North Africa’s Smoldering Jasmine Smell

Tunisia’s ouster of longtime strongman Ben-Ali prompted similar popular uprisings throughout the sub-region against political and economic stagnation most prominently in core MCSI component Egypt, roiling debt and equity markets that otherwise underperformed developing peers in 2010. Tunisia, Egypt, and Morocco showed single-digit gains while Jordan and Lebanon fell during the period. The tiny $10 billion Tunis exchange shed almost 15 percent and CDS spreads almost doubled as the single-party regime was toppled by street protests. Banks, often controlled by the leader’s family and grappling with NPL spikes, were battered in particular, and their credit ratings were downgraded along with the sovereign in the immediate aftermath. GDP growth at 3.5 percent last year had already been due to falter on slack tourism, remittances and FDI from top partner Europe. The budget and current account deficits were above 3 percent, and currency liberalization and privatization efforts were stalled. The $60 billion Cairo bourse too quickly plunged into the negative column after days of mass demonstrations calling for President Mubarak’s departure after 30 years in charge before the next scheduled presidential election in November. His son had been groomed for succession if he refused another term, but foreign investors accounting for an estimated 30 percent of daily trading had sold off previously after last fall’s parliamentary poll which had been widely condemned at home and abroad for excluding and arresting opposition candidates. Overseas ownership of Treasury bills, with the 6-month yielding 10 percent had also risen to one-quarter the total before that time, when transition and budget and balance of payments worries combined to instill wariness. Increased food subsidies designed to keep social peace were likely to breach the 8 percent of GDP intended fiscal gap, and 2011 visitor and Suez Canal revenue projections were mixed. Inflation in double digits likewise was a poor indicator setting the stage for further currency depreciation despite central bank intervention.

Jordan is down over 10 percent the past year and weeks of unrest in Amman have focused on joblessness, high commodity costs and taxes, and demands for freer elections and a more powerful parliament as a check on King Abdullah. Gulf buyers focusing on phosphate and potash listings have trimmed positions as the IMF predicts 3-4 percent GDP growth and a record budget deficit. Morocco, also under royal control, has stayed positive in January after the government pledged food and gas subsidies “at any price” as a top wheat importer. Lebanon has been rocked by violence between Hezbollah and rival party supporters, although the appointment of a business executive prime minister boosted heavyweight Solidere construction company shares. The central bank however reported that $850 million had fled the country after the previous coalition dissolved, as the adjacent area struggled to revive wilting flowers.

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