The Moorish Wanderer

Ramadanomics

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on August 19, 2012

Last day of the fasting month. Can’t find anything spiritual about it, other than a sharp increase of overt religious behaviour. Incidentally:

عيد فطر سعيد للجميع

I was browsing through the New Statesman twitter feed (great newspaper by the way) when I stumbled upon a great article on Ramadan and its impact on productivity, GDP and other macroeconomic aggregates.

You see, one of the big ideas about Islam as a major monotheist religion, is its supposedly ready-made “الإسلام دين الفطرة، صالح لكل زمان ومكان” its fitness is timeless, omniscient and ubiquitous ; in economics, in particular, Islamic banking, with the big money it raises annually, seems to point to a revival of some Islamic Capitalism. I remain however much more sceptical, because the basic model (for academics anyway) in Arrow & Debreu provides a general setting for risk sharing and market completeness, which means all the trouble Hallal financial products go through to avoid paying interest end up useless: in technical terms, the stochastic discounting factor is still there. Enf of story. As for the supposedly eminent benefits of Ramadan, it seems our Moroccan society, through its behaviour during daylight and after sunset, points to an unhealthy cross-over between mass consumption keynesianism and an over-indulging economy. Hardly the stuff of austere Muslims.

Back to The New Statesman story, I wonder how Ramadan affects the national economy, not just market volatility. The trouble is, monthly – or even quarterly- GDP data is usually hard, if not impossible to find. We have to find a device to generate it; but for the time being, let us just focus on the immediately available daily data, the stock market, and then work our way up the economy to assess the ‘Ramadan effect’. Let us before just list some (obvious ?) assumptions about it:

– Sharp increase in household and public sector consumption and low productivity: variations in household consumption are understandable, the public sector on the other hand, has a different set of dynamics to it, since public servants are paid the same for fewer worked hours; finally, lower productivity can be observed everywhere.

– Contrary to the article on the Egyptian Stock Market, I posit market volatility decreases, simply because volume and price turnouts are low.

– Balance deficit is higher than usual: we would tend to import a lot more than usual during or before Ramadan.

MASI Stock Index tends to perform little growth during the Ramadan Month: annual growth is .03%, while it grows .05% in normal days.

Let us start with the stock market from the early 1990s (available data from the Casablanca Stock Exchange trace it as far back as 1992) with 5,140 days, including about 599 Ramadan days. We first observe daily trades tend to generate a modest profit in non-Radman days, up to .11%. On the other hand, Ramadan days observe either quasi-stable index value, or more often than not, small index decreases, as high as .03% in absolute value.

Overall, the differences in daily growth between Ramadan and Non Ramadan trades is statistically significant, and because of the sample size, it would be safe to validate the earlier assumption. On the other hand, we should state that respective standard deviations are not statistically different from one and another, which further buttress the claim not only the stock exchange does not do as well as normal day as during Ramadan, but more importantly, volatility does not increase – contrary to the findings of the New Statesman article on the Egyptian stock exchange. as far as the MASI goes, Ramadan is just a set of 30-odd slow days, with less money to make, and thus higher risk to run into losses.

What about the real economy? Though daily or monthly data is unavailable, we can use quarterly data to proceed with similar analysis: if the assumption holds, we should expect quarters including Ramadan to be significantly different from the remaining 3 others: differences need to be accounted for in GDP, Consumption and Government Expenditure (Inflation could be included as well).

