Executive Summary Vietnam has recently witnessed changes in political leadership at unprecedented speed. While the grip on power of the Communist Party of Vietnam (CPV) looks uncontested, fissures have become visible ahead of the 2026 party congress. Vietnam continues to be one of the fastest growing economies with an annual growth rate of five percent in 2023. The country benefits from the intensifying Sino-American rivalry as companies diversify from China to Vietnam. In quick succession, the leaders of the United States, China, and Russia visited Hanoi vying for closer ties due to the country’s strategic location in Southeast Asia. Implications for International Business Vietnam emerges as a manufacturing alternative to China in certain sectors such as garment/fashion or electronic devices. However, it still relies heavily on imports for high-tech components and its infrastructure compares poorly with China. International businesses increasingly use Vietnam as a strategic hub for accessing ASEAN markets and the wider region – a role the Vietnamese leadership continues to embrace and plans to expand on further. Vietnam faces geo-economic pressure from both Washington and Beijing as the two are locked in a contest for regional hegemony. International businesses must monitor closely how Hanoi responds to these pressures over time. State of Play Throughout the last 18 months, Vietnam has witnessed major political upheaval not seen for decades. An anti-corruption campaign led to the resignation of two presidents and high-ranking politicians, including Politburo members, as well as to hundreds of arrests and thousands of dismissals and reprimands. On 19 May, news broke that Nguyen Phu Trong, the General Secretary of the Communist Party of Vietnam (CPV) and driving force behind the anti-corruption campaign, passed away. The Politburo has appointed President To Lam, a former head of the country’s secret service, as interim party leader. He is also the likely successor to the party leadership after the next regular party congress in early 2026. While the power of the CPV remains uncontested and there are few signs of wider threats to domestic stability, considerably party frictions have emerged. Currently dominant in the power struggle is a faction of officials, led by Lam, with close ties to the country’s domestic security apparatus who seek to re-ideologize the CPV and strengthen the role of the party vis-à-vis state bureaucracy and society.   As one of the fastest growing economies focusing on export-driven growth, Vietnam is particularly vulnerable to geopolitical and geo-economic disruptions. It has thus put maintaining cordial relations with all major powers at the center of its so-called “bamboo diplomacy”. Specifically, it expanded bilateral relations with the United States and with U.S. allies such as Australia, Japan, and Korea as well as with Europe. At the same time, Hanoi maintained good relations with China despite maritime disputes in the South China Sea. It also reinforced its close relations with Russia, its largest arms vendor, not least by Russia’s President Vladimir Putin’s visit to Hanoi in June 2024. This includes its relations with the EU and its member states. The EU-Vietnam Free Trade Agreement has led to a huge expansion of economic ties, especially in exports by Vietnam to the EU in sectors such as textiles, footwear, electronics, and agricultural products (to a total of 47.6 bn Euro In 2023). Beyond economic ties and aid, however, EU-Vietnam relations have not progressed as quickly as imagined. Hanoi’s close ties with China and Russia have at times been at odds with the EU’s strategic interests. Moreover, concerns over the country’s abysmal human rights records, its violations of labour standards and intellectual property rights, endemic corruption, and slow progress in legal and administrative reforms have hampered closer cooperation. Key Issues A more assertive regional and geopolitical player Vietnam has profited substantially from current diversification trends, as even Chinese companies have diversified to Vietnam to circumvent export restrictions. So far, Hanoi has successfully maintained good bilateral relations with all major actors to sustain its high levels of economic growth. While increasing security and defense ties with America and its allies, Hanoi also strictly adheres to Beijing's "one China" principle, which claims Taiwan as an inalienable part of China. However, in the case of a Taiwan contingency its strong economic engagement with Taiwan plus the hundreds of thousands of Vietnamese citizens working on Taiwan would pose multiple simultaneous challenges for Vietnam. Hanoi has actively participated in ASEAN and associated multilateral forums, especially concerning issues revolving around the South China Sea. Its leadership also drives efforts toward an ASEAN Economic Community (AEC) as it seeks to profit from stronger trade and investment ties with other ASEAN states. Vietnam’s security and defense policy has been chiefly focused on its immediate neighbourhood rather than the wider region. The key issue for Vietnam’s leadership has been the South China Sea conflict, which it seeks to navigate primarily via diplomatic engagement. The CPV attempts to use its close ties to China’s leadership based on ideological affinity while also asserting its claims internationally based on international law. Nonetheless, Hanoi has itself militarized a number of islands and reefs it controls in the South China Sea and has made attempts to upgrade its navy and coastguard. The primary aim, besides providing illegal revenues through mark-ups and kickbacks for high-ranking military personnel, is for Vietnam to be able to “quietly” contest Chinese maritime expansionism in the South China Sea, in contrast to the Philippines more open confrontation. Yet, the official goal of modernizing the armed forces by 2030 has been effectively curtailed by budgetary constraints, mismanagement, and endemic corruption, and an earlier over-dependence on Russian arms exports which slowed to a trickle since 2022. Geoeconomics Vietnam is one of Asia’s most export-oriented economies and therefore very dependent on continued access to global trade and supply chains, as its high trade to GDP ratio shows. It has created a favourable environment for international companies seeking to establish manufacturing and export bases offering various incentives to foreign investors, including tax breaks, reduced tariffs, and simplified administrative procedures. Vietnam holds membership in all multilateral trade agreements (AFTA, CPTPP and RCEP) to enhance market access across the region, support regional supply chains and reduce tariffs. Its labour costs are low, with an average hourly wage at US$2.99 (VND 68.000) compared to China’s US$6.50. It thus has increasingly emerged as a regional alternative manufacturing hub to China in several sectors, such as textiles (boasting a well-established manufacturing infrastructure), footwear, and furniture making (particularly to the U.S.). Vietnam is also a major exporter of agricultural products such as coffee, cashew nuts, or seafood, effectively competing with China. In consumer electronics, the country has a growing sector with significant investments from Samsung and LG. However, while the country can handle assembly and some component manufacturing, it still relies on imports for high-tech components.   Challenges persist also in other sectors: In advanced electronics, Vietnam lacks the advanced semiconductor fabrication and high-tech component manufacturing capacity that China possesses. Its automotive industry is still developing, with some local assembly and component manufacturing successfully established, but unable to replace China’s established automotive manufacturing base. The same goes for machinery and heavy equipment as well as pharmaceuticals and chemicals. Also, much of the capital and the supply chains, as well as some of the infrastructure investments, that foster Vietnam’s growing clout are China-centric, so diversification to Vietnam does not necessarily mean reduced economic dependence on China.   Vietnam’s embrace of the Belt and Road Initiative (BRI), however, has been lukewarm due to general mistrust in China as well as past controversies with Chinese-funded infrastructure projects. Conversely China has afforded Vietnam a low level of priority within the BRI. Vietnam has actively courted other partners to develop its ageing infrastructure, most notably Japan and South Korea as well as international development banks. As part of its Global Gateway initiative, the EU is funding three major projects in the area of just energy transition as well as the development of a new metro line in Hanoi. US sanctions against China can be potentially undercut by re-routing supply chains via Vietnam, with the significant challenges and limitations mentioned above. Also, Vietnam may face geopolitical pressure from both the US and China regarding its role in circumventing sanctions. How Hanoi will respond to such pressures remains unclear given the current change in leadership.

