What do Pakistan, Rwanda and Lebanon have in common? All have shown decreasing levels of country risk over the past 12 months and offer a diverse range of investment opportunities. In this section, Elizabeth Stephens, founder of Trendline Analytics, assesses the geopolitical risk climate of each of these three nations.



Trendline Analytics’ starting framework is a traditional country risk model, in which it scores political, economic and operational risk. This is augmented by its use of big data, through which it captures global news stories about geopolitics. Trendline scores these events for their impact on the geopolitical risk climate to create its country risk scores.


Lebanon: Improving in a challenging neighbourhood

Lebanon has proved remarkably resilient over the past seven years for a country lacking a functioning government and with a civil war raging in neighbouring Syria. This is quite an achievement for a country of minorities, with 18 formally enshrined religious creeds, in a region riven by sectarian bloodshed.

Geopolitical risk has fallen over the last 12 months as the intensity of the conflict in Syria has decreased and some of the million Syrian refugees in the country (almost one quarter of the population) have returned home. Country risk has decreased in the Bekaa Valley region after a joint Syrian and Lebanese military operation in 2017 cleared a long-standing militant presence around the town of Aarsal.

Western Lebanon remains the lowest risk region of the country, aided by its distance from the Syrian border and the prosperous cities along the coastline, yet even there the pressure of economic stagnation is becoming apparent.

Lebanon’s economy is in desperate need of reform. The World Bank halved the country’s 2018 growth forecast to 1%, predicting its ratio of debt to gross domestic product would remain on an “unsustainable path”.

The economic and social burden of supporting the Syrian refugees has taken its toll, acting as a drag on growth.

Much of the economic stability that Lebanon has enjoyed is attributable to the robustness of its banking sector, which has proved imperious to outside pressure. Banking sector assets represent 350% of GDP and are buttressed by substantial remittance and foreign direct investment inflows (constituting 16% and 5% of GDP respectively) which are used to finance the current account deficit.

Exports to Syria continued despite the war and will increase throughout 2019 following the routing of ISIS.

Against this backdrop, the formation of a new government following the May 2018 elections, the first to be held in nine years, is increasingly important. Political wrangling has ensued since the vote, which saw Hezbollah, the Shia Islamist political party and militant group, retain 12 seats in parliament and, together with its allies, secure a slight majority in the 128-seat chamber.

Saad Hariri, son of Rafic Hariri, the premier assassinated in 2005, has remained in place as prime minister of a coalition including Hezbollah, despite his mainly Sunni party losing seats, and to that extent much remains unchanged.

Yet Hezbollah’s strong showing could further complicate Lebanon’s relations with aid donors and neighbouring states, as a parliamentary majority gives the party a renewed popular legitimacy for a position won through Iranian patronage and force of arms.

This scenario allows Israel to claim that in the next war with Lebanon, which it talks of with a sense of inevitability, it will not distinguish between the paramilitaries and the Lebanese state as it did in the 2006 war.

Saudi Arabia, the long-term effective guarantor of the Lebanese economy, has already withdrawn support from the government in the face of a perceived Iranian ‘victory’, and the long-term position of other significant aid donors including the US, the UK and France remains unclear.

At the risk of further stoking regional tensions, in January 2017 the government established the legal framework for the exploration of oil and gas deposits. Seismic studies estimate that Lebanon has potential natural gas reserves of 25 trillion cubic feet. These have not been confirmed by drilling, and further exploration is required to determine whether the reserves are commercially viable.

In December 2017, Lebanon held its first offshore licensing round and awarded two exclusive petroleum licences for exploration and production in blocks 4 and 9 to a consortium made up of Total, Eni and Novatek.

The award is contentious as one of the blocks straddles an 860km2 zone of disputed waters with Israel: Lebanon and Israel technically remain in a state of war. While the two countries have unilaterally demarcated their exclusive economic zones, neither can be viewed as legally final.