(Note: Statistical results are either t-tested or sample-based variance comparison tests, and these can be found further down the post)

We consider hard data from 1989:I to 2011:IV to check these assumptions: because of the 11-days rule-of-thumb to match Christian and Islamic calendars, we assume Ramadan belongs to the quarter were most of its days are located; alternatively, we could also look at two quarters instead of one, but that would dilute an already blurry picture (it might also explain why the second graph does not provide equal distances between quarter)

Two observations can made:

1/ Inflation increases during or shortly after Ramadan:over the observed 92 quarters, Ramadan-linked inflation tends to be significantly higher than either aggregate or non-Ramadan-linked quarters. Quarterly inflation during Ramadan tends to increase 2.5 times that of normal days, and about twice as much as the aggregate CPI; furthermore, because Ramadan and Non-Ramadan inflation exhibit essentially the same levels of volatility, the Ramadan effect on CPI is undeniable: it contributes on average .77 percentage point to regular inflation. This is robust evidence for price increases during Ramadan. The second point deals with the source of this CPI-related inflation, in this case household and public sector consumption.

Keynesian month indeed: CPI inflation and Consumer-led growth are stronger during Ramadan (dark Blue for GDP, light blue 1989 base year CPI)

2/ Consumption-based GDP components do a lot better than overall output: Government expenditure tends to be a lot more volatile than (and grows at higher pace) GDP. Contrary to other aggregates, there is a pitfall to be aware of; government expenditure tends to increase at the end of the year (departmental budgets need to be fully used to get the next annual budget) but even with that bias, we observed government expenditure increases during the Ramadan month, although at a steadier pace, when compared to aggregate and non-Ramadan quarters.

As for Household Consumption, results are similar to those of GDP, with an additional effect: Consumption typically increases a couple of months before the Ramadan quarter, and is a lot more significant when both compared to aggregate and non-Ramadan household consumption. Though there is need to provide an adequate framework model to link them, we can at least assert Ramadan inflation is tightly linked to a higher than usual levels of consumption for both public and private agents.

I quipped early Ramadan it was a Keynesian month, turns out I was right on the Consumption and Price Level:

So there goes the statistical evidence Ramadan in Morocco is no spiritual month: productivity is low in the economy as a whole, consumption is high (aren’t we supposed to fast out of sympathy for the hungry?) and if anything, we are losing anything between 3.1% and 3.2% in annual productivity per effective worker. In the aggregate economy, Ramadan means productivity takes a (roughly) 28% to 40% dive. Well, the figure seems a little far-fetched, and computed on quarterly basis, but it would be fair if we posit the overly optimistic assumption of productivity as a linear combination of worked hours. Either way, the Moroccan economy is brought to a productivity near stand-still every quarter.

The last assumption has to do with the trade balance: over the past decade (2005-2010) in theory, monthly imports are supposed to be more or less uniformly distributed, i.e. Morocco receives about 8.3% of its annual import each month. We observe however this is not the case; in fact, we tend to import less than monthly average on Ramadan, but more than make up for it in the month before, up to 20% of annual imports are concentrated on two months (Ramadan and the month before).

Variance ratio test MASI
------------------------------------------------------------------------------
Variable |     Obs        Mean    Std. Err.   Std. Dev.   [95% Conf. Interval]
---------+--------------------------------------------------------------------
g_rama~n |     437    .0003361    .0003469     .007251   -.0003456    .0010179
 g_non_r |    4702    .0004557    .0000995      .00682    .0002608    .0006507
---------+--------------------------------------------------------------------
combined |    5139    .0004456    .0000957     .006857     .000258    .0006331
------------------------------------------------------------------------------
    ratio = sd(g_ramadan) / sd(g_non_r)                           f =   1.1304
Ho: ratio = 1                                   degrees of freedom = 436, 4701
---------------------------------------------------------------------------
    Ha: ratio < 1               Ha: ratio != 1                 Ha: ratio > 1
  Pr(F < f) = 0.9625         2*Pr(F > f) = 0.0751           Pr(F > f) = 0.0375

