Now more than ever, companies operating in the Middle East and North Africa need to understand the drivers of change to better inform their planning decisions. The Mena forecasting team at Exclusive Analysis highlights the key risks in 2012 that businesses should watch out for.
Syria
The civil war has become a proxy conflict between Shia Iran and Sunni Gulf Arabs, led by Saudi Arabia. The involvement of external players and the military impasse make a prolonged inconclusive civil war most likely. The few army units on which the government can rely, principally the 4th Division and the Republican Guard, will need to be rotated from one recurrent hotspot to another, while the government lacks sufficient loyal troops to consolidate its control over restive areas, including some Damascus suburbs. The army will become increasingly dependent on the indiscriminate use of heavy and indirect stand-off weapons against civilian built up areas.
Such a war would be brought to an end in the event of sustained mass protests in central Aleppo and/or Damascus; however, the government will use indiscriminate lethal force to eliminate any indications of this outcome. A possible game changer would be a rush of senior level defections; however, the assistant oil minister’s departure is not an indicator of its early likelihood.
As the conflict turns increasingly sectarian, defections among the Alawi elite are becoming unlikely, given their justified fear of retribution. This leaves international intervention in the form of airstrikes against the Syrian army’s heavy weaponry as the only realistic military game changer. The probability of this type of intervention is currently low, given the near-certainty of Russian and Chinese vetoes in the Security Council, but would increase in the likely event of further evidence of atrocities in Idlib on the scale seen in Homs.
During the week of February 21, 2012, al-Qaeda in Iraq posted a message saying that Iraqi jihadists had reached Syria. This was the first confirmation of the group’s intention to support the uprising in Syria, following al-Qaeda leader Ayman al-Zawahiri’s call on Muslims in countries neighbouring Syria to help the insurgency.
Separately, on February 16, the US director of national intelligence went public with the assessment that al-Qaeda was responsible for recent IED attacks on security force buildings in Damascus and Aleppo.
Predictably, this was seized on by President Assad to justify his narrative that externally-based Islamists are responsible for the current violence. The suspected al-Qaeda involvement is likely to have contributed to the US decision on February 6 to close its embassy in Damascus. Similar concerns are likely to apply to the UK embassy and those of other Western countries. Syrian-based jihadist ‘brigades’ are also forming, with one claiming on February 17 to be the first ‘martyrdom’ (suicide) brigade in the Free Syrian army.
In the first few months of their involvement in Syria, jihadists are likely to focus their attention against government targets. Secondary targets would include individuals from minority sects suspected of being pro-government. Foreign jihadists are likely to have easy access to areas near the Jordanian, Iraqi and Lebanese borders, including Homs and its vicinity, Dar’a and southern Syria, and the Deir al-Zour and Bou Kmal regions.
Foreign jihadists’ access to Aleppo and Damascus is likely to be controlled by members of the defected military and other Syrian insurgents, reducing risks to any residual Western targets in these cities in the first two or three months of the jihadists’ involvement.
However, if this foreign jihadist component of the Syrian insurgency gains influence and size, which becomes more likely if Bashar al-Assad is not overthrown [in the coming six to eight weeks], any remaining Western targets would be likely to attract jihadist attention. Their priority civilian targets would remain Alawite, Shia, Christian and Druze religious minorities in urban areas, as well as Iranian targets. The jihadists would also be likely to seek to use Syria as a base to threaten other countries (especially Jordan), especially after President al-Assad’s removal.
The jihadist involvement in Syria is likely to make resolving the conflict in Syria more difficult for the West, particularly in relation to potential support for the Syrian opposition. It also increases minorities’ fears of the uprising, and makes a domestic political settlement less likely.
Libya
The National Transitional Council (NTC) has taken over government functions in Libya. However, it does not have the ability to impose its remit. In the west, the NTC’s ability to impose law and order is constrained by the various regional militias that continuously fight one another. In the east (Barqa), it is constrained by demands for regional autonomy. On March 6, 2012 Cyrenaica declared itself autonomous following the weighting of seats in the National Assembly in favour of Tripolitania. On March 16, the National Transitional Council responded by issuing a decree stating that the National Assembly, due to be elected in June 2012, would select 60 non-members to form a constitution drafting committee, and that the historical provinces of Cyrenaica, Fazzan and Tripolitania would have an equal number of seats in the committee. This action reduced the risk that autonomy will be enforced in the three-month outlook.
In order to rally the public around the idea of autonomy, Barqa authorities would need to demonstrate a clear break with the alleged corruption and economic mismanagement of the Gaddafi era.
They are likely to do so by reviewing contracts in the construction, telecoms, aviation, power, water and infrastructure sectors. This is especially likely to affect Chinese, Russian and South Korean firms, due to their governments’ perceived support for Gaddafi.
Firms from these countries are very likely to see their contracts cancelled following corruption investigations. Authorities in Tripoli are likely to come under mounting pressure to follow suit.
Exploration and Production Sharing Agreements (EPSA) are at significantly lower risk.
Firms from European countries and Turkey are less likely to face contract cancellations, though they will be at high risk of contract revisions. Moreover, firms with contracts in eastern Libya are likely to face uncertainty over which counterparties they should deal with and over questions of jurisdiction.
