MENA countries’ stock markets produced an economic shock tantamount to the political shock of a Trump presidency

Dear Pita-consumers:

Apologies for the five-month long hiatus. We have been trying to update our blog site to reflect the various MENA stock markets showcased on our cousin’s site: PITAPOLICY Consulting.  Obviously, we are still tinkering with the backend of these widgets.  Then we got hacked.  IN ADDITION, some of us also took an extended pause (like a couple hundred million did with the shock of the 11/9 U.S. presidential election results) to distinguish surreality from an uncertain future.  Again, apologies: this blog site is about you, the pita-consumer, who follows development trends in the Middle East and North Africa region.  We realize that the world does not revolve around “us”, or #US, but we will do our best to monitor the president elect’s nominees as they relate to new U.S. ambassador appointees to the MENA region, and such.  But in our defense: MENA countries’ stock markets produced an economic shock tantamount to the political shock of a Trump presidency–that rivaled an OPEC meeting to raise oil prices– in stable economies like Turkey:

The U.S. dollar versus Turkish lira rate witnessed a historic high of 3.3041 early morning after Trump’s victory started to factor in global markets.

The Borsa Istanbul tanked 1,806.10 points, or 2.37 percent to open at 74,561.69 points, amid late projections indicating the Republican candidate’s victory.-ATA

So let’s talk about two of the most populated MENA countries: Egypt and Turkey, who greatly contrast in their economic story this past year.   We promise to discuss the more populated countries (Iran and Pakistan) next week after updating the number on Syrian refugees and Internally Displaced Persons.

Egypt

Just as the World Bank approved of lending another $1 billion in US dollars to Egypt (the second portion of the whole $3 billion package for implementing economic reforms), the Egypt Stock index stock market crossed the 12,000 point mark by rising 3.4 percent.   As @TheBigPharaoh observed: it was the first time since April 2008.  For example, energy and infrastructure focused companies–like Qalaa Holdings, who reported $98 million in US dollar profits ($1.79 billion in Egyptian pounds), according to Trade Arabia–partially explain the 3.4 percent increase on the Egyptian stock exchange.  Meanwhile, the broader EGX100 index rose 1.5 percent.

Background

This month’s World Bank loan is small compared to the International Monetary Fund’s loan of $12 billion in US dollars.  Its first installment was issued November 11th–just five weeks ago. Foreign investors have most definitely noted this as indicated by the 3.4 percent increase.

Egypt’s economic reforms have included:

  • lowering fuel subsidies;
  • floating the Egyptian pound;
  • and introducing a value-added tax.

Seventy-five percent of Egypt’s government subsidies were allocated to the energy sector.  Given that one-third of Egypt’s government spending is earmarked for subsidies, it is no wonder that the World Bank’s economic reform programme began to take root in 2014 and cut down fuel subsidies — an opportune time since gas prices were lower. 

Impact

With all these reforms, inflation is more than double-digits: 13.5%–and expected to rise to 20% by 2018.  Cost of basic food items, like sugar, cheese, and bread, has risen dramatically so much so that, “In a bid to soften the blow, the central bank raised its key interest rates by three percentage points this month and the army is handing out millions of food parcels at discounted prices,” reports Qantara.  Also, there are appeals to the government to monitor prices as many Egyptian consumers feel that merchants are unnecessarily hiking up prices.

Mada Masr examines how some countries, like Argentina, Indonesia, and Brazil handled the upsides and downsides of huge loan injections into the economy.  The success behind one country seems to emerge from how it handles the unintended consequence of economically strangling the poor.

Turkey

The economic narrative for Turkey, since its failed coup in July, was pretty much gloomy–arguing that its growth contracted for the first time in seven years.  However, last week Bloomberg reported that Turkey’s GDP actually grew since 2015.  Despite the coup attempt, and restricted ,Turkey’s government-led growth resulted in its economy producing an additional 20 percent increase of goods and services over the last year.  In other words: Turkey’s economy grew to $865 Billion dollars instead of the earlier calculation of $720 Billion dollars.  “How?” you and I ask… well, Al-Monitor explains it through the lens of Turkish economist, Mustafa Sonmez:

The revision is said to be made according to EU standards, but unlike the EU, which took 2010 as the basis year, Ankara opted for 2009, a crisis year in which the Turkish economy had contracted by about 5%. Relevant to 2009, GDP increases in following years turned in bigger, meaning that an important part of the overall increase stemmed from the choice of a problematic basis year.

Basically, Turkey measured for its “personal best” by setting the bar lower.   Manufacturing and Construction sectors represent the 25 percent of Turkey’s growth. Apparently, Turkey’s labor force grew too: 9.1% instead of the previously believed 8.8%.  Per capita income also increased from $9,257 to $11,082.  But by setting the bar lower, other indicators will not fare as well: such as the Human Development Index for 2016–if spending in the social and health sectors did not keep pace.

On a different note, Turkey also represents one of the four emerging markets that is strongly affected by changes in U.S. monetary policy.  So, earlier in December, when the U.S. federal reserve announced an increase in interest rates, Turkey’s Central Bank responded by holding its interest rates at 8 percent–as they had already tried to curb inflation to 7 percent with a November decision to raise interest rates.  Nonetheless, the Turkish lira fell again, according to the Wall Street Journal:

Turkey’s lira has weakened significantly since the summer’s failed coup attempt. It has also slumped 12% against the dollar since the U.S. elections, in line with a broader selloff in emerging-market currencies. The plunge was also driven by rising security threats by Islamic State and Kurdish insurgents, domestic political uncertainty and expectations of further rate increase from the U.S. Federal Reserve after it raised interest rates by 0.25 percentage point at its December policy meeting.

Despite Turkey’s 20 percent growth story, Turkey’s monetary story is more complicated.  Turkey’s currency challenge has been further exacerbated by the assassination of the Russian ambassador to Turkey by a lone Turkish gunman.  The EU is halting membership talks.   All three of these–and more-– adversely impact US companies that based their MENA operations in Turkey: Microsoft, Intel and Coca-Cola…and a planned Trump venture.


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