Introduction

Last December, Geopolitical Futures issued its first global forecast for 2016. That forecast was written before we opened for business. It is now July and it is time for us to issue our first report card on ourselves. We will not release a forecast without constant self-examination. And we owe it to our readers to periodically evaluate our work. Given that our readers know whether we made mistakes, and write emails telling us, there is little point in trying to hide mistakes. In addition, trying to hide them from our readers would mean hiding them from ourselves. When you start lying to yourself in strategic intelligence, you’re on the path to disaster. Obviously, readers can dispute our self-evaluation. Just be aware that we reached these conclusions as honestly as we could.

Below, we provide a report card in which we grade each prediction (letter grades, no plus or minus weaseling) and offer a terse explanation. Looking at the report card, you can quickly see what we think of our performance. If you want more detail, the full report follows. We present a part of our forecast, followed by an analysis of our performance. Keep in mind that our forecast was for the full year, and that the final judgment will be made in January.

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We have defined our grading system as follows:

A: Forecast fulfilled
B: Forecast on track but not yet fulfilled
C: No movement toward fulfillment but still likely or at least possible
D: Significant failure in forecast
F: Forecast wrong
NF: Not forecast

By January, the grades will cluster at the top or the bottom. In July, they will tend to be in the middle, with hopefully more Bs than Ds. Ideally, our forecast is crisp with minimal ambiguity. The letter grade will therefore not be controversial. That is the goal, at least.

As readers know, we focus on geopolitical dimensions. Geopolitics subsumes politics, economics and war under one category, as the distinctions between these are illusory. We also create our forecast by trying to grasp the imperatives and constraints under which decisions are made. The simplest way to put it is that we don’t care who the leader of a country of millions or hundreds of millions of people is. At a certain level, such as predicting what happens in the EU, Russia, China or the United States, political power is so constrained that the wishes of leaders have little to do with what will actually happen.

So, quite a while ago, we foresaw the EU failing, Russia and the West confronting each other over Ukraine, and the Chinese economy failing, while the country moved to dictatorship (you can find these predictions in my books and other writing). Neither Merkel, Putin or Xi imagined 10 years ago that these events would be happening. But it doesn’t matter what they thought. This is what allows us to forecast.

At the same time, there are things that cannot be forecast. We had no idea that Britain would vote by 4 percent to leave the EU or that Austria’s presidential race would see a nationalist candidate nearly win and a do-over called. What we could say was that the European Union would see anti-European political parties with increasing power and that the EU would become hopelessly mired in its institutional failures. And since it is still not clear whether Britain will actually exit the EU or Austria will get a nationalist president, we think that the level at which we operated provides more clarity.

That can be debated of course and we welcome the debate. But our performance should be clear and not debatable. We welcome your comments on this report card.

George Friedman

Europe

1. “2016 will be a year of not complete but very significant fragmentation in Europe.” “The EU will face the most intense tests in 2016. These tests may involve the formal secession of some member states from the EU. More likely, the central apparatus – the EU itself – will appear irrelevant or even hostile to various nation-states.”

a-report-card  The intensified fragmentation of the EU manifested in the first half of 2016 through the success of Euroskeptic and anti-establishment parties, increased tensions among members and Britain’s nominal move toward leaving the EU. Anti-establishment and Euroskeptic parties like Italy’s Five Star Movement, France’s National Front and Austria’s Freedom Party performed well in elections, while the Alternative for Germany party boosted its popularity at the expense of ruling establishment parties.

The growth in Euroskeptic sentiments in the U.K. reflected increased disillusionment with Brussels. Indeed, there are signals that public opinion across Europe is turning against the bloc. For example, a poll conducted by Ipsos in March and April found that 55 percent of French voters would support holding a referendum on EU membership, while 41 percent would vote to leave the bloc.

Stark generational and socioeconomic gaps in perception of the EU have also contributed to increased fragmentation. Eurobarometer polling data reveals that, across Europe, 55 percent of young people between the ages of 15 and 24 say they feel attached to the EU, compared to only 45 percent of Europeans over the age of 55. Levels of attachment also vary between socioeconomic groups, with the upper-middle class expressing greater attachment to the EU than the middle and lower-middle classes.

