Argentina's Peso Crisis

Navigating Volatility: A Closer Look at Argentina’s Peso Crisis

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor market trends making headlines worldwide, ensuring you are updated on the latest developments.

On 14 August 2023, the Argentine government took the bold step of hiking interest rates and decreasing the value of its currency. This intervention came a day after the country’s primary elections, adding a layer of uncertainty and volatility to Argentina’s economic landscape.

Unexpected timing

After far-right and anti-establishment candidate Javier Milei obtained the most votes, the results sparked a sell-off of the Argentine peso, shares, and bonds. Anticipating a market backlash, the Banco Central de la Republica Argentina (BCRA) devalued its currency by 20% (to AR$350 per dollar) to reassure jittery investors. The Buenos Aires Timesreports that the devaluation was the largest in a single day since December 2015. The BCRA said the move would help cushion “exchange rate expectations and minimize the repercussion on prices.”

The BCRA added that the peso would be held at AR$350 per dollar until the general elections in October. But many news outlets and think tanks say the devaluation leaves the official exchange rate far from the parallel market rate, which is AR$690 per dollar.

Reuters cites that the financial markets had been betting on a solid performance by a more moderate political candidate. Bloomberg reports that Milei, a representative and economist, supports dollarizing the economy. Riding on a wave of popular discontent, Milei has also called to liberalize the economy, vowed to abolish the central bank, and advocated for sharp spending cuts.

“Investors like Milei’s economic message but fear the execution and institutional risk, considering his lack of power and aggressive style,” a chief Argentina strategist at a financial services company told Bloomberg. “Milei represents uncertainty,” a fixed-income strategist at an investment management firm shared.

With negative international reserves, inflation at over 120%, poverty at 40%, and tight capital controls among its many economic woes, Argentina faces fresh uncertainty ahead of the October elections.

Argentines feel the impact

The recent drop in the peso’s value has affected ordinary Argentines, worsening already high inflation and making everyday life more challenging. The prices of essentials have skyrocketed, putting a strain on household budgets. In fact, consumer goods companies have increased their prices by nearly 10%, further stretching purchasing power.

To make matters worse, supermarkets have confirmed that the supply of goods has been disrupted, making it harder for people to find and afford the necessities they rely on.

Additionally, the devaluation of the peso is expected to have a ripple effect on gas prices, as oil companies expect their costs to rise. This means that Argentines will also face higher prices for transportation and utilities.

Due to economic hardship, the savings of many Argentines have further eroded. The cost of living has reached crisis levels, making it increasingly difficult for people to meet their basic needs. There are concerns that, if the situation worsens, the country could face hyperinflation.

What our Market Monitor says

Our Market Monitor report offers a sobering analysis:

1 January to 1 June 2023. During the first half of the year, Argentina alternated between Levels Two and Three (out of six levels of volatility), with an average exchange rate movement of 39.9%. Level Two shows dynamic market conditions and an exchange rate movement of over 20% in the past six months. On the other hand, Level Three shows rapidly evolving market conditions and an exchange rate movement of over 40% in the past six months.

15 June to 15 August 2023. From 15 June to 15 August, Argentina climbed to Level Three with an average exchange rate movement of 44.8%.

1 September onwards. Beginning on 1 September, Argentina’s level of volatility rose to Level Four. This level of volatility reflects a sudden, unexpected social or economic event (i.e., the peso devaluation, among other factors) or a currency devaluation of at least 50% in six months. In the case of Argentina, the exchange rate moved by 74.4%.

Our latest salary surveys report that many organizations still denominate salaries in Argentine pesos, keeping the South American country at Level Four.

How Birches Group can help

Argentina’s peso crisis underlines the importance of developing a Special Measures Policy in response to economic instability. Such policies can help protect your organization and employees from economic shocks.

If your organization grapples with the effects of market volatility and needs help formulating a clear Special Measures Policy, our consultants are here to assist you. With their extensive experience and in-depth understanding of emerging labor markets like Argentina, they can provide you with the tools and advice you need to navigate these uncertain times.

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Israel-Hamas War

An Unfolding Crisis: Inside the Israel-Hamas War

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group keeps an eye on labor market trends that are grabbing headlines across the globe, ensuring you stay up to date with the latest events.