Botschafter a.D. Dr. Peter Ammon ist ein ehemaliger Staatssekretär des Auswärtigen Amtes. Der promovierte Wirtschaftswissenschaftler war zuvor lange Jahre der Wirtschaftsdirektor des Auswärtigen Amtes und danach der deutsche Botschafter in Frankreich, im Vereinigten Königreich und in den USA. Ein Fokus seiner langen diplomatischen Karriere lag in der Unterstützung deutscher Unternehmen bei der Bewältigung der Herausforderungen durch die Globalisierung. In diesem Kontext unterstützte er als Sous-Sherpa über viele Jahre die Bundeskanzler Schröder und Merkel bei den G7/G8-Verhandlungen.   Seit Anfang 2024 ist Dr. Ammon Dean des Agora Strategy Institutes. Expertise USA, Großbritannien, Frankreich, Internationale Wirtschaftsbeziehungen und Exportkontrolle

Prof. Dr. Kai Andrejewski wechselt zu Agora Strategy: Experte für Kapitalmarkt- und Finanzstrategie stärkt Agora Strategy als führende geopolitische Unternehmensberatung   München, 05.11.2024 – Prof.   Dr. Kai Andrejewski , renommierter Finanzstratege und Kapitalmarktexperte, verstärkt ab sofort das Team der Agora Strategy Group AG  als Senior Partner . Mit seiner umfassenden Erfahrung als ehemaliger CFO der Sixt SE, langjähriger Bereichsvorstand bei KPMG sowie als Aufsichtsrat im Kapitalmarktumfeld wird er die geopolitische Strategieberatung dabei unterstützen, Unternehmen und CEOs weltweit an der Schnittstelle von Finanzstrategie und geopolitischen Risiken und Chancen zukunftssicher aufzustellen.   Hier bedient Agora Strategy einen wachsenden Bedarf an geopolitisch resilienten Kapital- und Finanzmarktstrategien . Die Kombination aus Kapitalmarktkompetenz und geopolitischer Expertise wird angesichts der wachsenden geopolitischen Risiken entscheidend. Diese Risiken beeinflussen den Zugang zu Kapital und die Finanzierungsbedingungen auf internationalen Märkten maßgeblich. Für Unternehmen wird es daher wichtiger, diese Faktoren in ihre strategischen Entscheidungen einzubeziehen, um langfristig erfolgreich zu bleiben.   Die Agora Strategy Group  ist führender Anbieter im Markt für geopolitische Strategieberatung. Zu den Dienstleistungen gehören neben Strategieentwicklung und Internationalisierung auch maßgeschneiderte Risikoanalysen, Business Development in komplexen Auslandsmärkten, globale Positionierungsstrategien sowie Regierungsberatung. In einer zunehmend vernetzten und komplexen Welt spielen geopolitische Entwicklungen eine entscheidende Rolle, die die Geschäftsstrategien von Unternehmen maßgeblich prägen. Zu den Kunden gehören führende DAX- und MDAX-Firmen, internationale Konzerne sowie der Mittelstand. Erst vor wenigen Monaten gab Agora Strategy eine umfassende strategische Partnerschaft mit Porsche Consulting bekannt.   Prof. Dr. Kai Andrejewski  bringt über 30 Jahre Erfahrung in den Bereichen Finanzstrategie, Wirtschaftsprüfung, Nachhaltigkeit und Unternehmensführung mit. Er greift auf fundierte Expertise in internationalen Kapitalmärkten zurück und wird diese nun in die geopolitische Beratung bei Agora Strategy einbringen, um Unternehmen beim Aufbau zukunftsfähiger und geopolitisch abgesicherter Finanzstrategien zu unterstützen.    Dr. Timo Blenk, Senior Partner, Agora Strategy: “Es ist mir eine große Freude, dass sich Dr. Andrejewski für uns entschieden hat! Damit gewinnen wir nicht nur einen internationalen Topmanager als Senior Partner, sondern stärken unsere Beratungskompetenz in einem strategisch wachsenden Bereich!”   Prof. Dr. Kai Andrewski, Senior Partner, Agora Strategy: „Ich freue mich, der geopolitischen Strategieberatung bei Agora Strategy eine neue Facette zu geben und CEOs, CFOs, Aufsichtsräte und Unternehmen dabei zu begleiten, wie geopolitische Entwicklungen ihre Finanzstrategien beeinflussen und, wie sie sich auf global veränderte Kapitalmärkte einstellen können!“ – Medienkontakt: Fabian Vetter +49 89 2153 693-32 +49 152 5106 9060 vetter@agora-strategy.com Über Agora Strategy: Agora Strategy ist ein geopolitisches Beratungsunternehmen, das 2015 als Spin-off der Münchner Sicherheitskonferenz von Botschafter a.D. Prof. Dr. h.c. Wolfgang Ischinger, Präsident des Stiftungsrats der Stiftung Münchner Sicherheitskonferenz, gegründet wurde. Agora Strategy ist spezialisiert auf politische Risikoanalysen, strategische Politikberatung und internationales Krisenmanagement. Die mehr als 300 Senior Advisors und Fellows von Agora Strategy, aus Politik, Diplomatie, Sicherheit und Verteidigung, Wirtschaft und Wissenschaft, sind weltweit, regional und lokal vernetzt. Auf Grundlage dieses einzigartigen Netzwerks bietet Agora Strategy mittelständischen und großen Unternehmen, Regierungen und multinationalen Institutionen maßgeschneiderte Beratungsleistungen. Agora Strategy hat seinen Hauptsitz in München und Büros in Berlin, Paris und Brüssel. www.agora-strategy.com

Dean’s Comment on the US Election by Ambassador (ret.) Dr. Peter Ammon Expect an unprecedented takeover of the U.S. administration  The unpredicted clarity of Donald Trump’s win including the Republican retaking of the Senate will make him an extremely powerful president. Moreover, he will enter office much better prepared than in 2017. A huge number of official positions will be cleared and filled with Trump followers. Especially if Republicans end the Senate filibuster, Trump will be able to put thousands of high-level nominees – and multiple judges over time – into office quickly. Should the party manage the “trifecta” by also winning the House (as is likely as of now), Republicans would have overall control of the legislative and executive branches. Given the existing conservative majority in the Supreme Court, America’s system of “checks and balances” would be greatly impaired. Trump 2.0 is a major political challenge with significant risks for business Domestic politics, especially the fight against his perceived “enemies”, will be at the forefront of President Trump’s agenda. Having survived not just actual assassination attempts but “political persecution” as he put it and emboldened by the Supreme Court’s decision on presidential immunity, he will feel vindicated to implement his promises. Moreover, his touted campaign against “wokeism” in the education system and media will add to the already existing division of the country in “Blue” and “Red” States. Foreign policy will become much more transactional than before, with Trump using America’s might to extract financial and strategic benefits from friends and foes alike. There will be no appetite to bear the burden for the upkeep of the international order. While he is unlikely to ultimately withdraw from NATO, the president will use the threat of doing so to force allies to shoulder a wider share of the cost. At the same time, there will be fewer US military interventions around the globe than under previous presidents. President Trump’s international instrument of choice are economic and financial sanctions, under the assumption that the cost is borne by others. The self-styled “tariff man” may use executive orders or invoke the International Emergency Economic Powers Act to quickly adopt high tariffs on China (at anything between 60 and 100%) and universal tariffs of possibly 10% on all imports. Even though the latter would likely be challenged in courts, Trump's actions alone would cause havoc on the international markets while legal action would take months to proceed. By and large, President Trump will remain unpredictable, which in itself will intimidate his partners. The world order, already heavily fragmented, will become more volatile and dangerous. In particular, major changes can be expected in the following policy areas: Taxes and Budget A further reduction of corporate tax from 21% to 15%, while Trump also promised to make the 2017 income tax reductions permanent. An end to some of Biden's tax credits (green energy), while allowing the deduction of local taxes from federal tax bills. $7.5 trillion added to the US deficit, which could rise from almost 6% to 8% of GDP under Trump, creating a risk for fiscal and financial stability in the long term. Immigration A much more rigorous turn in immigration policies, even if the promised mass deportation (of up to 15 million undocumented foreigners) is not likely to succeed. Further restrictions of legal pathways to enter the United States, such as bringing back family separation policies, forcing asylum seekers to remain in Mexico during their process, and slowing down visa application procedures. Climate and Energy Another withdrawal from the Paris Climate Convention, giving international efforts to fight climate change a huge blow. Complete termination of all Biden policies (e.g. the CHIPS Act, the Inflation Reduction Act (IRA), the Infrastructure Law) is unlikely, as these over proportionally benefit Republican states and districts. However, specific subsidies such as tax credits for EVs could be revoked and he could make it harder to spend money in Blue States. A slowing down of decarbonization efforts with fresh investment in fossil fuels and reduced support for green energy, even though investments in the energy transition that are already underway cannot realistically be revoked overnight. National Defense Higher defense expenditures with bipartisan support in Congress. Republican leaders have already called for a spending increase to 5% of GDP (today: $874 billion, or 3% of GDP). The cost of modernizing the nuclear forces alone is estimated at $750 billion over the next decades. More funds are needed and will likely be approved to secure supply chains, increase munition production, strengthen the industrial base and rebuild deterrence against China's rising capabilities. The Wars in the Middle East Despite Trump’s repeated criticism of President Biden’s efforts to restrain Israel's military actions, he is unlikely to authorize US involvement in military engagement against nuclear facilities in Iran. Yet dimmer prospects for a two-state solution, as Trump and his advisors have been outspoken supporters of the current Israeli government in general and the settler movement in particular. Russia’s War against Ukraine While Trump's rhetoric on Ukraine has been inconsistent, he will try to force an end to the war early on, not least to gain him the laurels of the peace maker. This will most likely mean forcing Ukraine to accept territorial concessions. US lawmakers generally are increasingly opposed to aid Ukraine, so US action will heavily depend on whether Trump will empower internationalists like his former secretary of state Mike Pompeo or ideological isolationists like Vice President-elect J.D. Vance. In any case, the Europeans will have to bear a larger share of the cost of war. China Strong bipartisan support for hawkish action vis-à-vis China, the three top issues being the deterrence of conflict with the US or in the South China Sea, the protection of US critical infrastructure and shunning cheap exports from industrial overcapacity in China. An actual decoupling of the US economy from China is in the offing, as Trump supports high tariffs and export restrictions that could easily trigger a trade war. China, already plagued by deflation, will find its export-led growth business model in dire straits, with two potential remedies: stimulating domestic consumption (good for European exporters) and re-directing surplus exports towards other parts of the world (bad for production in Europe). The Consequences from a European Business Perspective One of the lessons from Trump’s first term in office was to not be too afraid of his words, but to carefully watch what he does. European governments will have to adjust to the returning president’s transactional style, which only respects strength and tries to exploit (perceived) weaknesses. The dream of unfettered global trade and free movement of people as part of a just global order built on Western values and defended by US military might has ended. A second Trump presidency “on steroids” could therefore produce a much-needed push to re-invigorate the process of European integration. Given that the deepening of the EU has mostly been possible only in times of crisis, prepare for fresh moves in this field. Companies depending on the US market will come under fresh pressure to substitute their exports to America with local production there. New immigration policies will make it harder to find the human resources needed, and proper due diligence may be advised in which state (red or blue) the FDI might find its best location. For traders and investors, it will become more difficult to predict future US dollar exchange rates. With the US fiscal deficit heading for the sky, inflation may come back, and the Fed could be forced to increase interest rates and/or return to buying government papers (known as quantitative easing). With America sucking in global savings, interest rates all over the world may rise. Trump, however, has made it clear that he wants low interest rates and a weak dollar. Companies, trading with and investing in the US, may wish to internally hedge their trade and financial flows.