Moreover, there were also signals that EU institutions are becoming irrelevant in some instances, as EU regulators clashed with national governments. Over the past few months, many EU member states ignored or failed to implement refugee policies. Countries like Italy clashed with Brussels over banking and fiscal policies, while the EU attacked the legality of actions taken by the Hungarian and Polish governments.

2. Brexit

nf-report-card  We forecast that the European Union would fragment, and Britain, like Austria or Italy, is included in that forecast since it is part of the EU. Therefore, we had no specific forecast on Brexit. The European Union was likely to fragment without dissolution. Nations would simply ignore its rules, as has happened on several occasions. Further, elections are inherently unpredictable. The “leave” faction won by an extremely small margin. The vote easily could have gone the other way. Finally, it is noteworthy that the vote has not yet resulted in a British exit, and there is a possibility that it will not actually happen.

3. “Italy will be facing serious banking problems in 2016. How serious they are will depend in large measure on how rapidly the rest of Europe recognizes the problem and is willing to create solutions. Given Europe’s track record, speed is unlikely and this can create a crisis far more challenging than Greece’s later in the year.” “If, as we expect, Italy will face significant problems, this will force Germany to make extremely painful and politically unpopular decisions.”

b-report-card  Relatively little news on Italy’s non-performing loans worth 360 billion euros ($399 billion) – roughly 17 percent of GDP – was available in the mainstream media when we published our forecast on Dec. 2. Now the problem is commonly referenced.

Since December, Italy has clashed with Germany and the European Commission over how best to address the problem. They finally reached a compromise in January that allowed Italian banks to offload bad debt with the assistance of state guarantees. But neither this deal nor a 5 billion euro bailout fund called Atlante (which has already been used to rescue two banks and may receive more funding) has done anything more than put a small bandage on a potentially fatal wound.

Italy has not erupted yet into a full-blown crisis over its NPLs. Nevertheless, we expect Italy to continue to struggle with its NPLs and fight with the European Commission over what it can do to alleviate the problem. Our forecast that this will greatly strain Italy, Germany and the whole European Union appears on track.

4. “Germany, key to all three of the EU’s dilemmas, is exceptionally vulnerable economically and, understanding this, must play a complex game.”

a-report-card  Some of Germany’s vulnerabilities have already come to the fore. The country has feuded with France over defense spending and deficit levels, and Italy over banking regulations. Germany’s hard line on migration last summer played a large role in alienating British voters and leading the country to vote for Brexit. Berlin’s desperation to maintain the cohesion of the EU – and thus of the free trade zone that is critical for Germany’s economy – indicates our forecast is unfolding as predicted.

As to Germany’s economic problems, we have only the first signals – but they are very worrying signals. In March, Siemens announced that it would be laying off 2,000 workers. In April, Daimler, a major German auto exporter, reported that unit sales rose 7 percent, while revenue increased merely 2 percent. Net profit decreased year-over-year by 34 percent. We believe one of the ways Germany has stayed afloat through the global crisis of the exporters so far is by cutting prices on its exports and sacrificing profit margins. Daimler’s report was a crucial first signal.

A bigger signal came just last week, when the International Monetary Fund identified Deutsche Bank as the most significant contributor to risk in the global financial system.

5. “Europe will become a crazy quilt of opened borders, conditionally open borders and tightly controlled borders. And the advocates of a Europe open to all refugees will be not only on the defensive, but will have to agree to tightly controlled residences for any refugees — in other words, camps.”

b-report-card  Our forecast regarding the EU’s handling of the refugee crisis has thus far proved true. The one area we have missed is free movement on the Continent. While border controls and fences have gone up in some key areas, particularly those on the receiving end of larger numbers of migrants from the Middle East, the Schengen zone thus far remains mostly intact.

However, we also said that European countries would not allow a European force to perform border control duties and that migrants will be forced into refugee camps. The EU has since come to a preliminary agreement on an expanded European Border and Coast Guard, but it took more than a year of crisis to get any movement on the issue. The refugee crisis is still live.