Exploration in the block is likely to raise tensions, particularly if results are positive, but the prospect of oil and gas production, even if it is 10 years in the future, is already being hailed by politicians as the route to economic prosperity.

Pakistan: A country of contrasts

Imran Khan, Pakistan’s former cricket captain, spent 25 years as a political outsider before being elected prime minister in August 2018. The victory of his party, Pakistan Tehreek-e-Insaf (PTI), marks a structural shift in Pakistan’s political landscape, away from the Pakistan People’s Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N), which have dominated the political landscape since the country’s independence.

Khan has secured the leadership of a Pakistan with a complex outlook. The country has earned the status of an “emerging market economy” and boasts one of the fastest growth rates in Asia. Incidents of political violence are declining, as is the death toll from terrorist attacks. These factors feed into the falling level of country risk across Pakistan.

Conversely, the country’s coffers are empty and a balance of payments crisis looms. Whilst Khan’s election rhetoric pledged to rout out corruption and create an “Islamic welfare state”, in reality he has been forced to resort to asking the IMF for a loan. If granted, the loan will come with tough conditions on structural reforms that will impede his populist agenda.

Given its strategic location and the size of its economy, Pakistan is at the centre of Chinese President Xi Jinping’s Belt and Road Initiative. Beijing has pledged to invest US$60bn in a programme that aims to address energy shortages, build a transportation network and develop a deep-water port at Gwadar. US$19bn has already been invested in what is known as the China-Pakistan Economic Corridor (CPEC), which has improved the power system and stimulated growth in the services and industrial sector, making a worthwhile contribution to peace and stability.

Unfortunately for Khan, in seeking IMF support, he may find his country at the centre of a long-simmering dispute between China and the West over the terms of development financing. The opaque nature of Chinese loans is a concern to the West, and the US views with suspicion what it describes as “debt trap diplomacy”, anticipating Beijing will use loans as a coercive device to drive weaker states into its strategic orbit.

Despite US claims to the contrary, China has not caused Pakistan’s current economic turmoil. The triggers are the same as previous crises: serial fiscal irresponsibility by successive civilian and military governments. Chinese loans come with a five-year grace period and Pakistan is benefitting from improved infrastructure before it begins repaying the loans. But China does have responsibility for Pakistan’s growing trade deficit. China now accounts for 29% of Pakistan’s imports but only imports US$1.62bn in goods from Pakistan. Without reforms to improve Pakistan’s competitiveness, the country could well fall into
a debt trap that it cannot escape.

With this in mind, the new government announced its intention in September to review or renegotiate agreements reached under CPEC. Islamabad is also keen to renegotiate a trade agreement signed with China in 2006 that it says unfairly benefits Chinese companies to the detriment of their Pakistani counterparts. The government has announced a range of measures to stabilise the currency and cut the current account deficit, including the raising of tariffs on luxury goods and the scaling back of tax breaks for high earners.

The military is keen to repair relations with the US, and Khan, while campaigning on an anti-American platform, has already stated his interest in developing a “mutually beneficial relationship” with Washington. Pakistan is a key supply route and questionable ally in Washington’s 16-year war in Afghanistan. The military, which remains the country’s most powerful institution, nominally supports the US but, for reasons of its own, also cultivates jihadi groups, including the Taliban. Such support led US President Donald Trump to withhold US$800mn in security support to Pakistan this year in retaliation for what he sees as Pakistan’s failure to go after the militants. The election of Khan has created the political environment to reset the relations between the two countries.

Khan’s tenure as prime minister represents an opportunity to challenge corrupt practices, improve governance, reform the economy and stabilise relations with Pakistan’s neighbours. None of this will be easy, but Khan is uniquely placed to utilise his international standing to entice foreign investors and build positive working relations with heads of state from Donald Trump to Xi Jinping. Pakistan has attributes both China and the US need, and Khan has the sophistication and legitimacy to use this to the advantage of his country. Against this backdrop, the infrastructure installed under CPEC could, despite the risk, boost these goals.