Variance ratio test IPC/CPI
------------------------------------------------------------------------------
Variable |     Obs        Mean    Std. Err.   Std. Dev.   [95% Conf. Interval]
---------+--------------------------------------------------------------------
icv_nonr |      69    .0052085    .0012316    .0102307    .0027508    .0076661
icv_Ra~n |      23    .0129398    .0021269    .0102004    .0085289    .0173508
---------+--------------------------------------------------------------------
combined |      92    .0071413    .0011166    .0107097    .0049234    .0093592
------------------------------------------------------------------------------
    ratio = sd(icv_nonr) / sd(icv_Ramadan)                        f =   1.0060
Ho: ratio = 1                                    degrees of freedom =   68, 22
---------------------------------------------------------------------------
    Ha: ratio < 1               Ha: ratio != 1                 Ha: ratio > 1
  Pr(F < f) = 0.4831         2*Pr(F < f) = 0.9662           Pr(F > f) = 0.5169

Wandering Thoughts Vol.6

Apparently 13.000 votes have been registered for the MBA. That’s a huge number, and I am sure there’s some 9% that voted for me (the competition on my award class allows me for some support effect, to my benefit). I’ve just realized that the last piece might scare off the less politically engaged voters, so, for the sake of triangulation and bland, tasteless non-political blogging, I shall devote this piece to a benign subject, well not too benign -for I might alienate the likes of me-… well, I suppose this is excellent training for would-be politicians: how to reach out to the crowd by taking centrist views without alienating the hardcore base vote; sell-out, I call that.

A year ago, I read Mounir Bensalah’s fascinating account of Moroccan philosopher Abdellah Laroui, ‘من ديوان السياسة’ (Min Diwan Assyassa). The account in question was very documented, much more documented than the present one, albeit the criticism it bore was, to my opinion, a bit unfair, especially when one bears in mind that Laroui is one of the very few original thinkers Morocco can still claim its own. After El Jabri‘s death, the Moroccan intellectuals’ club is shrinking to depressing proportions.

Abdellah Laroui (Aujourd'hui Le Maroc Picture)

The book is not really a substantial work, not when compared to other Laroui’s production, like the ‘Origines Sociales Et Culturelles du Nationalisme Marocain‘ or ‘Islam & Histoire‘ to name but a few. The book is more of a dictionary, a glossary of concepts Laroui delienates but not too much, and as a former sociology student, I can vouch for the educational benefits for the fledging political sciences student, or the honest citizen trying to make sense of politics and its history in Morocco. Other than that, there is no luminaries to be found, no ground-breaking revelations. Contrary to Mounir, I do not find the book explicitly discussing current politics: there are a few references to the late King Hassan II, when he mentioned the first Constitution (rightfully denoted the granted constitution) and I think current politics was his main subject. If anything, he had plenty of opportunities; The entry on the  ‘آل الذمة’ (traditionally Jewish or Christian subjects living under Islamic rule with a status involving paying special taxes) the recent troubles with MALI, or the fact that AMDH human rights organization put secularism top of their political agenda did not elicit him into making some kind of comparison with the tradition dimmi status non-Muslims enjoyed (the word is inappropriate, for the Jewish denizens in ghettos, mellahs, were frequently subject to pogroms)

Laroui does not attempt any formal lecturing of our officials into the intellectual and philosophical foundations of our present regime. At best, some helpful reminders of post-1956 Moroccan history are referenced once a while, as well as the almost common-place, definitely banal references of Islam, initial Salafism and other concepts he details in more academic books. The book looked to me as though it was more of a cross-breed between Nietzsche’s quotes and an introduction to Moroccan Political Sociology. I can still remember last summer, touring the prominent bookshops in Rabat and Casablanca, well, I can tell that book production is dying. It’s only a matter of time, the Philistines are putting the final touches to a complete intellectual comatose. And for this, whatever Laroui’s short-sighted actions and quotes, he remains worthy of respect (I am sure Mounir did not intend to offend his intellectual stature, or gainsay any of his academic contributions)

I wanted also to write something about British politics. Since the May 2010 elections and the coalition agreements between the Conservatives and the Liberal-Democrats, and especially since George -The Human Chainsaw- Osborne prepared his emergency budget, and the subsequent ‘swinging cuts’. (the coalition agreement signs the death warrant of left-wing lib-dem influence, and Vince Cable had to curb his liberal tendencies…)

Gideon Georges Osborne, Conservative Chancellor: the return of nasty economic policies

But the appointment of Ed Balls as Shadow Chancellor Of the Exchequer in lieu of a resigning Alan Johnson just prompted me to write some lines about it.