The irrelevance of EU directives on the issue falls in line with what we expected. And as we predicted, large numbers of refugees remain stranded in countries like Greece, and the EU has been unable to effectively implement a redistribution program. European national governments remain committed to having ultimate control over external EU borders and limiting who may cross into their territory, as we forecast.

Russia

6. “We predict there will be a settlement in Ukraine in 2016, whether formal or informal.” “The Russians will build up their military.” “In due course, the Ukrainian question, along with the general question of the buffer states between Europe and Russia, will be reopened. But not in 2016, with economic and strategic problems weighing Russia down.”

b-report-card  As forecast, Russia is continuing to experience economic and strategic challenges. Low oil prices are weighing heavily on Moscow. In its latest June estimate, the World Bank said that Russia’s economy will contract by 1.2 percent in 2016, in contrast to an earlier forecast of 0.6 percent. Moscow’s priority is maintaining a buffer zone between Russia and Western powers, but the U.S. and NATO allies have boosted their presence along the alliance’s eastern edge, while a pro-Western government remains in office in Ukraine.

Moreover, as we predicted, Russia has responded to its own weaknesses, strategic challenges from the West and Ukraine’s Western orientation by boosting its own defenses while also reaching out to Washington.

The Kremlin has taken public steps to boost its military preparedness, moving troops and equipment to the country’s western border regions and even firing top commanders of the Baltic Fleet in an effort to demonstrate Moscow’s commitment to modernizing its military.

Nevertheless, as predicted, Russia has moved to improve ties with Washington and is seeking at least a temporary agreement on the status of Ukraine. There has been a flurry of diplomatic activity regarding Ukraine’s future, with U.S. National Security Advisor Susan Rice reporting on June 9 that the U.S. is intensifying its efforts to work with Russia, Ukraine, Germany and France to reach a deal and implement the February 2015 Minsk Accords.

Meanwhile, Moscow and Washington are coordinating when it comes to Syria, as Russia’s intervention and bombing campaign help the U.S. further its goal of weakening the Islamic State. Russia has gotten what it wanted out of the Syria campaign – it solidified Bashar al-Assad’s regime and demonstrated the efficacy of the Russian military. Russia then pulled some of its forces out, but kept enough in the region to make them valuable to the U.S.

7. The U.S. will continue “to deploy resources from the Baltic to the Black Sea.” “The American defensive line, including the Baltics, Poland and Romania, will fear this accommodation is a preface to a Russian-dominated Ukraine.”

a-report-card  In the first half of 2016, the U.S. has demonstrated its increased commitment to the security of Central and Eastern European countries. In early February, the Barack Obama administration announced that the U.S. will quadruple military spending in Europe. In March, the U.S. military revealed plans for the U.S. Army to begin rotational deployments of an armored brigade combat team in Europe. The U.S. is implementing a dual strategy – engaging with Moscow while also boosting its military presence in Central and Eastern Europe in an effort to limit Russian influence.

8. “Germany will be delighted to have the additional fear of a confrontation to its east eliminated. And the rest of Europe, preoccupied with other problems, will be indifferent.”

b-report-card  As we predicted, the interests of the U.S., Central Europe and Western Europe are diverging when it comes to Russia. Moscow is working to take advantage of these splits within the Western alliance. The U.S., as a result, is straining to ensure that its allies – in particular key strategic countries like Turkey – remain firmly in its camp. The U.S. does not wish to bear the burden of containing Russian ambitions on its own, and is continuously working to enlist the assistance of a range of allies, especially in Central and Eastern Europe, to aid in implementing Washington’s strategic goals. Nevertheless, with the U.S. still in the process of boosting the defenses of its NATO allies in the east, it is too early to assess how U.S. involvement is affecting Germany’s position on the Continent.