A massacre in southern Israel appears to be a turning point in the simmering confrontation between Hamas and Israel, says Newsweek. Tensions between the Palestinian militant group and the Middle Eastern nation periodically ignited short-lived, intense conflicts—until recently.

Hamas, which has ruled the Gaza Strip since 2007, launched an unprecedented attack inside Israel in the early morning of October 7, 2023, during a major Jewish holiday.

According to Al Jazeera, Associated Press, and other news agencies, Hamas fired a barrage of rockets into Israel with sirens heard as far away as Tel Aviv. Backed by rockets, hundreds of Hamas gunmen infiltrated Israel’s heavily fortified border and rampaged nearby towns. Over 1,300 people have been killed in the multi-pronged assault, and at least 150 soldiers and civilians, including foreign nationals, have been abducted and held in the Gaza Strip as hostages.

The BBC’s International Editor says it was the most ambitious operation Hamas has ever launched from Gaza and the most serious cross-border attack Israel has faced in over a generation.

On the day of the attack, Israel declared a state of war and approved “significant military steps” in response. According to Time, the goal of Israel’s military operation is to “achieve the destruction of the military and governing capabilities of Hamas.” As Israel launches multiple airstrikes on Gaza and mobilizes its army for a ground invasion, the world’s eyes are focused on what might come next.

Israel retaliates

As a result of the October 7, 2023, surprise attack, Israel has responded with multiple devastating strategies:

Launched a series of airstrikes. When Hamas fires rockets at Israel, warning detectors are set off, civilians flee to a network of bomb shelters, and the Iron Dome system intercepts projectiles in the air. CNN says that, in Gaza, none of those high-tech defenses are available.

The Israeli military had dropped thousands of bombs on Gaza as Hamas militants fired rockets into Israel. The United Nations (UN) Office for the Coordination of Humanitarian Affairs reports that the bombardment of Gaza has destroyed entire neighborhoods, leaving over 20% of the population displaced.

Meanwhile, Human Rights Watch has accused Israel of using white phosphorus, a controversial munition, in its bombings. Sometimes used to mark areas, the highly combustible chemical can severely burn people.

Imposed a total blockade of Gaza. The Gaza Strip has been almost completely cut off from the world for nearly 17 years. Israel and Egypt have imposed a land, air, and sea blockade since Hamas took over the Palestinian territory. The movement of goods is tightly restricted. On October 9, 2023, Israel imposed a “complete siege” of Gaza, cutting access to electricity, food, water, medicines, and fuel until the hostages are returned home. Since then, the enclave of 2.3 million people has been incapable of receiving humanitarian aid.

Ordered a mass evacuation of northern Gaza. The Gaza Strip has one of the world’s highest population densities. Additionally, over 75% of its people are registered refugees. On October 13, 2023, Israel’s army ordered civilians in Gaza City and the north of the Gaza Strip—an estimated 1.1 million people—to evacuate their homes and flee to the south within 24 hours. The UN says the task is dangerous and unfeasible amid constant airstrikes.

The situation leaves civilians in Gaza with no way of escaping the conflict. Two of the three crossings out of the Palestinian territory are shut, and its southern border with Egypt is routinely closed.

Called for troops for a ground offensive. In the first few days of the conflict, Israel has conducted small-scale operations against Hamas fighters to regain control of infiltrated communities.

Although Israeli officials have yet to order a full-scale ground invasion of Gaza as of this writing, they have been planning for it. Numerous news outlets report Israel has amassed over 160,000 soldiers and 360,000 reservists, the biggest call in 50 years. Vast numbers of troops have already assembled on the Israel-Gaza border, along with weaponry, tanks, and armored vehicles.

Fighting between Israel and Hamas is expected to intensify in the coming weeks, and the escalating conflict has heightened fears of a long and brutal war.

The impact of the escalating conflict

The BBC reports that survivors in both Gaza and Israel describe the scale of devastation as “something they have never experienced in the decades of conflict between both sides.” Beyond the immediate toll of death and injury, the Israel-Hamas war has disrupted every facet of daily life, especially for people in the Gaza Strip.