Executive Summary A high turnout and voters tired of political polarization helped the Polish opposition to win the election – despite a strong performance by the ruling party. A new centrist government will likely end disputes with Brussels over the rule of law, engage in EU reforms, and improve ties with Germany . Still, the next coalition will face programmatic internal differences and potential resistance from institutions controlled by the previous government . Implications for International Business Successful resolution of the rule of law row will give Poland access to the EU recovery fund, resulting in a significant rise in investment and GDP growth. It will also lower Poland’s risk premium due to increased legal certainty, greater predictability in reforms, and the effective exclusion of the Polexit option . State of Play Record turnout leading to opposition win The ruling Law and Justice (PiS) party received the highest support in last Sunday’s parliamentary election, but the next government will probably be formed by three opposition parties: the liberal Civic Coalition (KO) of Donald Tusk, the conservative-liberal Third Way, and the New Left. The fifth party in parliament and a potential partner for a PiS-led government, the far-right Konfederacja, suffered a surprising defeat with just seven percent of the votes. The election has been deemed free, but not fair, as PiS dominated the airwaves and involved officials and state-controlled enterprises in the campaign, such as through publicly funded picnics and a targeted reduction of gas prices by oil monopolist Orlen. What makes the vote special is a 74.17 percent turnout – the country’s highest since the end of communism in 1989. However, voting patterns seem to hold: In large and medium-sized cities, the opposition won, whereas PiS had a clear advantage in smaller towns and rural areas. The ballot also confirmed Poland’s old geographical divide: eastern regions of the country voted more conservative than the liberal west. Among young voters up to 24 years old, the ruling PiS took last place, with KO coming out on top. Only in the 60+ age group did PiS outperform the opposition parties. The path to forming a government will be bumpy. The new Sejm must convene within 30 days, then President Andrzej Duda has 14 days to nominate a candidate for prime minister. He will most likely propose the incumbent, Mateusz Morawiecki, as a sign of loyalty towards PiS. Failing to win a majority, the opposition's candidate can then be elected in the second round, with a cabinet formed around the end of the year. The new government’s political agenda is primarily to restore the rule of law and to depoliticize public media, state-controlled enterprises, and the judiciary. Setting a more detailed social and economic program will be a challenge due to ideological differences between the parties. Another threat will be a potential blockade by President Duda and conflicts with PiS-controlled institutions, like the Constitutional Court or the central bank (NBP). Key Issues The Polish vote also strengthens the EU… The election result signifies Poland’s return to the EU mainstream after eight years of hardening populist and nationalist tendencies. A KO-led government will settle the long-running rule of law dispute with the European Commission, unlocking so far withheld funds and thus strengthening Polish investments in energy transformation and digitization. It will also display greater openness towards reforms at EU level, including expanding the scope of majority voting in foreign policy or taxation. Other thorny topics will remain, like immigration regulations, nor is Poland’s accession to the Eurozone currently in the cards. At bilateral and multilateral level, Poland will aim to improve relations with Germany and revive the Weimar Triangle – a platform for cooperation between Berlin, Warsaw, and Paris. Divisive issues such as war reparations will likely be moved aside in favor of Germany increasing its commitment to strengthening NATO’s eastern flank or providing financial support for the energy transition. One possible way could be to upgrade the EU Just Transition Fund to accelerate the phasing out of coal and further boost the already rising investment in renewables. In Central Europe, one should anticipate a clash with pro-Russian and increasingly authoritarian Hungary and simultaneously closer relations with the Baltic states, Czechia and Romania, with which Poland shares security interests. The new government will also focus on building a strategic partnership with Ukraine, advocating for Kyiv's quick path to the EU. Warsaw will certainly try to settle the Ukrainian grain export issue within a European frame and mobilize funding to reassure its own farmers. There will be no changes regarding the alliance with the United States and the priority given to transatlantic relations. While Washington remains the main partner in security policy, Poland will also be interested in strengthening EU defense initiatives, e.g., joint anti-aircraft defense. Also, relations with China will remain shaky. Already the PiS government abandoned hopes for developing the cooperation format 16+1 (now 14+1) between Beijing and Central Europe. Now, the new government will work more on an EU-wide answer to the China challenge. …though economic uncertainties prevail The expected boost from the unlocked EU’s recovery funds will lead to a rapid increase in investments, which so far has underperformed with just 16,7% of GDP in 2022 (Germany: 22,6%). This will lead to faster GDP growth, and in general the appreciation of the Polish zloty. Markets pushed the exchange rate up by 1.5% immediately after the election results were announced. Further positive effects should follow from drastically lowered risk of the suspension of structural funds access. From an investor’s point of view, another important factor is that the new government likely delivers a much higher level of legal predictability in internal reforms of taxes and employment rules, as well it will devote more attention to private business needs than the statist and redistribution-oriented policies of PiS. The coming political change in Poland is also key given European businesses current efforts to diversify supply chains and reduce dependence on China. Many of them may seek for investment opportunities, particularly if they represent branches with high exposure to imports of critical components from other regions of the world. The recent decision of Intel to build a chip factory near Wrocław for $4,8 billion may herald a larger inflow of FDIs. Another reason for this trend is the expected launch of the reconstruction of Ukraine: given its geographical proximity, Poland is considered a good location for management centers and large warehouses. It might be particularly interesting for German business – already well positioned in the Polish economy with €41 billion of FDI and 9.500 enterprises, many of which consider further expansion to Ukraine. Poland's departure from the PiS-path does not mean that increasing engagement of potential investors is care-free. The economy of the country is sensitive towards geopolitical risks, like an extended war in Ukraine or rising tensions in the Middle East. Internal stakes are also high. Although Poland's public finances show a low level of debt (49% of GDP), rapidly increasing expenditure needs and the implementation of electoral promises can worsen the fiscal balance. The opposition parties will sustain social transfers introduced by PiS, add a tax-free amount to €12.000, and up wages in the public sector by up to 30%. Also, the war in the East pushes the country to boost defense spending much above 2% of GDP. On top of that, at the beginning of 2024, the anti-inflation shield expires, which may lead to an acceleration of inflation (with 8,2% in September much higher than EU-average) and uncertainty about possible return of the central bank to a hawkish monetary policy.

