Arab Spring and the Equity Markets

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Arab Spring Carpet Dubai Design Days
A creative map of the Middle East and North Africa symbolizing Arab Spring made from old carpets. Photo-Arabian Gazette

The political implications of the Arab Spring of 2011 are well documented. The repercussions are still being felt with the prolonged effect of the Egyptian crisis on the markets. There has always been a certain amount of uncertainty in investing in the MENA region and even though the doors have had been opened to new investment in countries like UAE, there is still a risk caused due to non-democratic forces being in play. It has been one of the key reasons for the hesitancy of many investors for going into the region.

Due to that, the economic progress has been slow. In addition to that, social problems have also cropped up like corruption, lack of transparency and unemployment which further weighs down on the economy. There was a distorted picture that existed due to this gap in investment. At one hand, the countries have the resources to lead a charge and improve manifolds through the abundance of oil and other resources that it had, however, the investment was only restricted to that as equity and bond markets are nearly non-existent.

Add to that the impact of the Arab Spring and the picture worsens to a point where investment is not only less desirable but actual capital flight has taken place. Just to consider the Egyptian example, the Egyptian stock exchange saw its volume and market value traded half in 2011 and even right now, the political deadlock has not helped matters. Politically, this is something that is expected. Once the status quo is brought down, there is a period of friction and change and it takes time for any change to be taken up by the people.

The pictures of Tahrir Square are still fresh which used to symbolize anti-Mubarak sentiment and has since been used to even protest against the current regime multiple times. The economic side, on the other hand, does not react well to uncertainty. The capital outflow from these countries has not come back yet and there will time required before those investors would be brought back into the country.

Following the example of Egypt, Lebanon, Tunisia and Morocco has also seen a fall in its market capitalization and they have gone through a capital flight but the unique case of Egypt is due to the fact that it is still going through a shift and change. In comparison, other exchanges have recovered but they are still volatile. MENA region needs a period of stability, certainty and an environment that encourages foreign investor to invest in the highly lucrative markets. By putting in the necessary institutions and mechanisms this can be achieved.

The example of UAE is the best one for the whole region as they have prospered and encourage investment by having the necessary organizations that provide safeguards to the investors. In addition to that, they also provide much needed insulation from the risk and uncertainty that is inherent in the region.

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