Middle East

9. “In the coming year, IS will continue to be the single largest force in the Syrian-Iraqi theater. We can expect the group to expand its activities in countries such as Saudi Arabia, Egypt, Yemen and Libya. At the same time, it may even increase its presence beyond the Arab world in sub-Saharan Africa and southwest Asia. IS’ focus, however, will be to defend its core turf in the Levantine-Mesopotamian battlespace where it will be able to hold on to most of the areas it currently holds and even push into areas that are either held by the Bashar al-Assad regime or by rival rebel groups.”

a-report-card  Over the past six months, IS has remained a central geopolitical actor – shaping not just regional events but also international politics. IS has experienced certain tactical losses in areas such as Iraq’s Anbar province and Syria’s Homs province. However, IS continues to hold on to its core turf. It also has ploughed into areas held by the Syrian rebels in Aleppo province and regime-held areas such as Latakia and Damascus.

While IS continues to defend its territory on multiple fronts in Iraq and Syria, it has also expanded its operations – in region and beyond. It has attacked many countries, including Turkey, Egypt, Jordan, Saudi Arabia, Yemen, Afghanistan, Bangladesh, Indonesia, France and Belgium. It has also inspired an attack in the United States. In this way, the IS caliphate has demonstrated both conventional military and terrorist capabilities. Its actions have forced governments across the world to work feverishly toward securing their homelands against IS.

Despite this heightened state of alert, IS operatives have still managed to strike across a wide geography. It has made use of its operatives, affiliate groups and individuals inspired by its call to sustain a steady flow of attacks. It is able to do so because its core, from Raqqa to Deir el-Zour, remains secure. To a great extent this is because the United States has lacked reliable partners on the ground.

10. “American efforts against the group are unlikely to yield the desired results in the coming year. It is possible that IS could suffer tactical setbacks but strategically dislodging it will be extremely difficult.”

b-report-card  U.S.-led international efforts against IS remain superficially impressive but strategically more limited in their success. In Syria, the push against the IS caliphate relies largely on the Kurdish-led Syrian Democratic Forces, which have very little incentive to go deep into IS-held territory in Raqqa and Deir el-Zour and are not large enough to take on IS alone, or even with U.S. help.

Meanwhile, in Iraq, IS retreated from Ramadi and Fallujah, but not before destroying much of the cities. Furthermore, there are already reports of sectarian-fueled violence between the Shiite-dominated Iraqi government forces and Iranian-backed Shiite militias that have moved into these majority Sunni population centers. The underlying sectarian allegiances remain, and the reported abuses against Sunnis will only keep Baghdad from consolidating its hold in Anbar province. This will make it very difficult for the forces of the Iraqi central and Kurdish regional governments to embark on the much larger task of retaking Mosul.

11. “Turkey is facing Russian and American demands for involvement. Given Turkish dependence on Russian energy and its ultimate strategic dependence on the U.S., resisting both of these countries will be impossible. The process of engaging IS will not be a sudden overwhelming move into Syria, however, we expect a slow but steady increase in Turkish operations…Turkey’s engagement with Islamic State will be the key event in the coming year in the Middle East, not only because it addresses IS, but also because it will mark the emergence of Turkey as a regional power…IS has set the agenda for 2016 and the manner in which Turkey changes its posture will be a defining shift.”

b-report-card  Turkey is playing a complicated game, but it comes down to Ankara needing to get closer to Washington while preserving as much of its independence as possible. As it does this, and as the Middle East continues to break down around it, Turkey is being dragged into the fray.

While the U.S. is only able to keep the pressure on IS in the short term, it has made considerable progress toward getting Turkey to assume the lead role in the fight against IS. There has been a breakthrough on the disagreement over the role of the Syrian Kurds, which has been a key sore point between the Americans and the Turks.

Turkish President Recep Tayyip Erdoğan replacing Prime Minister Ahmet Davutoğlu has paved the way for greater U.S.-Turkish cooperation, and the reconciliation with Israel is an important part of this cooperation. As per our forecast, Turkey could not afford both sour relations with the United States and hostile relations with Russia. Ankara has not just aligned with Washington regarding a joint operation against IS. It is also in the process of trying to mend relations with Russia. In the meantime, IS knows that Turkey is gearing up for greater action against it and is trying to thwart that process.