Executive Summary Positive development trajectories in Ethiopia, Kenya, and Tanzania build on population trends and the gradual emergence of wealth. To fully capitalize on this potential across various business sectors, trade and transport infrastructure in particular require expansion. The three countries’ pragmatic foreign policy is matched with large investments by members of the BRICS group. Especially China has emerged as an ally and key trading partner, casting a shadow over the significance of relations with the EU. Implications for International Business Ethiopia, Kenya, and Tanzania are modernizing their health, water, agricultural and electricity sectors as well as their service infrastructure and need high-quality technical equipment and know-how to do so. East African countries look to strengthen their transport and service infrastruc­ture , with European businesses standing a good chance to win supplier contracts for projects awarded by international donors. The recently launched African Continental Free Trade Area (AfCFTA) is expected to be a game changer in the coming years. Substantial business opportunities arise as trading and manufacturing in Africa will become easier and cheaper. State of Play Fragile but promising growth trajectories Ethiopia, Kenya, and Tanzania stand out for relative political stability and GDP growth rates consistently above five percent. The trio along Africa’s Eastern flank is home to 245 million people – roughly a fifth of the continent’s population. Currently, their development is hampered by economic difficulties and security issues. Kenya faces rising costs of living, recently leading to riots, as well as an external debt of 67 percent of GDP. Tanzania’s President Samia Suluhu Hassan loosened the govern­ment’s authoritarian grip, but her country, too, struggles with debt (38 percent of GDP), and unfavorable property laws discourage outside investment. Ethiopia, once considered a “rising economic star”, now faces a foreign currency shortage and the threat of hyperinflation, as it emerges from the interethnic 2022 Tigray war. Irrespective of these impediments, all three countries maintain promising growth trajectories. Kenya and Tanzania particularly benefit from economic integration with Burundi, Rwanda, and Uganda under the EAC. Ethiopia has begun to dissolve its Socialist heritage by liberalizing key markets. With donor support, Kenya, Ethiopia, and Tanzania have expanded technical and vocational education and training initiatives aimed at growing their skilled work force in order to utilize their immense labor market potential, as 60 percent of the population is under the age of 25. Key Issues East Africa provides a geopolitical entry point… International players, from the G7 to Russia and China, have sharpened their focus on the African continent due to its geo-strategic and economic relevance, including the 54 countries’ combined weight in international diplomacy. Here, anglophone East Africa has emerged as a strategic access point situated along main international trading routes. In a region that regularly experiences armed conflict and extremism, especially Kenya and Tanzania are stabilizing factors. They maintain comparatively calm political climates, only sometimes facing violent spillovers or insecurity during electoral periods. Even then, their past trajectories suggest that businesses are rarely affected. Although surrounded by conflicting states, Ethiopia’s relative stability and its market with 123 million potential consumers must not be overlooked, either. European countries as well as the United States have a longstanding history of development cooperation in East Africa, yet new partners like China, Russia, and the Gulf States (especially Saudi Arabia, Qatar, and the UAE) recognized the potential of the region’s untapped markets much faster. China, in particular, has become a key trading partner for the three countries: Its exports more than doubled over the past decade, and the total trade volume reached $19 billion in 2022. By joining the BRICS as of 2024, Ethiopia anticipates not only strengthened trade relations but also fresh credit from the bloc’s New Development Bank to ease its fiscal pressure. Neither Kenya, Tanzania nor Ethiopia possesses sufficient capacities to address their major internal challenges: The countries need to forge competitive economies with employment opportunities, to avail physical and service-related infrastructure, to modernize agricultural production, and to combat the effects of climate change. Following a largely pragmatic foreign policy, the aspiring low-income and lower-middle income economies hence eagerly foster political relations with those who emerge as potential investors. Despite warnings about becoming overly dependent on China, Beijing’s popularity remains high as it offers loans without conditions, delivers quick results, and practices a policy of non-interference. Despite its timid investments and vocal criticism of democratic deficits, the EU, in turn, still is a key export market and crucial partner: Its Multiannual Indicative Programme (2021-2027) pledges at least €1.5 billion in development cooperation to the three countries. …with infrastructure investment being the key to unlock continental trade Key drivers of economic development in Kenya, Tanzania, and Ethiopia are their growing populations, urbanization, and an emerging middle class. To satisfy the resulting demand for goods and services, such as in health care, Information and Communication Technology (ICT), electricity, real estate, water and transport infrastructure, all three countries need project development support, components supply, and technical know-how. Heavily affected by climate change, the farming sector requires agricultural engineering, import of pesticides, seeds and capital investment. A noteworthy investment opportunity lies in Kenya’s dynamic start-up ecosystem “Silicon Savannah”, with over 500 ventures in AgriTech, FinTech, GreenTech and E-Commerce. In a bid to grow the ICT hub (with a combined worth of $1 billion in 2018), Kenya’s President Ruto recently pitched to Microsoft, Intel, Google and Apple. Also, German building material supplier Knauf announced that it would triple its production capacity in Tanzania. The AfCFTA is set to gradually eliminate existing tariffs and non-tariff barriers, which currently place Africa's cost of trading among the highest in the world. Already, the three countries have begun to improve their trade infrastructures: In 2019, Ethiopia expanded the Addis Ababa airport to hold the continent’s largest air cargo terminal, now handling around 500,000 tons of air freight annually. The EAC has tabled plans for an East African railway network, and Kenya is looking for investors to implement its $15 billion proposal to expand its standard gauge network to the Ugandan border until 2027. Under the current $30 billion World Bank portfolio, around 10 to 20 percent of funds are attributed to transport development and roughly another 10 percent to the energy sector. Beijing, in turn, invests in infrastructure megaprojects like the Lamu Port-South Sudan-Ethiopia Transport Corridor ($25 billion, partially funded by China) and Tanzania’s Bagamoyo seaport ($10 billion, mostly Chinese assets). These major projects award large contracts for equipment suppliers and developers. Projects funded by contracting authorities from the BRICS bloc are difficult to win for outsiders; however, European businesses often gain contracts from international donors. Beyond this, the region remains responsive to European trade and investment: Kenya just closed negotiations on an agreement that will open up trade in goods and investment flows with the EU. The agreement will give companies preferential access to its market by liberalizing more than 80 percent of imports from the EU. With the prospects of improved infrastructures and the AfCFTA unlocking the entire African market, production sites and service delivery hubs will become more profitable. European businesses need to set up representations in at least one of the three countries concerned, as consolidated relationships with African partners will give them an edge at handling red tape and gaining crucial access to decisionmakers.

Executive Summary After 20 years of soft pushes for reform and poor prospects for actual enlarge­ment, the EU unveils a new economic support plan for the Western Balkans. Given Russia’s war in Ukraine and China’s increased influence in the region, the EU offers fresh money and access to its market in exchange for substantial reforms. However, lingering rule of law issues, widespread corruption, and the unresolved Serbia-Kosovo conflict remain significant risks to regional security and stability. Implications for International Business Regional economic growth is set to accelerate, while access to the EU single market will boost investment prospects. The region offers an opportunity for European businesses to diversify their supply chains, supported by public funding. Uncertainty around the Serbia-Kosovo conflict weakens this improved business outlook, and sustained reforms are key to long-term macroeconomic growth. State of Play The Western Balkans: The long road to EU integration The six Western Balkan countries are at different stages of EU integration. Most countries continue their efforts to join the EU through their commitment to economic and political reforms. However, challenges such as corruption, respect for the rule of law, minority rights, and bilateral disputes persist. Albania is praised for its economic reforms and alignment with the EU’s foreign policy, but further reforms are needed on corruption and minority rights. Bosnia-Herzegovina needs major efforts in socio-economic and judicial reforms to establish a functioning market economy. Kosovo has made some progress regarding the economic criteria; however, the normaliza­tion of relations with Serbia is a pre-condition for its European path. After a period of political instability following an inconclusive election in June, Montenegro is likely back on track after recently forming a new pro-European government (which relies on the support of a minor pro-Russian party, though). In North Macedonia, the government shows a high level of dedication, improving the business climate and embarking on further judicial and constitutional reforms. In Serbia , the dispute with Kosovo and pro-Russian foreign policies are the two main obstacles to EU accession. The overall business climate follows a positive trend. Increased investment openness and corporate access to finance, new energy policies, and growing use of digital payments have created a friendlier environment for firms. All six economies have recovered to pre-pandemic levels . After slowing down in 2023, regional economic growth is expected to increase by 3% in 2024, followed by 3.5% in 2025. Despite such progress, challenges to business remain. The Western Balkan economies record slow progress towards convergence with EU levels . Deeply rooted structural hurdles, barriers to competition and regulatory transparency, a stagnant informal economy, and high levels of corruption impact the ease of doing business. Key Issues Geopolitical pressure now drives EU enlargement… Russia’s war against Ukraine has put the integration of the Western Balkans back on the EU agenda, after increasing investments from China, in particular in infrastructure had already raised concerns in recent years. With this, priorities have shifted: If, in the past, Brussels prodded the countries to gradually reform and resolve their disputes, now it is a question of them not drifting into the Russian or even Chinese orbit. Russian interest is focused on maintaining political influence through business ties, which it uses to hinder the region’s Euro-Atlantic integration. Especially in Serbia and Bosnia-Herzegovina, Moscow is strong in energy, with Belgrade recently securing a three-year Russian gas deal at a favorable price. Also, over 5.000 Russian companies have registered in Serbia alone since the start of the war in Ukraine. China has invested in infrastructure projects, telecommunications, and energy ( €32 billion between 2009 and 2021) . This has created new dependencies: In 2021, the construction of a Chinese-funded highway outside Podgorica resulted in Montenegro’s debt rising to more than 100% of GDP. The China-Serbia FTA is expected to have wider economic implications, such as increasing Chinese trade access to neighboring EU countries, in particular in the technology, automotive and aluminum sectors at a time when the EU tries to reduce its reliance on Beijing. Moreover, the region, suffering from organized