Displaced population. The UN humanitarian office says the bombardment of Gaza has damaged more than 12,000 homes. As airstrikes and shelling continue, more people flee and seek emergency shelter. The UN agency for Palestinian refugees adds that at least 400,000 people have been displaced in schools, hospitals, and other buildings.

Additionally, parts of southern Gaza are becoming more crowded and overstretched as waves of evacuating residents from the north abandon their homes.

Rapidly deteriorating humanitarian crisis. The UN human rights chief said Israel’s announcement of a complete siege worsens the already dire situation in the Gaza Strip. “There is not one drop of water, not one grain of wheat, not a liter of fuel that has been allowed into the Gaza Strip for the last eight days,” remarked Philippe Lazzarini, the Commissioner General of the UN Relief and Works Agency for Palestine Refugees (UNRWAS), on the situation.

Even before the violence escalated, 80% of Gaza’s population needed aid. In addition, the UNRWA told Al Jazeera that it has less than two weeks’ supply of food and water to assist people who have sought refuge in its schools.

As a result, the UN and relief groups are pleading for opening an emergency corridor, allowing the safe passage of civilians and the transfer of much-needed humanitarian aid. CNN reports that tons of vital supplies for people in Gaza are now piling up on the Egyptian side of the border.

The Guardian notes that Gaza’s inhabitants, battered by four wars over 16 years, will pay the heaviest price.

The global response

The international community, spearheaded by the UN, has expressed deep concern over the recent escalation of conflict. UN officials have called for an immediate ceasefire, respect for international law, and the protection of civilians. UN spokesperson Stephane Dujarric said, “The Secretary-General is deeply concerned for the civilian population and urges maximum restraint.”

A turning point

Observers anticipate a major ground assault on Gaza. Israel’s military says it is preparing for the “next stages of the war” against Hamas, with troops gearing up for strikes from the air, sea, and land, as well as a significant ground operation.

Although it is too early to know how long Israel’s military response will last, experts have told Time that it will last into the weeks and months ahead.

Analysts say the brazen attack by Hamas is a turning point in the decades-long Israeli-Palestinian conflict with far-reaching repercussions. “The October 2023 conflict between Israel and Hamas marks the most significant escalation of the ongoing Israeli-Palestinian conflict in several decades,” says the Council on Foreign Relations.

How Birches Group can support your organization

Establishing a Special Measures Policy is crucial for your organization to maintain business continuity during times of conflict, such as the Israel-Hamas conflict. A Special Measures Policy allows you to adapt your compensation practices to changing circumstances, ensuring sustainability despite the challenges.

We at Birches Group offer expertise in crafting Special Measures policies tailored to your unique needs. Our consultants have deep knowledge and an understanding of crises and unforeseen events, enabling us to provide solutions considering present challenges, risks, and uncertainties.

Don’t wait for conflict to disrupt your operations. Reach out to Birches Group today. Our experts are ready to guide you in developing a clear Special Measures Policy, positioning your organization to withstand volatility and to continue doing business even in the face of conflict. Taking this proactive step can help your organization in the current global climate.

This article was written in mid-October 2023. Please note that the Israel-Hamas War, as discussed in this headline article, is ongoing. The statistics and events discussed are accurate up to the time of writing. However, as this is a dynamic event, there may have been significant changes and developments.

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An aerial view of a city with buildings and a river.

The Impact of Devaluing the Nigerian Naira

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group keeps an eye on labor market trends that are making headlines across the globe, ensuring you are up to date on the latest developments.

On 14 June 2023, the Nigerian naira lost a staggering 25% of its value compared to the previous day, macroeconomic intelligence provider Focus Economics reported.

The sharp devaluation was caused by the Central Bank of Nigeria’s decision to allow the naira to fluctuate freely, letting market forces determine the exchange rate. The Central Bank also implemented several reforms, including scrapping the segmentation of its foreign exchange market. For six years, the local exchange rate was held artificially low and changed little.

