

Kristen Hallam

Thanks, Lange, sanctions tightrope. That's a good turn of phrase there. And now hopping over to Europe, Laurence, what policies could see a significant change or shift depending on the outcome of the EU parliamentary election?

Laurence Allan

Well, it's a very wide range of policies. So of course, we could see some level of change. We're thinking about this in few areas. First is thematically, if you like, support for Ukraine and the basket of connected policies and issues around that, will there be continued high level of European Parliament appetite for further sanctions on Russia, for example.

We think there will, but there may be some more blockages to that, depending on the composition of the parliament after the June elections, where will the EU go in terms of a more coherent European defense strategy, an extremely pressing question. Europe is dependent on NATO and -- specifically on U.S. support for a long time, but clearly is in a position now where it probably needs to develop a far stronger capability of its own.

So will there be a parliament, which is minded to support that and the spending that might be involved in that. And then a whole bunch of other issues around energy security and transition. So that's the first kind of cluster. The second cluster is related to the question that you asked, Lange and Deepa, and why that kind of international position.

And from the EU, that really means how will it position itself with regard to the U.S. and Mainland China. Now of course, we have elections in the U.S. at the end of the year. So until we see the outcome of those elections, one half of the EU kind of conundrum on the tightrope that it works, will remain unanswered. On Mainland China, of course, there are different dynamics, different member states have got different levels of engagement, but China have very important markets in China, in some cases, are very important levels of inward investment from China in other cases.

One issue that we'll look at pretty closely is the electric vehicles issue, where the EU is currently pursuing an investigation against alleged subsidies that disadvantaged the Europeans on that. We're looking at that as a really key indicator of what the direction of travel for the EU is going to be over the next few months. And we'll see if the new parliament changes that.

So those 2 issues and then the third kind of broad issue is whether the new parliament will have the same level of commitment to regulatory standards, which impact other regions and the most notable of those is carbon border adjustment mechanism, but there are a bunch of other kind of energy transition loosely speaking, related issues that might be relevant.

Kristen Hallam

Thanks for that Laurence, and what could those kinds of changes mean for Europe's economy?

Laurence Allan

Yes. I mean, we don't think that the outcome of the elections are going to have a major immediate impact on our economic forecast from the EU area or indeed for EU member states. And we expect, in general, a continuity of pretty insipid low growth for the EU area around about 0.4% for 2024. However, with inflation slowing. The European Central Bank and outside of the EU, the Bank of England, are forecast to start easing their cycles later than the Feds in the U.S.

So in June and August respectively, probability of those coming slightly earlier, I think has arguably risen because of continued economic weakness and slightly better news on inflation. One area where the election outcomes may have a longer-term impact on public finances and specifically on any agreement on a return to EU fiscal rules, which have been frozen since the onset of the COVID pandemic and did very briefly prior to COVID pandemic that stipulated no more than 3% budget deficit for member states.

And at least the ambition of no more than 60% debt to GDP ratio. So there's going to be an extremely contentious discussion around if, when, how and at what level those the fiscal discipline come back on stream and that's a key area for the parliament from later this year onwards.

Kristen Hallam

Okay. Let's keep you on the hot seat, Laurence. So you can tell us about the U.K. what policies could see a significant change or shift if labor maintains its lead in the polls and comes into power in that election?

Laurence Allan

They're going to double current targets on green hydrogen, and they're going to bring on stream or windfall tax on oil and gas companies, although they haven't specified the level that is. So in some areas, quite a lot of continuity, but in other areas, some pretty significant changes from what has been the standard practice for the last 15 years or so.

Kristen Hallam

All right. Thank you, Laurence. And now over to Mexico, Jose Enrique, what policies could see a significant change or shift there depending on the outcome of the elections?

Jose Enrique Sevilla-Macip

Policy shifts will certainly depend on who is AMLO's successor. For example, if we consider an eventual Claudia Sheinbaum presidency, that is Morena retaining the federal government. On February 5th, AMLO announced a very ambitious constitutional reform package, just 8 months ahead of his leaving office.