crime and informal sectors which often exceed 25% of GDP, has become a gateway for illicit financial flows, with funds emanating from Russia to avoid international sanctions being a key source. To at least diffuse one potential source of conflict, the EU has upped its efforts to negotiate a solution to the Serbia-Kosovo standoff. The conflict between Serbia and Kosovo remains the number one threat to the region's security. A former province of Serbia that was last to declare its independence following the break-up of former Yugoslavia in the 1990s, Kosovo has fought for international recognition since 2008. However, its efforts are stalled not just by Serbia’s allies, Russia and China, blocking its possible membership of the United Nations, but also by the non-recognition from five out of 27 EU member states – Cyprus, Greece, Romania, Slovakia, and Spain. While Kosovo has an overwhelming Albanian majority, its northern part is largely Serb-populated, leading to – sometimes violent – tensions both within the country and with neighboring Serbia. S o far, negotiations between the two parties , jointly mediated by the EU and the United States, have failed to reach progress, especially after a clash in the Serb-majority region of north Kosovo. Now, upcoming elections in Serbia are likely to delay any progress. ...in a region holding significant economic potential. As European businesses try to diversify their supply chains and relocate them closer to home, the Western Balkans region offers near-shoring opportunities thanks to its proximity to European markets and low labor costs. The Commission’s plan to offer these countries access to the EU single market in exchange for reforms , and the new €6 billion investment package for the period 2024-2027 are expected to boost economic growth and create investment opportunities. Businesses will also benefit from the reduced cost of cross-border payments and the region’s integration into European industrial supply chains. Other advantages of the six countries include a young and skilled workforce, and an influx of EU subsidies, particularly in sectors such as renewables, agribusiness, and financial services. Another key factor for investors is that the Western Balkans boast low statutory restrictions on foreign direct investment (FDI) and a resilient financial sector . In 2022, the region’s current account deficit reached 6,8% of GDP. In 2023, FDI inflows are expected to fully finance the respective deficits in Albania, Kosovo, and Serbia. In addition, the region’s labor markets continue to strengthen : In mid-2023, average employment reached 47,8%, a historic high – even though the high share of informal employment (between 18,1% in North Macedonia and 33% in Montenegro) remains a growth risk. Nevertheless, Montenegro being most advanced in accession talks marks a promising long-term investment opportunity. Serbia, in turn, tries to balance Russia-friendly economic and energy ties with trade commitments to the EU. In fact, the improved business climate faces several challenges. The pace of reforms, such as the management of endemic corruption , will determine the unlocking of EU funding . A lack of European financial support, in turn, will leave the door open for further Russian and Chinese economic expansion. Finally, an escalation in the conflict between Serbia and Kosovo would not only threaten regional stability and security; worst, political unrest could damage the prospects of economic growth and lead European businesses to give up their investment plans. European companies would therefore fare well in steering clear of investments in the border area of northern Kosovo and southern Serbia. Executives should prioritize safeguarding sensitive information and valuable materials in their Balkan sites as the region might further become a pawn for the big players, especially in industries like energy. That said, with robust risk mitigation strategies and scenario planning in mind, the business potential of the Western Balkans remains to be seized.

Executive Summary China remains a linchpin in global trade, but this central position is challenged by the country’s persisting economic problems and international firms shifting their operations away from the mainland. Beijing’s newfound willingness to cooperate with the United States and Europe provides a breathing pause for businesses worried about escalating geopolitical tensions, although the underlying contradictions will remain. Faced with risk and uncertainty, most firms have chosen to maintain operations in the country for now while exploring diversification options, others have started divesting, while an unfazed few have sought to even further localize their business. Implications for International Business As economic and political frictions could easily flare up again, firms should prepare for further curbs on trade with China, not least as the EU pursues its “de-risking” agenda and acts against what it views as unfair Chinese subsidies. Yet, poor diversification strategies could leave companies even more exposed. Meticulous planning is required to fully exclude Chinese suppliers or operators from supply chains, as complex trade patterns often obscure input from China. Alternatives to diversification include investing in recycling and redesigning operations to reduce waste, just as technological innovations can allow firms to substitute Chinese-sourced inputs for less scarce products and raw materials. State of Play Decoupling is difficult President Xi Jinping’s draconian pandemic lockdowns have left a mark on the Chinese economy. A year after the abrupt reopening in late 2022, households and businesses still spend less out of caution, putting a brake on a previously dynamic economy. This has added to structural challenges related to slowing population growth, weak private consumption, and growing debt. The Communist Party has also tightened its grip on the private sector, as evidenced by the sudden vanishing of high-profile Chinese technology entrepreneurs. In combination with U.S. export controls and restrictions on investment, investors have taken flight. For the first time on record, foreign direct investment in China went negative in the third quarter of 2023.   These disruptions have not dislodged China from its position as a world-leading trader. China is still the main source of imports for most of its neighbors in Asia, including among members of the Indo-Pacific Economic Framework (IPEF), a US-led trade initiative. The government is investing heavily to prop up the manufacturing sector, which contracted for the second month in a row in November. With low demand, however, overcapacity and subsequent cheap exports of goods like EVs, batteries, heat pumps, and electrolyzers could follow.   Europe’s plans to reduce its reliance on Chinese semiconductors, raw materials, and green technology will reshape trade patterns over the long term, as would EU measures to limit the import of cheap subsidized EVs from China. Yet the EU’s dependence on China is not lessening, at least not at any significant pace. China remains the EU's principal provider of rare earths and other crucial raw materials. The US also struggles to end its reliance on Chinese imports. After tariffs were imposed on a range of products in 2018, US imports of Chinese goods decreased, and American firms began to buy more from other Asian countries like Cambodia, Thailand, and Vietnam. The latter in particular has emerged as an important hub for manufacturers, with President Joe Biden signing a “comprehensive strategic partnership” in September, and Xi Jinping paying a visit to the country in December. However, some Chinese firms appear to have moved their assembly to these countries to circumvent US tariffs, essentially leaving American dependence on primary suppliers intact. Key Issues The geopolitics of trading with China Beijing is still firmly bent on displacing the United States as the world’s dominant geopolitical power. For now, however, Chinese leaders seem eager to limit the West’s economic decoupling as much as they can while expanding cooperation with groups like the BRICS. Joe Biden and Xi Jinping’s four-hour encounter in November provided a welcome pause in the otherwise escalating geopolitical rivalry marked by new trade restrictions. Beijing was also surprisingly forthcoming ahead of the EU-China summit in early December by allowing 15-day visa-free travel for citizens of France, Germany, Italy, the Netherlands, and Spain as a clear marker that it is again ‘open for business’. Moreover. the Chinese commerce ministry recently pressed local authorities to halt bias against foreign companies, including by ensuring new EV subsidies are accessible not just to domestic brands. However, underlying tensions remain, as the EU wants Beijing to limit support for Russia and curb its cheap exports.   China also continues to expand trade networks in its neighborhood as well as in the Middle East, Africa, and South America. One of its main conduits, the Belt and Road Initiative (BRI), has been used to develop supply chains leading back to China. This month, Italy informed Beijing that it would leave the BRI, but the initiative seems to be doing well in other places. 21 Latin American states have signed on to the BRI, while China has free trade agreements with Peru, Ecuador, Chile, and Costa Rica. The Regional Comprehensive Economic Partnership Agreement (RCEP), a trade agreement between 15 Asia-Pacific nations that entered into force in 2022, has also helped solidify China’s trading partnerships. The United States, meanwhile, tends to rely on its well-developed military alliance network to compete with China in the region, rather than signing substantive trade deals. Its unwillingness to offer market access or cut tariffs makes it harder to tie partners closer. Late this year, for instance, negotiations within the IPEF, involving countries like Vietnam, Thailand, and Malaysia, failed to yield anticipated results. There’s more than one way to “de-risk” Firms with clear national affiliations risk becoming collateral damage in the present geopolitical spats. Recent examples include Chinese restrictions and raids against U.S. companies Micron, Deloitte, and Bain & Company in what smacks of retaliation against American sanctions and export controls. Beijing also barred some bankers and executives from leaving the country and put pressure on due-diligence firms like Mintz Group for carrying out what authorities say are unauthorized investigations.   Executives therefore have to make hard decisions. Gradual and light diversification should be the best option for businesses who have faith in the Chinese economy and think their operations are unlikely to get caught up in geopolitical frictions. It allows them to capture growth and show shareholders they are taking action to address the mounting risks. The downside is that diversification can be costly, often takes time, and, even if it succeeds with the daunting task of isolating supply chains from Chinese operators, businesses’ foothold in the mainland leaves them significantly exposed. Those who do not think remaining is worth the risk have started to divest. This is the choice of companies with easy access to alternative supply chains or whose sectors are likely politicized. Also companies outside high-risk sectors have followed this strategy, as toymaker Hasbro, for instance, has shifted production away from China. Others, still, have put their weight down on the Chinese side, such as McDonald's and Volkswagen announcing major investments in China over the past year. Some have even gone further with “China for China” strategies aiming to localize operations and protect parts of their business from external disruptions. Merck, for example, has announced plans to enlarge its supply chains in China to lessen dependence on raw materials sourced from outside the country. Such moves should appeal to those who struggle to see a bright future for their company unless China is in the equation. Diversification is not the only strategy available to businesses who want to reduce their dependence on China. Investing in recycling schemes or redesigning operations to reduce waste can help alleviate reliance over time. Technological innovations also allow firms to replace inputs from China with less scarce products and raw materials. For instance, a recent breakthrough by Swedish battery maker Northvolt is expected to enable the production of sodium-ion batteries without critical minerals such as lithium, which are tied to China's dominance of the supply chain. Northvolt is, in fact, building a gigafactory in Heide, where battery production is set to begin in late 2025.

