In 2011, emerging markets were trending. Fuelled by growing middle classes, they were favoured by financial markets when compared to Western countries mired in the depths of the financial crisis that had unfolded four years before. For instance, in 2011, Egypt's credit risk (credit default swap) was below Spain's, even though the latter was a liberal democracy with an established middle class, and Egypt under Mubarak's rule, was a satrapy with a minor middle class.

However, the market ignored this geopolitical reality. One November night of that same year, the ‘Arab Spring’, which had sparked a few months earlier in Tunisia after a street vendor set himself on fire in response to Ben Ali’s oppressive ruling and the distressful economic situation, came to a head in Egypt. Crowds flooded into Cairo’s central Tahir (which ironically translates as ‘liberation’) to demand the end of the Mubarak regime. Protests came out of the blue, markets realised that Egypt was not an emerging paradise, and the risk of default doubled in just two days. Egypt was now riskier than Spain.

What was the force behind the ‘Arab Spring’? Many would say it was a movement for freedom, across Arab nations, whether in Tunisia, Egypt, Syria, or Libya, with varied results. That's partly true, but the lack of freedom had been commonplace for many years. Why did it come to a head in 2011? The catalyst was skyrocketing food prices that year, when a number of factors restricted supply and led to steep increases in basic products for large swaths of the population.

Uprisings caused by rising food prices are nothing new in history. The French Revolution in July 1789 came after several years of stifling wheat price increases, which caused famine among the poorest people of France, who represented the vast majority of the country. The Revolutions of 1848 followed significant food price hikes a few months earlier, and similarly in 1917, when Tsarist Russia was toppled by a revolutionary movement.

The rise in food prices in 2021 of nearly 40% year-on-year (see chart below), will also have major consequences in the form of revolts. Protests in Colombia, Peru and Chile may be seen as the result of ‘identity’ politics, or rather of the sharp increase in food prices.

A dangerous mixture

Let us bear in mind that in Western countries, food accounts for 10% to 15% of the basket of total consumption of an average consumer. For a consumer living in the lowest income quartile, this percentage is much higher, so price rises mean a greater effort to make ends meet. In many emerging countries, this ratio is often twice as high, and in some others, it exceeds 40%. An economic downturn caused by a pandemic, combined with rising unemployment, falling incomes and soaring food prices makes for a very dangerous cocktail.

Economic growth will climb to historical rates in 2021. It could hit a record reading since the Second World War. However, this will not be the only unusual fact: Advanced economies will grow above the world as a whole, and the world will grow above developing countries, an unprecedented situation. While the West has implemented extraordinary fiscal policies to mitigate the income collapse caused by Covid, many emerging countries do not have this capacity, because either they have resorted excessively to public debt in ‘booming’ years, or their central bank cannot monetise the public deficit due to the spiralling inflation it usually generates. This in turn prompts foreign capital to flee, potentially plunging a country into a balance-of-payments crisis.

Extraordinary situations in History also call for extraordinary solutions. Rebuilding our world requires the West to distribute to emerging countries the excess vaccines that will be available in large quantities from September onwards. It also means maximising support mechanisms (by increasing the capacity of IMF and World Bank to provide aid) so that emerging countries are able to cope with the current economic meltdown. Finally, solidarity systems should be put in place so that the pressing price increase of a basic commodity such as food does not lead to hunger and violence.

We will all be better off if we work to implement these solutions.

Published in Expansión