Elections for a constituent assembly are scheduled for June 2012. They are increasingly likely to be delayed, as voters’ registration lists have not been prepared and the electoral law and electoral districts are being disputed. In the event that elections are delayed or that fighting among western regions escalates, or that there is no agreement over division of powers between the central government and the regions several months after elections, the risk of Libya being divided into two countries would increase.
Egypt
The Supreme Council of the Armed Forces (SCAF) retains control of the state but has squandered the popularity it gained following the toppling of Mubarak in February 2011 through its handling of the transition. This has strained relations with both Islamists and secular movements. Retaining executive powers, SCAF appointed an interim government led Prime Minister Kamal al-Ganzouri in December 2011.
While the majority of political parties have agreed to a timeline for the transitional period with presidential elections in May 2012, al-Ganzouri’s government is facing increasing opposition. The Muslim Brotherhood gained some 45% of seats in parliamentary elections ending in January. With support of other parties, this would enable it to move towards a vote of no confidence against Ganzouri but this has thus far been prevented by the SCAF. However, given the Muslim Brotherhood’s dominance in parliament, it is likely that the group will be able to form a coalition government in the six-month outlook. The Muslim Brotherhood is likely to make acceptance of an IMF loan conditional on the SCAF speeding up this process.
If the SCAF agrees to transfer power to a civilian president following elections, it will likely seek to retain privileges such as an absence of civilian oversight of its budget in the constitution. It will also ensure that there are no revisions of military-related commercial contracts in order to protect its significant interests in the Egyptian economy.
The SCAF will probably seek an agreement with the Muslim Brotherhood on such issues but its ability to do so will decrease as the SCAF is facing increasing opposition in parliament, including from the Muslim Brotherhood. Furthermore, the SCAF has been unable to control the nomination of members for the committee drafting a new constitution for Egypt. However in the event that the SCAF reverses or delays presidential elections scheduled for May-June 2012, or attempts to take control of the constitutional process, the risk of destabilising unrest would increase dramatically.
Algeria
Despite the fact that President Bouteflika announced a series of political reforms in 2011, including allowing 10 new political parties to run in the May 2012 parliamentary elections, the elections are still likely to be seen as fraudulent. Bouteflika has been in power since 1999, controversially amending the constitution in 2008 to allow himself to run for a third term.
On March 9, the National Commission for Monitoring Legislative Elections, an independent body, accused the Interior Ministry of attempting to manipulate the electoral process. This is based on the registration of 30,000 military personnel in the province of Tindouf after the deadline for voter registration had passed. It also noted that the number of registered voters had risen suspiciously in at least three other provinces.
Rioting in Algiers around the May election is likely. While present indicators point to post-election protests as unlikely to be coordinated enough to reach the levels seen in Tunisia or Egypt, there is the potential for an escalation of violence.
One indicator for this escalation would be if lethal force is used against protesters. Security forces would become more likely to use live ammunition if there are protests on a scale that threatens to overwhelm them, especially in Algiers. Such a scenario would become more likely if there are multiple and significant accusations of vote rigging, combined with poor results for Islamist parties. If this happens, riots are likely to paralyse business operations and state functions.
A key indicator of whether civil unrest is likely to topple this government before presidential elections in 2014 is the nature of any strikes by workers at state oil firm Sonatrach, which generates around 45% of the country’s GDP. Strikes at Sonatrach tend to be over issues like pay and better regulations, and are relatively short.
Although currently unlikely, a prolonged (ie, more than a month) strike at Sonatrach, especially with political undertones, would indicate that the government is losing control. The motivation would be to starve the government of funds rather than to damage Sonatrach assets, and the company’s foreign partners are unlikely to be targeted directly.
On March 3, 2012, a vehicle-borne improvised explosive device (VBIED) was driven into the national police headquarters in the southern Algerian city of Tamanrasset, destroying the front of the building and wounding 26 people. This was the largest suicide VBIED in Algeria outside al-Qaeda in the Islamic Maghreb (AQIM)’s northeast Kabylie heartland since 2007. It was also the first attack to occur in Tamanrasset’s provincial capital. The attack was claimed by Monotheism and Jihad in West Africa (MJWA). This group first emerged in December 2011, claiming responsibility for the kidnapping of three European NGO workers at the Tindouf refugee camp in western Algeria, for whom it is now demanding a US$30mn ransom.
MJWA is likely either to compete, or eventually partner, with AQIM for a share of kidnap and drug-smuggling revenue. However, the Tamanrasset attack suggests greater appetite for spectacular attacks than shown by AQIM’s Sahel factions; the latter have not attempted a VBIED in a city since February 2011’s failed attempt on the French embassy in Nouakchott.
While its only two attacks to date have been in Algeria, the new group has a transnational membership, including Mauritanians, Malian Tuareg and Western Saharans. A video released last year also featured speakers of Hausa, used in Niger, Burkina Faso, and northern Nigeria, indicating recruitment in one or more of these countries too.
MJWA’s composition makes any attacks in Algeria most likely to occur in the west or in the desert provinces, potentially including Ouargla, where Algeria’s Hassi Messaoud oilfield is located, rather than in Algiers or other northern cities.
The Mena forecasting division at Exclusive Analysis is made up of experts who specialise in forecasting contract risks, violent risks to the energy sector, bribery and corruption risks and civil unrest risks. For additional information, visit www.exclusive-analysis.com