Executive Summary Indonesia, the world’s third-largest democracy and a self-confident regional power, tries to maintain positive relations with both the United States and China despite simmering geopolitical tensions in Southeast Asia. Rich in critical resources and aiming to become a developed economy by 2045, the country has placed a bet on the green transition by focusing on industrial downstreaming, the electric vehicle (EV) sector, and digital services. Newly elected president Prabowo Subianto is expected to maintain national development plans, though democratic standards are set to continue to suffer. Implications for International Business Indonesia aims to become an investment hub and manufacturing base, especially in the EV ecosystem. As a fast-growing digital economy, the country boasts firms in e-commerce, food delivery, digital payments, and ride-hailing services. Despite its openness to investment, the country’s restrictive technical regulations, policy inconsistency, bureaucratic inefficiency, lack of infrastructure, sanctity of contract issues, and widespread corruption continue to hamper businesses. State of Play Indonesia at a Crossroads Despite a fickle global economy, Indonesia has performed rather strongly. Outgoing president Joko Widodo, called Jokowi, imposed an ambitious economic agenda while largely neglecting his promises to strengthen democratic institutions. His pragmatic foreign policy focused on domestic politics and attracting foreign investors but did little to further elevate the country’s regional position. Although repeatedly criticizing the Western-dominated international economic order, he showed little commitment to launch global initiatives that led to tangible changes.   Indonesia’s recent presidential and parliamentary election will keep the country on course. Even before the ballot closed on February 14, frontrunner Prabowo Subianto, a former rival of Jokowi and current defense minister, declared victory. He pledged to continue his predecessor’s policies and regulatory reforms, for which he teamed up the incumbent’s son, Gibran Rakabuming Raka, as running mate. The duo promises an ambitious eight percent annual growth target to hasten Indonesia’s development path till 2045. However, their plan will heavily rely on the digital economy and  downstreaming with continuing high reliance on coal as a downside. Also, the Nusantara capital city development, despite its green and smart city blueprint design, poses environmental and ecological risks. Being built on carbon-dense peatlands, it threatens the existing wildlife and the surrounding rainforests. The next president will need a new strategy to counterbalance these climate risks and reach the country’s net zero goal by 2060. Key Issues A “Free and Active” Foreign Policy Open to All Indonesia has long upheld a foreign policy emphasizing sovereignty, non-alignment, and non-interference into the internal affairs of others while prioritizing its national interests and maintaining its strategic autonomy. This approach has increasingly been used to counterbalance both the West’s and the East's polarizing forces, as perceived by Jakarta. This chimes well with neighboring countries’ stance, in particular among the ASEAN group, which generally tries to uphold good relations with both the US and China to benefit from investments by either side.   Ties with the United States date back to 1945 and have been cemented over decades through successive defense cooperation agreements. The two sides also cooperate on border security, cybersecurity, counterterrorism, and disaster response through joint training and capacity-building programs. In 2023 they upgraded ties with a comprehensive strategic partnership, which entails not only enhanced military cooperation but also initiatives to reduce supply chain dependencies regarding China, such as a critical minerals action plan. However, under its “open for all” foreign policy, Jakarta also purchases arms from countries like France (Rafale fighter jets) and Turkey (drones).   When it comes to the Indo-Pacific, Indonesia’s strategic outlook clearly differs from the American one. Its tilt towards China includes military exercises as well as intensified economic relations, in particular regarding infrastructure development, such as a $7.3 billion high-speed rail link between the capital and the city of Bandung in West Java. Under Jokowi, Indonesia joined the Beijing-led Asian Infrastructure Investment Bank and its Belt and Road Initiative (BRI). Exports to China account for a quarter of its foreign trade balance, almost twice as much as to the United States. That said, a troubled past marked by violence against minorities and, more recently, territorial disputes in the South China Sea and over the Natuna Islands at times creates tensions with Beijing. It is not yet clear how Prabowo will seek to maintain this delicate geopolitical balance. At 72, the general-turned-millionaire-businessman is expected to see matters through a military lens, whether on national sovereignty or domestic security. Balancing Global Trade and Domestic Growth To bolster its global standing and mitigate geopolitical risks, Indonesia actively seeks new trade partners. Specifically, it wants to secure a limited deal with Washington to leverage the US Inflation Reduction Act's subsidies. However, US lawmakers worry about Chinese influence in Indonesia’s nickel smelter along with the country’s lower environmental and labor standards. As a way out of this impasse, Washington has pledged to help enhance Indonesia's critical mineral sector in an isolated investment zone. Moreover, the United States channeled $20 billion to Indonesia through the Just Energy Transition Partnership (JETP) and committed to enhancing cyber and digital cooperation through IPEF, though this forum lacks market access provisions.   In turn, Indonesia’s trade gains from its comprehensive economic partnership with China are much higher. Notably, Chinese investors are actively involved in developing the new capital city of Nusantara, and Beijing promised a 700 kilometer extension of the Jakarta-Bandung railway. Also, many projects focusing on soft infrastructure like health and digital services are aligned with China’s BRI. Negotiations with the EU for a comprehensive trade and investment deal are underway, even though key trade indicators have remained stagnant, given President Jokowi's reservations about what he perceives as EU protectionism, especially on palm oil imports from Indonesia. Moreover, high tariffs coupled with existing free trade agreements with Asian partners like China contribute to trade diversion effects to the EU’s disadvantage.   Furthermore, Indonesia's status as the world’s biggest nickel producer as well as its renewable energy and carbon storage potential could bolster its position in the EV sector. To boost domestic refinement capacities and attract investment in battery manufacturing, Jakarta issued a series of export bans on critical minerals. It also invests in the semiconductor manufacturing capacity crucial for modern EVs.   In the digital sphere, Indonesia is home to over 2,000 startups, including unicorns and decacorns, leading to rapid growth in fintech, e-commerce, and ride-hailing services. While US tech giants such as Google and Meta have a solid presence, China's TikTok Shop recently disrupted the country's digital market through a $1.5 billion partnership with the GoTo Group, Indonesia’s largest tech company. The latter was born from the merger of a ride-hailing and food delivery startup, Gojek, and Tokopedia, an e-commerce start-up.   Indonesia's enhanced digital capabilities could shift market access and user preferences from the United States, China and even the EU, which is keen on promoting stringent data governance standards. However, as the country prepares to become an investment destination for digital trade and global EV supply chain, it needs to find a solution to its shortage of human capital, weak infrastructure, and often poor regulation. Only through reforms can Indonesia attract enough foreign investment to create a weighty presence in both traditional and digital supply chains.

