North African Unrest May Spread as Davos Delegates Warn on Food Inflation

Record food prices may fan social unrest and fuel inflation beyond North Africa as thousands of people take to the streets of Cairo to denounce President Hosni Mubarak, delegates at the World Economic Forum said.

“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, a holding company investing in industrials and real estate, said in an interview in Davos, Switzerland.

Risks of global instability are rising as governments facing budget crunches cut subsidies that help the poor cope with surging food and fuel costs, the head of the United Nations’ World Food Program said two days ago. World food costs rose to a record in December on higher costs for sugar, grain and oilseeds, the UN reported Jan. 4, contributing to the uprising that ousted Tunisia’s Zine El Abidine Ben Ali on Jan. 14. Protests have spread to Egypt, Algeria, Morocco and Yemen.

An index of 55 food commodities tracked by the UN’s Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous high of 213.5 in June 2008.

Higher commodity prices are “leading to riots, demonstrations and political instability,” Nouriel Roubini, the New York University economics professor who predicted the financial crisis, said on a Davos panel. “It’s really something that can topple regimes, as we have seen in the Middle East.”

In Egypt, the world’s biggest wheat importer, three people set themselves on fire and thousands protested against President Hosni Mubarak’s government. Egyptian authorities banned protests and tightened security to prevent demonstrators from repeating the rally of Jan. 25.

In Algeria, three were killed and 420 injured at rallies against high food prices and a lack of public housing. Jordanian opposition groups have held peaceful protests against the government, and in Yemen today thousands gathered outside the main university in the capital, Sana’a, demanding that President Ali Abdullah Saleh step down.

Discomfort

“People have the right to express discomfort about the Egyptian constitution and high inflation,” Hamed El Chiaty, chairman and chief executive officer of Travco Group International Holding SAE, an Egyptian travel and hospitality company, said in an interview in Davos.

Egypt’s inflation rate rose to 10.3 percent in December, compared with 2.2 percent in the euro region and 1.5 percent in the U.S.

Rising food and energy prices are fueling inflation across emerging markets and pose one of the biggest threats to the global economic recovery, Roubini said. India and China, two of the world’s fastest-growing economies, will be forced to respond by raising interest raise, threatening to choke the growth that is driving the global expansion, International Monetary Fund Special Adviser Min Zhu said in Davos.

Chinese Rates

Daokui Li, an adviser to the Chinese central bank, said policy makers should “gradually” increase rates in the first and second quarter.

“Rate increases are necessary, but it can’t solve the immediate inflation problem,” he said in an interview.

Surging food costs are a bigger threat to the economies of emerging markets because they have a bigger weight in consumer price indexes and have a larger impact on inflation, Zhu said. Food prices account for 47 percent of India’s price index and 34 percent in China, he said.

“We need to get inflation under control,” especially food prices, Sunil Bharti Mittal, chairman of Bharti Airtel Ltd., India’s largest mobile-phone company, said in an interview. Wei Jiafu, chairman of China Cosco Holdings Co., the nation’s largest shipping line, said the government would act to tame inflation. “Our government is taking measures to deal with it. We have a more flexible monetary policy.”

Stocks Slide

The protests in Egypt sent the benchmark EGX30 stocks index tumbling 8.1 percent, the most since May, as of 11:40 a.m. in Cairo, extending yesterday’s 6.1 percent decline. Trading on the exchange was suspended for 50 minutes as shares slid, resuming at 11:30 a.m.

Wheat prices in Chicago, were set for the longest winning streak since November 2009, as North African importers boosted purchases. The cost of insuring Egyptian sovereign debt rose 14.86 basis points yesterday to 344.47, the highest since June 2009, according to CMA prices for credit-default swaps.

“If you don’t improve people’s lives, you will have social unrest,” Sheikh Mohammed bin Essa Al Khalifa, chief executive officer of the Economic Development Board in Bahrain, said in an interview. “Each country is different, each country is unique. It could spurt up in Latin America. It’s not an Arab thing.”

To contact the reporters on this story: Serena Saitto in Davos, Switzerland at ssaitto@bloomberg.net. Caroline Connan in Davos, Switzerland at cconnan@bloomberg.net

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