A welcome, bold start

Following his inauguration on 29 May 2023, President Bola Tinubu hit the ground running with a string of sweeping changes. He noted Nigeria’s monetary policy needed “thorough house cleaning” to help the economy become more competitive. Within his first three weeks in office, Tinubu embarked on some of the most radical reforms in decades:

Petrol subsidy removal. By ending its longstanding petrol subsidy, the Nigerian government is projected to achieve fiscal savings of nearly 4 trillion naira (US$5.10 billion) in 2023. These savings are expected to reach over 11 trillion naira by the end of 2025.

Suspension of Central Bank governor. On 9 June 2023, Tinubu suspended Central Bank Governor Godwin Emefiele following divisive policies. During Emefiele’s term, a black market for foreign exchange thrived.

Reforms in the foreign exchange market. Foreign investors have flagged Nigeria’s foreign exchange restrictions as an obstacle to investing. The move towards a more unified and market-responsive exchange rate will foster a stable economic environment and prevent the dollarization of the economy.

According to Reuters, Tinubu inherited anemic economic growth, record debt, and shrinking oil output. However, he has promised to put the economy back on track and asked Nigerians to support painful decisions. The speed of his decisions took many by surprise.

Short-term pain vs. long-term stability

Every day Nigerians are feeling the brunt of the government’s economic shakeup. The Guardian reports that, while Tinubu’s policies please foreign investors, the devalued naira means ‘national sacrifice mode.’ People are feeling the strain as their new president pushes through the widely unpopular policies. Living costs have further increased.

The currency devaluation is already pushing prices amid a significantly higher foreign exchange rate, cites Africanews. This change will cause considerable short-term pain but will correct the economy, say economic analysts. Nevertheless, Nigeria continues to face rising inflation and increased poverty rates, pressuring the government to address concerns.

On a positive note, the recent changes are considered a welcome development. The floating exchange rate is expected to strengthen investor sentiment and bring in much-needed capital. Observers have described the transition as a “window of opportunity” that could have a transformative impact on millions of Nigerians.

The steps have fired up markets, sending stocks in Africa’s largest economy to their highest level in 15 years. For its August 2023 Nigeria economic outlook, professional services firm PwC reported that the positive investor sentiment drove up the market capitalization of the stock exchange by 9.3%. “Just the fact that you have seen quite a bit of movement in a relatively short space of time has gotten a lot of people in the market excited,” Goldman Sachs economist Andrew Matheny told Reuters.

In a statement, the World Bank said, “The recent removal of the petrol subsidy and the foreign exchange management reforms are critical steps to address long-standing macroeconomic imbalances and have the potential to establish a solid foundation for sustainable and inclusive growth.” “Deepening and sustaining these changes is imperative to enable Nigeria to break out of the cycle of macroeconomic instability, low investment, sluggish economic growth, escalating poverty, and fragility.”

The World Bank expects growth in Nigeria to increase: “While inflation will be higher in 2023, it will be lower in 2024 to 2025 if the right policy mix is sustained.” The creditworthiness and investment profile of the country is also expected to improve.

Bismark Rewane, Chief Executive Officer at Financial Derivatives Company, a Lagos economic think tank, told Reuters, “What we are seeing is the removal of distortions created by inefficient pricing of foreign exchange and in the next few weeks we should start seeing the naira finding its level.” Business Insider Africa says that market participants and stakeholders are closely watching the effects of these significant changes.

What our Market Monitor indicates

In early July 2023, Nigeria entered our list of potentially volatile labor markets at Level Four (of six levels). Level Four shows signs of a sudden, unexpected economic event, as well as a devaluation of the local currency by at least 50% in six months or less. According to the 15 August 2023 edition of our Market Monitor report, the naira dropped as much as 67% in the past six months.

Although this significant devaluation could classify Nigeria at a higher volatility level, our latest salary survey reports that most organizations still denominate salaries in the naira, keeping Nigeria at Level Four for the time being.

Organizations in Nigeria should remain vigilant and closely watch the ever-evolving economic landscape. Staying attuned to shifts in labor market trends, exchange rates, and government policies is imperative to make informed decisions. By being keenly aware of these factors, you can adapt strategies and ensure the sustainability of your business in Africa’s most populous nation.

How Birches Group can help

Get insights into what to consider when your organization develops special policies in response to volatility. Published in English, Spanish, and French every two weeks, our Market Monitor report examines the labor market conditions of over 150 countries for signs of potential volatility.