He's announcing a very ambitious reform agenda, which includes, for example, an structural reform of the judiciary to submit all judges to popular vote, the dismantling of several autonomous and regulatory state organs, including the energy regulation mechanisms, the transparency institute and the telecommunications regulatory agency.

The administrative transfer of the National Guard currently, the [jurat] civilian Security Force to the Ministry of Defense and thus, turning it into the [jurat] military force, which means these changes are unlikely to be approved for the remainder of AMLO's term and are most likely to be the major issues in a potential Sheinbaum government agenda. Now congressional elections were going to be a key battleground for this year.

Well, here's why. If Sheinbaum wants to continue pushing these changes originally announced by AMLO, she will need to have constitutional majorities in both chambers of congress. Currently, Morena doesn't have that majority. Mexican legislation requires the two third majority to amend the constitution.

So basically, if we're going to see this change through in the 1-2-year outlook, this will directly depend on the results of the congressional election, because opposition parties have explicitly stated that they are willing to consider some of the reforms in this package, AMLO's stance, but not any of those that I just mentioned.

Opposition is willing to compromise on animal rights, indigenous rights, even labor rights, but not on any of this structural state of course. So a key policy shift would be this one under an eventual Sheinbaum government, but always dependent on the results of congressional election. Now thinking in the scenario in which the opposition, Xóchitl Gálvez, candidate, were to win the presidency, the main policy shifts will be focused on 2 domains.

The first one, security, AMLO's security policy has been to avoid direct military confrontation with criminal groups, with drug cartels as much as possible. I mean violence in Mexico has remained at very high levels under AMLO, but security forces have avoided to directly confront cartels unless they fire upon.

Gálvez would most likely shift this focus into a more aggressive stance from the security forces against drug cartel that would be one domain. The other domain would be in the energy sector. One of the major impact in the business environment in Mexico under AMLO has been the restrictions to private investment in the energy and particularly the electricity sector.

Gálvez has shown their willingness to basically go back to the 2013 energy reform, complete openness to the private sector in the hydrocarbon electricity and particularly a push for more renewable power generation. Those would be the main policy shifts depending on who's on the presidency and also, as I mentioned, depending on who ends up getting control of congress.

Kristen Hallam

Thank you, Jose Enrique, plenty to keep an eye on there. Now what impact could the election outcome have on foreign policy or foreign relations?

Jose Enrique Sevilla-Macip

When talking about foreign policy from the Mexican standpoint, we have to be clear, Mexican foreign policy is wholly driven by its relations with the U.S. I mean, we've got 3,000 kilometers of shared land border, top trading partners, roughly 80% of Mexico's exports go to the U.S. In 2023, actually, Mexico accounted for the largest share of U.S. total imports, surpassing Mainland China. We expect that trend to remain at least for the next 5 years.

We've got a U.S. election coming, but let us not think of what might happen in the U.S. Let us remain focused on the Mexican perspective. And what I would say is that we expect that Mexico regardless of all the strength relations at some point between President López Obrador and President Biden. In the end, Mexico, even under AMLO has shown its willingness to geopolitically align with the U.S. Yes, AMLO has been critical of several U.S. policy.

It has been critical of several U.S. state institutions, but still Mexico has always stable in all the structural geopolitical issues, the U.S. stand. In the end, AMLO has shown that for critical decisions or geopolitical matters, Mexico stands from the U.S. side. We don't expect that to change either under a Sheinbaum or under a Gálvez administration.

Sheinbaum would most likely continue the foreign policy direction under AMLO. Gálvez would probably be even more friendly to the U.S. But I mean, in broad terms and thinking of strategic geopolitical competition, Mexico has its place very clear and it's alongside the U.S.

Kristen Hallam

All right. We have delivered key takeaways on 5 upcoming elections in under 30 minutes. All that's left for me to do is to thank you, Deepa, Laurence, Jose Enrique, and Lange for sharing your insights with us. And thanks to you, our listeners for tuning in. Please join us next week to learn more about the forces creating risks and opportunities for business in 2024.

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