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The Economic Response to Riots

Feb 1, 2011 • Demand, Supply, and Markets, Developing Economies, International Trade and Finance • 150 Views    No Comments

When the rioting starts, where does economic activity stop?

In Egypt, gas and food were immediately affected. One owner of an Alexandria Mobil Station said he had not gotten a gas delivery for 2 days. The price of certain foods soared. One kilogram (close to 2 pounds) of beans moved from 35 cents to $1.70. Government subsidized bakers were also affected. No subsidies, no bread.

Meanwhile, large containers remained unloaded at major ports. Evacuating their employees, Coca-Cola and other multinationals, including banks, temporarily closed their offices. Volkswagen canceled deliveries and tour groups canceled their plans. Trying to prevent further declines, officials closed the Egyptian stock market while the country’s credit rating has been downgraded.

Still though, the one impact that could reverberate around the world has not happened. The Suez Canal remains open. A closed canal would add 10 days and 6000 miles to the length of oil shipments and further fuel an increase in its price. But, as one Forbes article points out, “floating storage,” the oil that is “sitting in tankers in the high seas,” would initially compensate for late deliveries.

The Economic Lesson

To get a picture of the government’s impact on the Egyptian economy before the riots began you might want to look at the Index of Economic Freedom where Egypt ranks 96 out of 179 countries. Here, the World Bank’s “Ease of Doing Business” index places Egypt at #94 from 183 nations. Last year though, it was #99.

 

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