The economics of Ramadan

The reduced energy levels - and working hours - of the month of fasting affects the stock markets.

Downtown Cairo is a boisterous place. The ubiquitous honks of the car horns and the ebullience of peoples on the street ensure that any form of silence exists only in the memory. However, for one month a year, every year, the streets go silent and the shops close for as long as the energy sapping sun stings the eyes. This is the holy month of Ramadan.

One of the five pillars of Islam, every Muslim should abstain from drinking, eating, smoking (as well as a few other things) between Fajr prayers in the early morning and Maghreb Prayers in the dusk. The Qur’an prescribes it as a way of learning self-restraint.

The eschewing of water and food, however, means that those observing the fast are also affecting their energy levels. Simply walking down the street, the vitality that would once overwhelm me is conspicuous by its absence. Those that are out languishing under the relentless Cairo sun reply to my salutations with a half-hearted wave where once I would have been invited into conversation.

In an effort to manage this problem, the Egyptian government reduces the work hours of private sector and bank workers. The reduction and/or adjustment of work hours during the month of Ramadan takes place in almost every Muslim-majority country. But whereas Malaysia and Indonesia generally practice a one-hour adjustment, one-hour reduction scheme, Egypt practices a two-hour reduction for private sector workers, a three-hour reduction for banks, as well as a one-hour reduction in their stock exchange trading hours.

This may well ameliorate the situation of fasting with the workers, but it also means that over the course of Ramadan, the private sector loses around 40 hours of operating time, the banks around 60 hours and the Egyptian stock exchange around 20 hours of trading time. 

Strangely though, the effect of losing 20 hours worth of trading time on the Egyptian stock market is minimal, if anything (see graph).  Using data from the benchmark EGX30 index – which looks at the top 30 companies in terms of liquidity and activity - between the years 2000-2006 there is absolutely no correlation between the typical monthly percentage change in stock value and the percentage change in the month of Ramadan, but it does seem to suggest that the reduced trading times has increased the market’s volatility.

 

The fact that Egypt releases its GDP and growth statistics in quarterly format mean any attempt to scrutinise the Ramadan periods within them is futile. However, the latest data released by the Ministry of Planning and Ministry of Finance can be examined as it covers the period from 1 June to the present, which encapsulates most of this month of Ramadan, plus 19 days of non-fasting.  In that time, the total GDP change has been -4.1%, which correlates to a recent report by the Dinar Standard - a research and advisory firm that focuses on emerging Muslim economies – which gave an estimate of an average loss of 4% to GDPs in Muslim-majority countries.

In that report, it estimated that Egypt made a loss of nearly 8% in its monthly GDP due to it’s reduced Ramadan hours, which would result in a total loss of just over US$1.4bn for last year’s Ramadan period. The reduction of hours may be necessary exchange for worker morale, but for an economy that is already struggling to attain the considerable US$22.5bn needed to finance its deficit for this fiscal year, it’s a hefty trade-off.

Men carry food for the fast-breaking meal. Photo: Getty
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Why Theresa May can't end speculation of an early general election

Both Conservative and Labour MPs regard a contest next year as the solution to their problems. 

One of Theresa May’s first acts as a Conservative leadership candidate was to rule out an early general election. After a tumultuous 2015 contest and the EU referendum, her view was that the country required a period of stability (a view shared by voters). Many newly-elected Tory MPs, fearful of a Brexit-inspired Ukip or Liberal Democrat surge, supported her on this condition.

After entering Downing Street, May reaffirmed her stance. “The Prime Minister could not have been clearer,” a senior source told me. “There won’t be an early election.” Maintaining this pledge is an important part of May’s straight-talking image.

But though No.10 has wisely avoided publicly contemplating an election (unlike Gordon Brown), the question refuses to die. The Conservatives have a majority of just 12 - the smallest of any single-party government since 1974 - and, as David Cameron found, legislative defeats almost inevitably follow. May’s vow to lift the ban on new grammar schools looks to many like an unachievable task. Former education secretary Nicky Morgan and former business minister Anna Soubry are among the Tories leading the charge against the measure (which did not feature in the 2015 Conservative manifesto).  

To this problem, an early election appears to be the solution. The Tories retain a substantial opinion poll lead over Labour, the most divided opposition in recent history. An election victory would give May the mandate for new policies that she presently lacks.

“I don’t believe Theresa May wishes to hold an early election which there is evidence that the country doesn’t want and which, given the current state of the Labour Party, might be seen as opportunistic,” Nigel Lawson told today’s Times“If, however, the government were to find that it couldn’t get its legislation through the House of Commons, then a wholly new situation would arise.”

It is not only Conservatives who are keeping the possibility of an early election alive. Many Labour MPs are pleading for one in the belief that it would end Jeremy Corbyn’s leadership. An early contest would also pre-empt the boundary changes planned in 2018, which are forecast to cost the party 23 seats.

For Corbyn, the possibility of an election is a vital means of disciplining MPs. Allies also hope that the failed revolt against his leadership, which Labour members blame for the party’s unpopularity, would allow him to remain leader even if defeated.

Unlike her predecessors, May faces the obstacle of the Fixed-Term Parliaments Act (under which the next election will be on 7 May 2020). Yet it is not an insurmountable one. The legislation can be suspended with the backing of two-thirds of MPs, or through a vote of no confidence in the government. Alternatively, the act could simply be repealed or amended. Labour and the Liberal Democrats, who have demanded an early election, would struggle to resist May if she called their bluff.

To many, it simply looks like an offer too good to refuse. Which is why, however hard May swats this fly, it will keep coming back. 

George Eaton is political editor of the New Statesman.