Geostrategic Analysis: March 2024 edition

European farmer protests lead to a softening of EU green regulations

Farmers across Europe have been protesting against high energy prices, cheap agricultural imports and the EU’s environmental legislation, leading the European Commission to backtrack on measures to reduce emissions and bind agricultural subsidies to sustainable practices such as limiting the usage of arable land and halving the use of pesticides.²⁰ Nationalist parties are capitalizing on farmers’ anti-green frustrations and are expected to secure more seats in the European Parliament elections in June.
 

Road blockages and other logistical disruptions will likely persist in the months leading up to the European Parliament elections, as farmer protests intensify and potentially spread to more countries. Such protests may fuel anti-green tensions in other sectors with similar concerns, such as automotives. More broadly, the rise of anti-green, nationalist parties in the new European Parliament may weaken consensus on the EU’s current environmental agenda. In the short-term, the easing of environmental rules will mean farmers benefit from lower compliance costs and continued access to subsidies. It will also lead to heightened uncertainty about the timing, content and implementation of green agriculture policies, including sustainability requirements, carbon taxes, water management and biodiversity initiatives.
 

For more information, contact Famke Krumbmüller.

Indonesia’s election portends policy continuity and state control

Preliminary quick count results done by survey agencies indicate that the current Minister of Defense of Indonesia Prabowo Subianto won a majority of votes in Indonesia’s presidential election.²¹ If these results are confirmed, Prabowo will take office in October 2024. However, results indicate his party won less than a majority in the legislature, so governing will require the formation of a coalition. This more complex political landscape could constrain the government’s ability to implement any major policy shifts in the near to medium term. Foreign policy is expected to continue to focus on attracting foreign investment across the geopolitical landscape.
 

Prabowo is likely to expand the state’s role in Indonesia’s economy with investments in mining, manufacturing and agriculture to achieve greater food security. In addition, a Prabowo government is likely to continue support for domestic metals processing and existing nickel export controls in pursuit of higher value-added export-oriented growth. Companies should monitor future policy decisions that may indicate greater favoring of domestic firms and develop mitigation plans should concerns materialize about the possible weakening of labor and other institutional standards.

Nigeria's foreign exchange reforms will have diverse business impacts

The Central Bank of Nigeria (CBN) is advancing toward a flexible exchange rate system, evidenced by recent policy adjustments such as the elimination of spreads on foreign exchange transactions.²² This shift, spearheaded by CBN Governor Oluyemi Cardoso, is part of a set of market-oriented economic reforms.²³ The considerable autonomy granted to Cardoso in shaping CBN policies signals that these reforms are being implemented without political interference, with the latest move being a significant 400bps increase in the policy rate. Nevertheless, the durability of these reforms rests on the ability to effectively counter inflationary pressures amid fluctuating exchange rates. Protests about higher food and fuel prices have heightened political pressure on the government, which reacted by releasing 42,000 metric tons of food amid speculation about the introduction of price controls.²⁴
 

The evolution of Nigeria's foreign exchange policy will exert varying impacts across sectors and business functions. Businesses that primarily focus on exports such as fertilizers stand to gain from a more competitive exchange rate, bolstering their global competitiveness.²⁵ Conversely, businesses that rely on imports such as machinery and boilers may encounter heightened costs due to currency devaluation and the new set of foreign exchange rules.²⁶ The petroleum products industry will be affected by both dynamics. Enterprises with substantial foreign exchange exposure should manage risks and adapt strategies such as flexible pricing and hedging mechanisms to navigate the dynamic economic landscape.