Subscribe to our biweekly Market Monitor today. Download the 1 and 15 July 2023 editions of our report, where we focus on how you can manage the situation in Nigeria.

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Understanding the Armed Conflict in Sudan

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group examines labor market developments garnering significant attention, keeping you well-informed and abreast of the latest news.

The scenario many have long feared in Sudan is unfolding. In cities and towns across the northeast African country, including the capital Khartoum, intense fighting between the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF) has entered its third month.

On 15 April 2023, armed clashes erupted in Khartoum between two main factions of the ruling military regime: the SAF aligned with de facto leader General Abdel Fattah al-Burhan, and the paramilitary RSF led by al-Burhan’s former deputy Mohamed Hamdan Dagalo. Heavy fighting had been concentrated in urban centers but has now spread throughout what was once Africa’s largest country.

A fierce power struggle

The hostilities between al-Burhan and Dagalo, Sudan’s most powerful generals, broke out after weeks of rising tensions. The delicate power arrangement between the former allies since the 2019 ouster of long-term President Omar al-Bashir had broken down. “Now, their battle for supremacy is tearing Sudan apart,” says the BBC.

The conflict has its roots in disagreements over a proposed transition to civilian rule. It comes less than five months after a framework agreement to relaunch the political process to move to a civilian government. The SAF and RSF showed little willingness to adhere to the agreement, disagreeing on power sharing, setting up a civilian government, and integrating the RSF into the military.

Formal talks brokered by the United States and Saudi Arabia in Jeddah remain suspended. And with a succession of failed ceasefires, observers are deeply concerned that the conflict may continue and the situation will deteriorate further.

Devastating consequences for civilians

An African proverb goes, “When the elephants fight, it is the grass that gets trampled.”

“The scale and speed of what is unfolding in Sudan is unprecedented,” says the United States Agency for International Development. According to reports from United Nations agencies, nearly 1.9 million people have been displaced since mid-April and have fled to safer locations inside and outside Sudan. But the most vulnerable remain stranded due to ongoing fighting, lack of financial means, or trying to keep their property, assets, and livelihoods.

Sudanese lack basic supplies like food, water, and medicine. The physical danger makes accessing essential goods, commodities, and services difficult.

After nine weeks of escalated violence, more than half of Sudan’s population needs humanitarian aid—a 57% increase from the number at the beginning of 2023. But humanitarian organizations have been severely restricted due to high insecurity and infrastructure damage. Aid workers and facilities have also been targeted and attacked, with incidents of looting and supply chain disruptions.

A shock to the Sudanese economy

Sudan’s deepening humanitarian crisis is set against multiple challenges, including economic struggles, natural disasters, and protracted refugee situations. Before the armed conflict began, 65% of the population lived below the poverty line. Decades of war, sanctions, and political instability have also added to the troubled nation’s economic hardships.

The economic fabric of Sudan has experienced a severe shock. Critical infrastructure has been destroyed, pushing health and financial systems to near collapse. Stores, markets, and banks have halted business, fearing attacks. As a result, food prices are rising, and essentials are out of reach for many. Transportation costs to leave conflict-affected areas have likewise increased exponentially.

A fight to the end

The Assessment Capacities Project (ACAPS) reports that fighting is likely to continue soon. Additionally, analysts fear that the conflict risks descending into a sustained civil war. Kholood Khair, a political analyst in Khartoum, told The Guardian, “People in Sudan want to see democracy but don’t believe that either of these actors is going to bring it. It may well be a fight to the end, and neither will come out unscathed.”

Action on Armed Violence adds that the fighting could further fragment the country and worsen political turbulence. Sudan is riddled with other armed groups and militias that could add to the violence, turning a two-sided conflict into a more complex and chaotic situation.

David Miliband, President and Chief Executive Officer of the International Rescue Committee, said, “The worst-case scenario—a complex and protracted conflict—would have catastrophic and destabilizing implications for the region.”

The power struggle in Sudan will have severe repercussions on the vast and strategic country’s transition to democracy, as well as far-reaching implications for regional stability.

