Strategy Note /

Misery in the emerging markets

  • The simple misery index is the sum of inflation and unemployment rates; a crude metric of pain for the average citizen

  • Protests have many drivers (inequality, corruption, political exclusion) but high misery increases the risk of protests

  • Misery index level should be considered relative to recent historic peaks, eg Egypt has been much worse than it is now

Misery in the emerging markets
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
11 May 2022
Published byTellimer Research

Mass protests triggered the resignation of PM Rajapaksa in Sri Lanka this week, led to a palm oil export ban in Indonesia two weeks ago, played a part in the removal of the Nazarbayev clique from government in Kazakhstan at the start of the year, delayed the removal of the fuel subsidy in Nigeria at the start of the year, and de-railed PM Modi's agricultural reform in India late last year. Protests may yet bring an early end to the recently-formed government in Pakistan.

The underlying drivers of protests in most instances are long-standing, eg inequality, corruption, political exclusion, and elite political rivalry. But economic stress no doubt increases the susceptibility of the mass population to a call, however motivated, to protest.

A crude metric of the economic pain of the average citizen is the misery index, defined in its simplest form, as the sum of the inflation rate and unemployment rate. In the current environment of high food and fuel prices, the poorer segments of the population are disproportionately miserable because of the higher share of their disposable income typically spend on food and fuel staples.

Below we chart both a current snapshot of the misery index (mainly using IMF forecasts for 2022 inflation and unemployment) and a comparison of the current level with peak levels seen over the past decade or so. There is likely no absolute level of tolerance for misery before protests erupt but, rather, a relative level defined by the specific experience of a population.

Misery index in EM: Absolute metric for protest risk

Misery vs last decade: Relative metric for protest risk

Note the following:

  • Misery does not appear correlated with either geographic or net commodity export status.

  • China, for all the policy risks associated with Xi Jinping's ambitions to secure a third term, eg the crackdown on tech companies and high profile entrepreneurs and zero-Covid lockdowns, has a low level of misery, at merely 6%.

  • Most of the top 15 most miserable EMs have witnessed differing levels of protests over the past year or so, with the exceptions, so far, of Egypt, Ghana and Georgia.

  • In this top 15, there are a few countries with scheduled general elections in the next year — eg Brazil, Colombia, Nigeria and Turkey — clearly an unhelpful context for parties associated with the incumbent government.

    • Argentina, Pakistan and South Africa have elections within the next two years.

  • Current misery index scores are significantly worse than post-2010 peaks in Turkey (by 16pp), Russia (15pp) and Sri Lanka (5pp).

  • Egypt has a high misery index score of 18% but the mass population may be less restive than this figure suggests because this figure is 25pp lower than its post-2010 peak (not to mention the additional security laws brought in since the 'Arab Spring' to curtail protests and the divisions within the political elite present at that time, between the military old guard and the Mubarak-led network of oligarchs, are no longer at play).

    • Iran has a score of 40% but this is 21pp below the post-2010 peak.

    • Brazil has a score of 20% but this is 4pp below the post-2010 peak — indeed in all the LatAm countries in our sample, prior peaks were worse than the current levels.

Our EM Country Index in this context

Domestic political risk – via size of legislative mandate, income inequality, and youth unemployment – and quality and credibility of short-term growth – via real GDP growth and real interest rates – are incorporated into our EM Country Index, where the weight attached to these factors can be customised.

Related reading

Global comparable metrics

Inequality a key issue for many, not China alone, Nov 2021

Xi Jinping and key person risk in EM, Nov 2021

Corruption: Transparency International update for EM, Feb 2022

ESG needs to focus on countries, not just companies, Oct 2021

A new index for ranking the investability of emerging markets, Apr 2022

Political disruption examples

Indonesia Palm Oil export ban cannot last, Apr 2022

Pakistan: Imran is out as old parties prevail, for now, Apr 2022

Sri Lanka's state of emergency could make things worse, Apr 2022

Kazakhstan protests but key risk remains succession, Jan 2022

India's Modi repeals farmer laws, choosing re-election over reform, Nov 2021

The stark inequality behind South Africa's riots, July 2021

Jordan's crises, Apr 2021

Thailand youth-led protests add to old schism and sclerosis, Oct 2020

LatAm protest dominoes, Nov 2019

Inflationary pressure and policy response

Food prices simmer, down 1% mom in April, still up 74% from trough, May 2022

Russian oil embargo impact, Mar 2022

Real interest rates in EM after the US Fed hike, May 2022