Executive Summary Space is becoming a key frontier of geopolitics, as more players enter this strategic, but increasingly contested, overcrowded and under-regulated domain. The space sector is a dynamic growth market with significant economic potential and opportunities for innovative start-ups, despite continued US dominance. Future wars are likely to be fought in space, thus jeopardizing the space-based systems that are essential for the functioning of modern societies and economies. Implications for International Business SpaceX's new heavy rocket Starship has the potential to revolutionize the space economy with its unprecedented transport capacity and low payload costs. Commercial space-based systems experience increased demand from defense contractors and may at once become targets for direct or cyber-attacks. State of Play Space is contested, commercialized, and crowded Outer space has become the fourth domain of human civilization, after land, sea, and air. Satellites in the Earth's orbits are not only strategically important and economi­cally valuable, but by now indispensable for modern societies. Global trade flows, communications, and financial transactions rely on them. Space domain has changed enormously in the last decade, now characterized through: 1) Internationalization: space is becoming more global with more than 80 countries operating national space agencies, civilian or military programs; 2) Commercialization: private firms challenge the dominance of states in space; 3) Congestion: rapid increase in the number of objects in space, including debris; 4) Inadequate regulation: the international legal basis lags behind political and technological developments; 5) Theatre of rivalry: strategic competition between the United States, China and Russia increasingly plays out in space, leading to the securitization and militarization of space.   Six actors have emerged as major powers in space: The United States, Russia, Europe (via the European Space Agency, ESA), Japan, China and India. They all have the capability to autonomously carry out strategically important space activities, exerting power either in space or through space. This preparedness for disputes in space not only creates international prestige, but also allows them to extend their geopolitical rivalry into this sphere, for example through the military support functions of satellites while enforcing its interests on Earth. As a result, more and more countries strive to expand their strategic and economic space capabilities, and the NewSpace – the commercial space sector – is expanding globally on a rapid path. Key Issues Geopolitical rivalry on an extra-terrestrial battlefield Whoever controls space also controls the earth, the saying goes. Indeed, space has become the “ultimate high ground” for observing and firing at objects in space and on Earth, making it crucial for power projection and modern warfare. Especially China is challenging the United States as a space superpower, even though the "second space race" is about much more than putting another man on the moon. It is about prestige and resources, where both actors compete for the best location to set up a permanent lunar station and occupy strategic positions for controlling the cislunar and Earth orbit, as well as for exploration missions to Mars and beyond. While Russia emerges as China's junior partner in space, India has also extensively expanded its space capabilities.   With Galileo and Copernicus, Europe has gold standard systems and contributes important components and capabilities to the NASA's space program. However, Europe is in danger of being left behind in the dynamics of geo-economics and geopolitics, as it understood space policy solely as a civilian matter. Its space industry relied heavily on Russian capabilities and with Russia’s war in Ukraine it has lost its autonomous access to space as it currently has no own launch capabilities.   All space systems have a dual-use character, as they can be used for civilian and military applications, leading to the securitization of space. Space-based capabilities enable operational planning and execution, providing militarily critical data, products, and services, making it essential for modern warfare and an operational domain in itself. In the future, it will also be a domain for war, and the United States, China, and Russia already engage in an arms race for counterspace capabilities: Anti-satellite missiles, co-orbital rendezvous and proximity operations, lasers, electromagnetic waves, electronic and cyber activities are all designed to (temporarily) disable or destroy the space capabilities of an enemy. States like France, India, Iran and North Korea are likely to catch up over time.   The Outer Space Treaty of 1967 still serves as a "space constitution", a valuable set of guiding principles in space, although it does not address new opportunities such as space mining, tourism, conflicts about frequencies in low Earth orbit (LEO), traffic management, debris, and the expected militarization of space. The UN’s efforts to develop an international space law are currently blocked, leaving only non-binding recommendations in place, such as the UN Space Debris Mitigation Guidelines and the EU Code of Conduct for Outer Space Activities. The EU Space Law planned for 2024 intends to bring the eleven national laws in EU countries into a coherent framework, opening up investment and business opportunities and generating advantages in international space competition. Companies becoming dominant, but also dependent Launching satellites remains a bottleneck for the space economy. Russia, the United States, France, Japan, China, the United Kingdom, India, Israel, Iran, North Korea, and South Korea as well as ESA have launched objects into orbit with autonomous launching capabilities. However, the American private company SpaceX currently dominates space travel with its reusable rocket systems, having launched 355 rockets since 2010, including 96 in 2023 alone. This represents a 43 percent share of orbital rockets and manned space flights, with launch numbers to increase again by a half in 2024. Moreover, a successful takeoff of Starship would revolutionize the space economy by making the size and weight of the systems launched into space, until now severely restricted, almost irrelevant due to its high payload. In conjunction with the drastic drop in launching costs, the number of satellites is increasing rapidly. While 20 to 70 satellites were added per year between 2000 and 2010, currently 20 to 50 satellites are launched per week. Most of these spacecrafts are so-called smallsats, weighing up to 600kg and primarily used for remote sensing and communication applications. Again, the market leader is SpaceX, whose Starlink system accounts with 5,552 smallsats for almost 60 percent of all active satellites. Overall, however, the current space landscape is an extremely dynamic sector with opportunities for start-ups in manufacturing and launches, especially of smallsats and small rockets, with initiatives like the German Offshore Spaceport Alliance to build new launching sites in Europe. This creates options for new space-based services, particularly in earth observation, internet provision, and communication. In fact, private investment has increasingly replaced government contracts for space-based capabilities and services, bringing greater dynamism, innovation and risk-taking. However, the lack of international political regulation remains a significant challenge, given the battle for satellite positions in LEO and the lack of common rules for space traffic management. There are currently 36,000 known pieces of space debris 10 cm or larger and an estimated one million pieces larger than one centimeter, each with the kinetic effect of a hand grenade. In the first half of 2023, each Starlink satellite carried out an average of 137 collision avoidance maneuvers per day. Each collision would in turn create more space debris, thus potentially triggering a chain reaction threatening the long-term usability of Earth orbits. Finally, given the increased use of space-based capabilities in modern warfare, companies need to develop strategies for responding to requests for their systems and services, determining the level of cooperation they are willing to engage in with conflict parties

Executive Summary The government led by Prime Minister Narendra Modi is widely expected to win the upcoming general election held from 19 April to 1 June 2024, indicating political and investment stability. With its geopolitical shift towards strategic autonomy and multilateralism, India is strengthening ties with the West and regional blocs like ASEAN while asserting its national interests. Its growth prospects remain strong, supported by initiatives like "Make in India" and infrastructure investments, and allows it to position itself as a major player in global supply chain resilience. Implications for International Business Due to the strong growth expected in the Indian economy, the Indian corporate sector is likely to have double-digit earnings growth on a sustainable basis for the next couple of years. In particular, opportunities are emerging in generative AI, new energy businesses, and digital space, including e-commerce and payment systems. State of Play With more than 945 million voters eligible to cast their ballot, India’s election is the largest democratic exercise in the world. It will be held in seven phases, with final results to be announced on June 4. Current polls point to a win of the National Democratic Alliance (NDA) led by the Prime Minister’s Bharatiya Janata Party (BJP). Especially during his current – second – term, Modi has curbed the independence of the media, the judiciary, and of civil society and targeted opposition figures from Congress and other parties for alleged tax crimes. Moreover, he used last year’s G20 presidency not just to establish India as a shaper of global affairs but also to boost his image at home. That said, unemployment, inflation, and ensuring that the benefits of growth trickle down to the masses are the main domestic concerns. Despite some progress, there is still a huge unmet need for basic services such as healthcare, water and sanitation, education, and energy. At the international level, India has managed to attract significant foreign investment as it steers the middle ground between two competing superpowers. A like-minded democracy favoring the rule of law, Delhi tries not to directly antagonize China while gaining US support. Key Issues A growing player in its own right and a difficult partner for the EU India is in the midst of a significant geopolitical repositioning, discarding its old non-alignment policy in favor of strategic autonomy and multilateralism. Its G20 presidency in 2023 turned the country into a leading voice of the Global South, not least through the inclusion of the African Union as the new member of the group. Another significant legacy is the India-Middle East-Europe Economic Corridor, a comprehensive rail and shipping connectivity network announced last year that links the India, Saudi Arabia, the Gulf states, and the EU in a long-term project. Moreover, regional blocs such as the Association of Southeast Asian Nations (ASEAN) expand their partnerships with India, just as Delhi builds defense partnerships with the United States, Japan, and Australia to buttress its strategic autonomy. Through its participation in multilateral fora such as the QUAD or the Indo-Pacific Economic Framework (IPEF), India underlines its commitment to a liberal international order.   