The attack at Istanbul’s Atatürk airport is just the latest move toward shaping perceptions in Turkey against intervening in Syria. From the Turkish point of view though, such attacks will likely push Ankara closer to taking action south of the border. Turkey’s desire to avoid entanglement in Syria is slowly being replaced by the need to intervene. Our forecast has been fairly accurate thus far; the next six months will show whether Turkey goes further than we expected this year.

Asia

12. “Our forecast for the coming year in China is that the current growing dictatorship will moderately intensify…”

a-report-card  Thus far in 2016, Xi has intensified his grip on China in three key areas. First, he has accelerated the investigations by the Central Commission for Discipline Inspection; all of China’s various ministries, local governments, state-owned enterprises and banks will be investigated before the 19th National Congress of the Communist Party of China in 2017. Notable figures, such as the wife and son of already purged former security chief Zhou Yongkang and former President Hu Jintao’s top aide, have also been arrested and sentenced.

Second, Xi has moved to control the People’s Liberation Army (PLA). Just a few weeks after our annual forecast was published, Xi announced a reform of the PLA that will reduce the overall force by tens of thousands of soldiers in the coming years. Around the same time, the Chinese Ministry of Civil Affairs directed state-owned enterprises in China to hire those forces who were laid off. In January, Xi completely revamped the PLA’s command structure and created a special discipline inspection commission specifically for the military. In May, Xi named himself commander of all Chinese armed forces, a promotion from his chairmanship of the Central Military Commission.

Xi has also moved to exert his direct control over various organs of the Chinese Communist Party. He has clamped down on the media, instructing them to toe the Communist Party line faithfully. He has increasingly taken economic power away from Premier Li Keqiang, one of the few potential rivals who could have vied to replace Xi at the 19th Party Congress. And Xi has worked hard to reinvigorate the ideological legitimacy of the Communist Party because he knows that the days of ruling through universal profit have come to an end.

13. “…and the underlying economic problems will grow as well, with more spasmodic events, such as the 2015 stock market collapse or sudden revaluation.”

a-report-card  This year began with crashes in the Chinese stock markets that sent global markets into a nosedive. To the extent that one can trust Chinese statistics (and with each year, trusting them becomes a more dubious prospect), GDP growth figures have remained around 6.9 percent. But unemployment is creeping upward, as are non-performing loans. Layoffs, particularly in the steel and iron sectors, are making it harder to find jobs.

Our forecast of the Chinese economy has been on point: the country is in an economic imbalance, and it is relying on a range of ad hoc solutions to try and manage the imbalance. Various small crises are the result. The rest of the world has begun to realize the serious structural issues hampering Chinese demand for imports and the reality that China’s days of preternatural growth rates are over.

14. Exporters of industrial minerals and exporters of industrial products “are now paying the price and we expect 2016 to be a year of great difficulty for the periphery of East Asia.”

b-report-card  As to the major exporters in Asia struggling in the wake of China’s internal issues, there have been worrying signs. In December and January, it appeared that protests numbering in the tens of thousands in South Korea might be a tipping point. Japan has been hard hit not just by China but also by an extremely strong yen, made only stronger by developments like Brexit and the various other dramas in the European Union.

Overall, both industrial minerals exporters like Australia and industrial products exporters like South Korea have been hit hard by China’s slowdown, but not as hard as we thought and not enough to create the level of political instability we expected to see when we said that it would be a year of “great difficulty” for the periphery of East Asia.

While the impact of China’s slowdown has not yet materialized across Asia as we thought it would, we remain confident that this part of our forecast is on track. If the impact of China’s struggles in 2016 turns out to be smaller than we thought, the fault in our forecast will not be with our model so much as with the degree to which we estimated these issues would manifest this year.

15. Central Asian countries “will be unable to diversify away from Russia and China in 2016. Protests over weak currencies and job cuts may take place, but economic downturn appears not to fundamentally threaten the position of Central Asian regimes, which have proved successful at using a mix of incentives and coercive tools to maintain power.”

b-report-card  The one place where the situation in China really is making a difference appears to be Central Asia, which is getting hit by decreased demand and investment from China as well as low energy prices and the sputtering Russian economy.