How Birches Group can help

Severe social unrest or conflict causes people to be displaced, as we now see in Sudan. The outbreak of violence that has been happening over the last few months has forced thousands to move elsewhere in the country or cross over to neighboring countries for safety.

When faced with social uncertainty and unrest, organizations must apply a response different from how they would typically respond to economic volatility. Your organization must have a Special Measures Policy. This policy should include your triggers and immediate responses to cushion the effects of civil unrest on your staff as you assess the movement of the labor market.

We can help your organization develop a Special Measures Policy that aligns with your objectives and fits local conditions.

Stay informed with our June Market Monitor reports.

Birches Group also offers valuable resources like the Market Monitor report. Published in English, Spanish, and French every two weeks, each edition examines the labor market conditions of over 150 countries for signs of potential volatility.

Subscribe now to access the 1 and 15 June editions of the Market Monitor, where we focus on the conflict in Sudan and the strategies you can consider as you begin developing your Special Measures Policy.

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Türkiye-Syria Earthquake

Rebuilding After the Türkiye-Syria Earthquake

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on what is happening in labor markets that are making headlines worldwide, bringing you up to date on the news.

A massive 7.8-magnitude earthquake struck southern Türkiye and northwestern Syria in the early morning hours on 6 February 2023. The quake was followed by a series of aftershocks and a 7.5-magnitude tremblor about nine hours later. The Türkiye-Syria earthquakes occurred near the border and were felt as far away as Lebanon and Egypt.

The earthquake was Türkiye’s worst seismic event since 1939, leaving behind destruction, loss of life, and economic damage. The death toll has reached over 54,000, and around 130,000 more have been injured. Some 24 million people in both countries have been affected in an area spanning 450 km. According to the Center for Strategic and International Studies, the quake hit the heart of a border area home to millions of Syrian refugees during great uncertainty in Turkey and across the region.

Since the two earthquakes on 6 February, there have been thousands of aftershocks, causing fear among communities.

The situation in Türkiye

Turkish President Recep Tayyip Erdogan declared a state of emergency in 10 impacted provinces for up to three months a day after the disaster. The affected provinces have some of the highest poverty rates in Türkiye and host over 1.5 million Syrian refugees.

Estimates of damage

There are several estimates of the destruction caused by the 6 February Türkiye-Syria earthquakes. JPMorgan said the destruction of Türkiye’s physical infrastructure could amount to US$25 billion. Meanwhile, the World Bank estimated the damage to be around US$34.2 billion. According to the Turkish Enterprise and Business Confederation, the total cost of destruction could be as much as US$84 billion.

A long-term needs assessment by the Turkish government with support from the United Nations Development Program (UNDP), the World Bank, and the European Union counts the earthquake damages at over US$100 billion.

Reconstruction efforts

“Türkiye’s immediate and future needs are immense and span the whole range from relief to reconstruction,” said Humberto Lopez, World Bank Country Director for Türkiye.

The Turkish government has erected tent camps and container homes on the outskirts of destroyed cities to shelter the millions displaced. It has also issued rebuilding regulations to enable organizations to help in the urgent task of building new homes. In addition, the government has launched a temporary wage support scheme and banned layoffs to protect workers and businesses. These measures will remain in effect until the end of the three-month emergency rule.

Erdogan—facing an election this summer—pledged to rebuild all destroyed buildings and complete housing reconstruction within a year while preparing a program that would “make the country stand up again.” Less than three weeks after the disaster, construction for tens of thousands of housing units has begun.

But engineers and architects have noted that clearing debris would take considerable time. “It’s hard to put a timeframe on how long that would take since 10 provinces were affected, and that depends on the capabilities, organization, and coordination of the public authorities,” Eyup Muhcu, President of the Union of Chambers of Turkish Engineers and Architects, told Al-Jazeera.

A fragile economy

In addition to repairing and replacing damaged buildings and infrastructure, citizens need to be supported financially, says the Middle East Institute.

The reconstruction costs add to the woes of Turkey’s fragile economy, which has been rattled by hyperinflation and a cost-of-living crisis in recent years.

Caroline Holt, Director for Disasters, Climate, and Crises at the International Federation of Red Cross and Red Crescent Societies (IFRC), estimates that much of the recovery work in Türkiye will be done in two to three years.

