Conclusions: As we noted a week ago, the Jasmine Revolution has the potential to go global, and it has. This week we’ve seen massive protests in Egypt, the world’s 27th largest economy. The Egyptian stock market is down 16% in the last three days.
On January 20th in an Early Look (some of this data is replayed below), we discussed the idea that Tunisian protests could represent a tipping point for civil unrest in emerging markets. These protests, or what is now being called the Jasmine Revolution, began on December 17th with the self-immolation of Mohammed Bouazizi (after police confiscated his unlicensed food stand) and ended on January 14th with current President Ben Ali fleeing the country for Saudi Arabia. In the last week, we have seen protests accelerate in emerging markets, and this may just be the beginning.
Tunisia had seen steady economic growth from 1999 to 2008 with average annual GDP growth of 4.9%, until a deceleration in 2009 to 3.1%. The natural outcome of a deceleration in economic growth is a freeing up of capacity in the economy. In Tunisia, almost 50% of the economy is driven by services, which is effectively “people” power.
So, as the economy in Tunisia has slowed, unemployment has picked up to 14.1%. In conjunction with slowing growth and high unemployment, we have also seen basic commodity prices accelerate in the last year – copper up 24%, tin up 58%, wheat up 68%, cotton up 131%, and palm oil up 53%, to name a few. In economic parlance, this combination of accelerating inflation, slow growth, and high unemployment is called Jobless Stagflation.
In democracies with longstanding institutions of law and government, Jobless Stagflation often leads to protest and change, similar to the change we saw in the recent midterm elections in the United States, where the Republican Party gained control of the House of Representatives. The people demanded change in the United States and they went to the polls to get it. In nations like Tunisia, this mechanism for change (free and open elections) does not exist, so the people went to the streets and demanded it.
Civil unrest as an outlet for protest against the government exacerbated when the population is youthful. As healthcare broadly improved in these Africa and the Middle East in the late 1960s, birth rates went up dramatically. Currently, it is estimated that around 65% of the regional population is under the age of 30.
In the Early Look last week, we posited the rhetorical question: could the Jasmine Revolution become a primary export of Tunisia? The evidence early seems to suggest that the Jasmine Revolution is already spreading across the region; the most supportive evidence is coming from Egypt.
Over the last three days, there have been massive protests in Egypt against the autocratic regime of President Hosni Mubarak. These protests are being driven by economic concerns, primarily spiraling costs of living (read: inflation). As the costs go up, the underemployed and underpaid youthful population naturally vents, and in an autocratic regime they have no outlet other than, at least in their minds, to take to the streets. No doubt the successful revolution in Tunisian was a catalyst for the Egyptian revolts; the success of overthrowing the Tunisian government has emboldened protestors across the region. To wit, protests are occurring and growing in Yemen and Jordan as well.
Unlike Tunisia, Egypt is a country that matters on the global economic stage; it’s the 27th largest economy in the world with a GDP of $470BN (2009). As well, the markets are signaling that there is more to come in Egypt, as the stock market there has reached its lowest level since July 2010, falling 16% in the last two days. Further, credit default swaps, insurance on Egyptian government debt, have surged 15% in the last week.
The powder keg of high unemployment, youthful citizens, rising inflation, and limited democratic institutions are endemic to Africa and the Middle East. Tunisia appears to be the flint that lit the powder keg. As protests continue over the coming days and weeks, we expect the mantra “We are all Tunisians now” to expand across the region, as the Jasmine Revolution becomes Tunisia’s top export.
Daryl G. Jones