Kazakhstan, the region’s largest country, has experienced sporadic civil agitation across the country in recent months. Last month, it also experienced a coordinated jihadist attack against multiple targets in the city of Aktobe. We expect these disturbances to intensify. Aging President Nursultan Nazarbayev also recently reshuffled the top leadership. We are closely monitoring the situation for more trouble to come in the second half of the year.

We also see this trend toward instability in Tajikistan. The bombing of Istanbul’s Atatürk airport was a signal that this forecast is on track, as one of the three assailants was Uzbek and another Kyrgyz. And economic issues in Turkmenistan were bad enough for us to place it on our list of the five countries most at risk from the global exporters’ crisis.

Central Asia is teetering, but thus far its various regimes are maintaining control.

16. “The Chinese will use the South China Sea as a means of increasing nationalism in the country and legitimizing the Communist Party’s rule, even though China is struggling to maintain its status as a regional power…we do not expect the South China Sea to consist of more than demonstrations and feints on either side.”

a-report-card  In the South China Sea, our forecast remains on track. From our perspective, what is interesting about the South China Sea is what is not happening, which is any meaningful military conflict. There has been plenty of saber rattling; China has briefly entered Japanese territorial waters twice in 2016. It has continued to build radar facilities and develop man-made, enhanced islands. The most notable development was joint naval exercises in which the U.S., Japan and India participated.

Nevertheless, as expected, China has no interest in starting a fight with anyone that would draw the U.S. Navy’s participation. Though China continues to improve the quality of its ships, it still is no match for the U.S., both in terms of matériel and experienced commanders.

17. “First, at some point in 2016, it is highly likely that the DPRK will carry out some seemingly irrational action, from a nuclear test to sinking a ship. It will certainly engage in making bizarre threats. Second, the global media will become intensely concerned, feeling as if the world is on the brink of war. Third, no war will begin. It will all be part of the concerted and effective strategy the DPRK has pursued since the fall of the Soviet Union.”

a-report-card  Our forecast for North Korea is on track. The country began the year with a bang, claiming in January that it had conducted its fourth nuclear test, this time a hydrogen bomb. In June, it launched two intermediate-range missiles that fell harmlessly into the Sea of Japan. Its four previous attempts in April and May ended with the missiles exploding shortly after launch. And while the U.S. has decided to step up sanctions and is enlisting China to get tougher on Pyongyang, nothing of real consequence is going to materialize in 2016. We said North Korea would engage in making bizarre threats and carry out some seemingly irrational actions that would capture world’s attention, and no violent conflict would follow. That is what has happened so far.

18. “India, on the other hand, will feel the crisis in China less intensely than the rest of Asia. Politically, India will also be stable in the sense that none of its usual internal issues will worsen or challenge New Delhi’s status quo.”

a-report-card  The Indian economy continues to grow at above 7 percent. Major U.S. companies like Apple are expressing keen interest in the Indian market. Meanwhile, the government of Prime Minister Narendra Modi has passed legislation meant to make it easier for foreign companies to invest in the country. India is still a poor and divided country, but it is poised to capitalize on China’s internal issues. We identified India as one of the top destinations for manufacturing jobs leaving China.

Periphery

South America

19. Left-leaning governments “will start gradual political and economic reforms towards more center-right policies, such as opening up trade, providing incentives to attract investment, simplifying currency and tax systems and gradually reining in public spending…These reforms will be put in place throughout the year and some results should be visible by the end of 2016.”

a-report-card  Argentine President Mauricio Macri followed through with campaign promises to reduce utilities subsidies, eliminate currency controls and remove barriers for grain exports. In February, Bolivians voted not to let President Evo Morales run for another term in the 2019 elections. In the first round of Peru’s presidential elections, strong leftist candidate Verónika Mendoza finished third and did not advance to the second round of elections. Pro-business, open-market candidate Pablo Kuczynski won the election and will assume the presidency on July 28 from left-wing President Ollanta Humala. And finally, Brazilian President Dilma Rousseff is currently in the midst of an impeachment trial with her Worker’s Party now severely damaged and lacking popular support.