Two years ago, India and the EU relaunched trade negotiations to boost economic growth, create job opportunities, and attract significant foreign investment including in pharmaceuticals, machinery, and manufacturing. For now, the two sides continue to differ on so-called technical barriers to trade, with the next round of talks scheduled only after the general election. The European Free Trade Association (EFTA) of Switzerland, Norway, Liechtenstein, and Iceland, in turn, achieved a diplomatic coup of sorts by signing a free trade agreement with India in early March. The deal will see India lift most import tariffs for industrial products from the EFTA countries, as the latter invest $100 billion over the next 15 years.   Still, India will not blindly follow the West, as proven by its recent imports of Russian oil despite being a vocal votary of peace in Ukraine. Its fossil fuel use has stymied climate negotiations, as Delhi refuses to give in on what it considers detrimental to its national interests. That makes it a reliable, but difficult partner for Europe and the US. India sees strong growth ahead India already has the highest correlation between overall economic and corporate earnings growth among large emerging markets, making GDP growth projections fairly achievable. Moreover, the next government is expected to continue pushing the “Make in India” agenda launched in 2014. Along with the ‘Skill India’ program, this is one of the many initiatives of the government to improve the skill base of the Indian workforce to support Indian businesses and their global supply chain operations. The program’s success is reflected in the latest arms export figures, which touched a record INR 21,083 crore (ca. US$ 2.63 billion) in FY 2023, a growth of 32.5% over the previous fiscal year at INR 15,920 crore.   In addition, the government committed over $120 billion in FY2023 only to announce to improve transportation infrastructure, including roads and ports, to make the movement of goods and services more efficient. They are also creating an enabling environment for companies to invest in technology and innovation to build their own logistics network or partner with third parties who can provide value-added services like supply chain consulting and inventory management solutions. As part of its revitalization efforts, India aims to bring more manufacturing onshore and increase the number of sectors in which it is a competitive location for supply chains, with a particular focus on energy, pharmaceuticals, and financial services. The FY2024 budget also announced a new funding scheme for research and innovation, whose 50-year interest-free loan offers a significant boost to the private sector's efforts in emerging domains like Gen-AI, new energy businesses, and digital space. According to UNCTAD, India secured the third-highest foreign investments for greenfield projects and the second-largest for international project finance deals in 2022.   Along with Japan and Australia India is one of the founders of the Supply Chain Resilience Initiative (SCRI) after the COVID-19 pandemic revealed an over-reliance on China. The goal of this initiative is to create a "virtuous cycle" of strong, sustainable, balanced, and inclusive growth throughout the Indo-Pacific by sharing best practices, investment promotion, and buyer-seller matching events to diversify supply chains. Prime Minister Modi is using India’s growing appeal as the world’s fastest-growing major economy and alternative to China to clinch free trade pacts even in a departure from the country’s protectionist past.   There are strong macroeconomic growth factors that work in favor of aiding a positive outlook on the Indian economy. Consumption and a pickup in the investment cycle remain key growth drivers. Apart from government spending, capital expenditure is supported by rising capacity utilization levels and strong balance sheets for firms and banks. Such solid fundamentals should more than offset challenges like global slowdown risks, high inflation, and geopolitical tensions.

Executive Summary Advanced hybrid attacks threaten to disrupt global supply chains, change market dynamics, and destabilize financial systems and national economies. States increasingly rely on non-state actors to inflict harm through disinformation, interference, cyberattacks, or economic threats, often in a synchronized fashion. A greyzone has emerged in which agile groups can avoid detection and attribution, thus making the defense more difficult – yet, also more vital. Implications for International Business Hybrid threats will become part of the normal business environment, requiring a shift from reactive to proactive risk mitigation through the protection of infrastructure, diversification of supply chains, and dynamic monitoring. Beyond economic cost, hybrid attacks can inflict reputational damage, so firms need to take protection measures and develop their crisis communication. State of Play Agile, combined, and efficient – and geopoliticized Europe has become ever more exposed to hybrid threats, creating risks not just for governments and public institutions, but also for companies and individuals. Primarily deployed by authoritarian states such as Russia, China, Iran, and North Korea, hybrid tactics aim to weaken democracies by targeting political, societal, or technological vulnerabilities. They can serve to, for example, discredit their political model, produce instability or uncertainty, influence political decision-making, or do actual damage or otherwise gain tangible advantages. In recent years, the methods used for hybrid attacks have greatly evolved: For one, a combination of tactics – such as “hack and leak”, or simultaneous cyber-attacks and the use of ransomware – is increasingly utilized. Similarly, forced migration into Western countries is employed concurrently with disinformation campaigns. For another, there is greater involvement of non-state actors and economic entities. The former provides additional human resources and expertise while enabling better concealment. The latter receive support to strategically invest in an adversary’s key industries to hinder economic or technological progress. Finally, the cyber and information space is increasingly used as an operational domain, especially through social media and cyberattacks. Moreover, new hybrid tactics have gained in importance, such as the use of sanctions or espionage in the economic and financial sector ("tradefare") or the weaponization of democratic norms and standards against democracy itself ("lawfare"). Key Issues Hybrid attacks challenge state sovereignty… Hybrid threats remain below the threshold of armed conflict. They can lead to regional instability by disrupting society and the economy, thus jeopardizing state security without creating an interstate conflict. The tactics employed focus on a greyzone in which detection and attribution are difficult, such as at the interface between war and peace, internal and external security, or local, national, and international jurisdictions. Hybrid threats therefore challenge state sovereignty without impairing their territorial integrity. The tactics used do not always have immediate implications for diplomatic relations between countries. State actors like military, intelligence and security services, and non-state actors such as militias, terrorist groups, or criminals, both exploit the lack of clear attribution to avoid immediate consequences, even if they have different goals: While state actors often strategically pursue their national interests to gain geopolitical influence or weaken their foes, non-state actors deploy hybrid tactics for short-term immediate economic benefits or ideological intentions. Combatting hybrid threats requires a holistic approach, which is why EU and NATO member states have set up a joint Centre of Excellence to promote a whole-of-government and whole-of-society approach to counter them. In addition, the EU has enacted regulations to enhance the digital and physical protection of critical infrastructure, such as the Network and Information Security Directive 2 (NIS 2) and the Resilience of Critical Entities Directive (CER). To curb the spread of disinformation, the Digital Services Act (DSA) allows for the fast removal of illegal content and manipulated information from online and social media platforms. …as much as entire economies and individual firms A range of hybrid measures specifically target economic activity. These include the imposition of sanctions against other countries or entities, the use of trade restrictions to protect domestic industries, or the manipulation of exchange rates or interest rates to influence economic conditions. As companies adjust their commercial partnerships and investment decisions in response to such measures, these tactics can disrupt global trade patterns and supply chains, alter market dynamics (risk perceptions, investments, capital flows), or destabilize financial systems or national currencies. Eventually, such actions can lead to slower growth, significant market volatility, and political destabilization. For developing economies such as Ukraine, Turkey, Kenya, South Africa, Nigeria, Argentina, Brazil, Colombia, and Georgia, these influences have significant impact. They face economic instability, investment uncertainties, restricted access to markets and resources, environmental damage, and social or political tensions. It will be crucial for them to pursue a sustainable development strategy, promote regional market integration and diversification, establish clear investment guidelines, and ensure legal certainty and political stability. Businesses, too, should implement a set of strategic approaches to effectively address hybrid threats and strengthen their resilience and readiness. First, they should conduct a comprehensive risk analysis and assessment. This involves deploying early warning systems and scenario analysis to proactively identify potential risks before they escalate. Moreover, collaboration with authorities and other businesses is crucial. This means fostering information exchange on threats and best practices and engaging in joint defense measures to bolster resilience against hybrid threats. In addition, prioritizing cybersecurity and data protection is essential. Businesses should implement safety measures, backup plans, and resilience structures to safeguard critical assets and maintain operational continuity in the face of cyber threats. Finally, legal readiness is key. Understanding legislative frameworks relevant to hybrid threats is important for compliance and preparedness. Establishing uniform security standards across the supply chain through a code of conduct and creating emergency plans for contingencies can enhance a firm's ability to respond effectively to complex threats. Companies should in particular focus on cyberattacks and disinformation campaigns in their geopolitical risk analysis and monitor the respective actors and methods. By implementing an early warning system, such as live tracking of disinformation campaigns on social media and establishing a threat analysis unit, they can identify risks early on. EU-based companies should assess whether they fall within the scope of the regulations such as NIS2, CER, or soon, CRA, and take the required measures. International cooperation and partnerships between states and companies are becoming increasingly important for minimizing damage risks and maintaining economic stability. Companies should collaborate with national security authorities and international organizations, regularly exchanging their experiences and information on threat developments in international public-private partnerships, such as the Partnership Training and Education Centers (PTECs) recognized by NATO or the Joint Cyber Defense Collaborative (JCDC). In the emerging geopolitical rivalry, hybrid attacks by authoritarian actors target democracies at the core. To counter them, companies relying on free markets, legal certainty, and open societies need to collaborate with elected governments.