Rwanda: Small state, big ambitions

When a Financial Times journalist questioned Rwandan President Paul Kagame on his 2017 election victory in which he won 98.8% of the vote, Kagame replied by saying western-style democracy didn’t necessarily fit the African context. He then questioned the efficacy of the US system of government. “This man Trump, he’s a product of your democracy … the democracy you tell us to emulate, but you are here complaining about what your democracy gave you.”

Kagame led the Rwandan Patriotic Front takeover of Rwanda and has ruled the country since the genocide, as de facto leader from 1994 and as president from 2000. A 2015 popular referendum led to a constitutional change that increased presidential term limits to five seven-year terms and effectively enables Kagame to remain president for life. At the age of 61, he is one of Africa’s younger leaders, and on a continent that is no stranger to octogenarian heads of state it is quite conceivable that he will lead Rwanda into the 2030s.

Herein lies the tension inherent in Kagame’s long-held status as darling of the West. On the one hand, he’s been praised for transforming the central African nation from a failed state haunted by the memory of a brutal genocide, into a thriving economy. The country jumped 15 places in one year in the World Bank’s 2018 Doing Business report, being ranked 41st out of 190 countries and singled out for implementing the most business-friendly reforms in the past 15 years.

On the other hand, he is criticised for having stabilised the economy and society at the expense of political competition. He is often accused of authoritarian tendencies and of using the policies that have won him plaudits in the West, such as the war on graft that has made Rwanda the least corrupt nation in the region, to locking up members of the political opposition. Several critics who have gone into exile have died in mysterious circumstances and dozens of opposition figures have been imprisoned.

Educated at the US Army Command and General Staff College in Kansas, Kagame is adept at understanding the western psyche and devising innovative ways to promote his country to western donors and investors. The most high-profile and controversial of these schemes is the 2018 US$30mn sponsorship deal of his “beloved” Arsenal football club. While British tabloids lambasted the government of a poverty-stricken country for “wasteful” expenditure, the Rwandan response was pragmatic. Tourism is Rwanda’s number one foreign exchange earner and the sponsorship deal was part of a strategy to boost the tourism industry. If Arsenal holds training camps in the country, their supporters may follow, bringing with them precious foreign exchange that can be invested in development projects. Rwanda has gorillas, a game park with the big five animals, good air links and an impressive new convention centre in Kigali, the well-functioning capital, making it an attractive destination for tourists and investors.

Infrastructure development is at the forefront of the government’s growth strategy and is considered essential for the expansion of a vibrant private sector. Almost a tenth of Rwanda’s annual budget is invested in infrastructure, funding projects such as the construction of Bugesera airport, which will alleviate pressure on Kigali International Airport, and the development of two major regional lines in a bid to link the country to the major sea ports of Mombasa and Dar-es-salaam. As a landlocked country, Rwanda is dependent on access to ports in neighbouring countries for trade and is vulnerable to disruptions to overland supply chains.

While instability is contagious across the porous borders of African states, the Rwandan army has proved adept at maintaining stability since the genocide and it is Rwanda that often stands accused of meddling in the affairs of other states. The lowest levels of geopolitical risk are in and around Kigali because it is situated in the middle of the country, away from potentially unstable borders, and is the area where government control is at its peak. Geopolitical risk is also low in the western region of the country, where the Rwandan army is stationed to prevent conflict in eastern Congo spilling over the border. The potential for conflict is rising in the south of the country in response to the declaration by a new opposition group, the Rwandan Movement for Democratic Change, that it is seeking to forcefully overthrow Kagame. In view of Kagame’s control over the military and his confidence in his position – such that he released 2,140 prisoners in September this year, including top opposition figure Victoire Ingabire and musician Kizito Mihigo, who was convicted for a litany of charges including conspiracy to murder Kagame – the impact of another opposition movement is likely to be limited.