20. “The [center-right] reforms will also produce the secondary effect of making these countries more attractive destinations for foreign direct investment [(FDI)].”

c-report-card  At this point, we have reason to believe that our FDI forecast in the region will still come to fruition. There is a general lack of data for cumulative FDI in countries for the current year, so we rely on anecdotal reports and other evidence.

Brazil and Argentina will be key to this forecast. According to the U.N., Brazil received about 57 percent of all FDI destined for South America in 2015. The political crisis in the country has hampered government moves to try and alleviate the economic crisis. Uncertainty from both crises has deterred some investors. However, the Central Bank reported at the end of 2015 that the aggregate median market expectation for FDI in the country was $63.37 billion. The 2016 projection for this figure has increased from $55 billion to $60.3 billion.

While this FDI number for Brazil is still lower than the 2015 total, other countries could see an increase in FDI. Last year, Argentina received $11.65 billion in FDI. With Macri in power, investors now view the country’s market and political structure as much more business-friendly and ripe for investment. Macri anticipates $20 billion in FDI this year as the government has several events planned to encourage foreign investment.

Also, an EMIS report shows that Colombia received $2.1 billion in FDI in the first quarter of this year, down 37 percent from the same quarter in 2015. Much of this is blamed on oil prices. However, the administration of President Juan Manuel Santos has said that the end to the FARC conflict, with a peace deal signed June 23, could add an additional two percentage points to GDP growth and triple the amount of FDI. For this reason, there may be an increase in FDI inflow to Colombia toward the end of the year.

EMIS projects Chile’s FDI levels will remain the same this year. In Peru, the Central Reserve Bank projects a decrease of approximately $2.2 billion in FDI in 2016, for a total of around $4.59 billion. Low commodity and metals prices are blamed here since most FDI goes to Peru’s extractive industries.

21. Venezuela “is an outlier due to the extreme, and often volatile, economic and political turmoil it faces. This plight will continue into next year…Even if the opposition gains seats in the legislature, the end result will most likely be a government in gridlock.”

b-report-card  In May 2016, we had indications that a coup might be in the making, but that did not come to pass. Venezuela remains mired in economic malaise and political inefficiency. To date, President Nicolás Maduro has failed to govern the country while the opposition-led National Assembly has yet to remove Maduro from office.

Members of the international community, including the United States, are advocating dialogue between the government and opposition to help solve the social and economic crises in Venezuela. Outside intervention to force a solution appears unlikely at this time, though gestures of mediation will continue. Right now the most likely means of removing Maduro would be through a popular referendum that, if all institutions operate as they should, will not be held until October or November. Unrest is ever present and will continue.

Sub-Saharan Africa

22. “One can find a bright spot in sub-Saharan Africa’s economy in East African countries, including Ethiopia, Kenya and Tanzania…In addition to high growth, these countries have large, low-wage working populations. The combination of these two factors makes these countries attractive and promising locations for a basic manufacturing industry.”

a-report-card  East Africa continues to stand out as an economic bright spot in sub-Saharan Africa as more commodity-dependent nations, such as Nigeria, Angola and Zambia, continue to struggle amid lower Chinese demand and continued low commodity prices. The particular economic activity of interest in East Africa is basic manufacturing. A Deep Dive we published in June highlighted the migration of basic manufacturing out of China to other countries, including Ethiopia, Kenya and Mozambique. Tanzania, mentioned in our original forecast as a country of interest, continues to enjoy above average economic growth for the region.

23. “Although there may be particular shifts in the political situation, we see no general transformation likely to take place in 2016.”

b-report-card  There have been no major shifts, as expected. That said, there will likely be a notable rise in political tensions and demonstrations in South Africa (particularly around the local elections in August) and Kenya (in the lead up to the March 2017 elections). Tension and small-scale confrontations will continue between the Ethiopian government and Oromo ethnic group but will not put the country’s economic development at risk.