First, I cannot exhaust my enthusiasm for the political system in the United Kingdom: The highest ambition I would ever have for my country is, within my lifetime, to bear witness to the establishment of a constitutional monarchy where the King is revered by his subjects as a symbol of national unity (not out of fear or venal expectation for a grima), and where politicians do the politics. A parliament with genuine powers able to hold government accountable, and a free press, whatever trashy or politically skewed its content may be, ensuring the elected representatives of the people keep on behaving like good chaps in a club. An image d’épinal, I must admit, of British politics, but their constitutional monarchy has this aura I feel words are not enough to describe. (Anas is of that opinion too…)

Now, why would I mention British politics? Because Ed Balls is back to front-line politics. His similarity to Piers Fletcher-Dervich belies a very combative spirit, some would describe as divisive, cliquish and retort. A former henchman of Gordon Brown, he is certainly a change from Alan Johnson. Before I elaborate on that, a couple of praising lines on the system of shadow cabinet: the idea that opposition needs to act as if it was in government gives its media communication, and its own behaviour at question time quite responsible. the Labour party, between 1992 and 1997 perfected the art to unattainable proportions. I’m just saying, political parties back home would benefit tremendously by appointing spokespersons on specific subjects (and large parties could go further by appoint shadow ministers). A matter of organization, I would say. Ed Balls is back to the department he considers -rightfully- his: when Gordon Brown finally took over from Tony Blair in summer 2007 (and I still remember watching Blair’s farewell speech at the Manchester conference), Balls assumed, and was tipped by the press to be the next Chancellor. Brown however had second thoughts about what might look like cronyism or favouritism, which left him disappointed and frustrated. Ed Milliband, after a successful leadership bid in September 2010 also denied Balls promotion, and instead confided him to the Shadow Home Office (Balls’ wife, Yvette Cooper, was given the Shadow FCO portfolio). It can be expected that the new shadow chancellor will put public debate into perspective: the conservative chancellor with no rigourous training in Economics, will have a tough time answering questions from someone with a decade of experience, the training, the wit and intellect to take on the government spending cuts. Looking forwards to PMQs and other parliamentary questions.

Johnson's out. Enter balls, fightin' politics in.

It also avoids Labour media blunders when Johnson admitted he had no idea how and when to cut deficits; Balls was prevented from n°2 in shadow cabinet because he disagreed with Alistair Darling’s deficit reduction plan (Balls deemed it to be too fast and dangerous for growth recovery). Milliband shouldn’t worry about his leadership  -if he ever does; It’s a matter of winning economic argument, i.e. the conservatives will mess up the economy.that usually goes down well with ‘middle England’, or indeed the ‘squeezed middle’.

Last thing I adore about British politics: scandals. Not the expenses scandal, but the current one, involving Lord Strathclyde, leader of the House of Lords and cabinet minister, whom affair with a single mother rocks the boat of the conservative government, and their pledge for family values. I love it, I love it, it has a flavour of ‘back to basis‘, Major-style !

Joke aside, the more I get interested British politics, the more distant I feel from mainstream politics in Morocco: we are so bogged down on trivial issues we should have long got past by, and yet here we are, still trying to promote the idea that elected institutions need to be trusted and given more power, and the same old argument, the same tantrum hammering back that we are not up to it, that the Royal circle has better to be in charge… deeply distressing, I can tell you.

All in all, do not forget to vote for me for the Maroc Blog Award. And for my friends in the other categories: TalkMorocco, Anas Alaoui, Rimerrante, Agharass & Lbadikho.

 

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