But in Syria, the IFRC is looking at five to 10 years.

The situation in Syria

Although the earthquake’s epicenter was in southern Türkiye, the calamity had devastating effects across northwestern Syria. The quake hit a region shattered by more than a decade of civil war, compounding an already dangerous humanitarian crisis.

According to the UN Office for the Coordination of Humanitarian Affairs, the densely populated northwestern region is home to 4 million people who rely on humanitarian aid.

While the international community mobilizes to help Türkiye with its disaster needs, the ability to do so for Syria is much more complex. Demolished roads and tensions between rebel-held and government-controlled parts of the country slowed aid relief for Syria. In its 6 February editorial, The Guardian remarks that “supplying aid is likely to be diplomatically and logistically challenging.”

According to aid organizations, only one official border crossing from Türkiye to Syria is operational, and access has been blocked by debris from the earthquake. The first UN convoy of aid arrived after four days. “Syrians have already endured more than a decade of conflict, and they are now faced with the tragedy of this earthquake,” said Dr. Abdulkarim Ekzayez, a Syrian doctor and health system expert.

Rebuilding efforts will be even more complicated.

The road to recovery

With the rescue operations ending, attention is shifting to the millions without homes or functioning cities. The focus has turned toward shelter, reconstruction work, rehabilitation, and recovery. As of writing, authorities continue to carry out damage assessments in the worst-affected areas. Damage to economic infrastructure, including livelihoods, will also be assessed.

The task ahead is not only to reconstruct homes but also to rebuild lives. Humanitarian partners will need to:

  • Support development and reconstruction,
  • Restore livelihoods, community infrastructure, and basic social services, and
  • Transition to longer-term recovery and rebuilding.

Restoring livelihoods and reviving small businesses

Small businesses are well-positioned to support urgent needs. They can be critical to long-term recovery, including rebuilding infrastructure, getting people back to work, and ensuring communities live healthy lives.

Providing rapid access to income and restoring livelihood infrastructure are keys to jumpstarting socioeconomic recovery.

Building Markets says small and mid-sized enterprises (SMEs) face significant challenges. Nearly 17% of SMEs report being unable to continue business operations. 40 to 55% require funding for employee salaries, inventory, repairs, and new workspaces.

How Birches Group can help

Natural disasters such as the Türkiye-Syria earthquakes occur without warning, and their impact is catastrophic. They also have a devastating effect on businesses. In the wake of a calamity, organizations must take special measures to ensure the safety and well-being of their staff. Your organization’s approach should differ from how you would respond to economic volatility.

We at Birches Group can help your organization prepare for unexpected events by creating a Special Measures Policy. Natural disasters require a different response approach, and we understand the challenges such emergencies pose.

Get our March Market Monitor reports

We offer valuable resources like our Market Monitor reports, highlighting specific labor markets that need closer monitoring. Subscribe today to download our March Market Monitor reports, where we focus on Türkiye and Syria and help guide organizations in developing their Special Measures Policy.

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Businesses Live with Dollarization in Lebanon

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on what is happening in labor markets that are making headlines around the world, bringing you up to date on the news

Experiencing a financial and economic collapse that the World Bank ranks among the world’s worst since the 1850s has led to dollarization in Lebanon.

The country’s currency, the Lebanese Pound (LBP), has lost over 90% of its value since the crisis erupted in 2019. International Crisis Group reports that the plummeting LBP has caused havoc across the Lebanese economy. Salaries have melted in value. Hyperinflation has reached triple digits, immensely reducing purchasing power. According to the United Nations (UN), over 80% of the population lives in sudden, multidimensional poverty.

A highly volatile and dollarized market

Birches Group first observed signs of volatility in Lebanon in November 2022, when the country was listed in the Market Monitor report at Level 4 (of six). In mid-December, Lebanon’s level of volatility escalated to Level 5, indicating a wide prevailing practice to denominate salaries in United States Dollars (USD). (It should be noted that the significant exchange rate movement we have been seeing in Lebanon is most likely caused by the UN switching its source of exchange rates to one that better reflects local conditions.)

The LBP’s plunge has led to a de facto dollarization of the economy, says Arabian Gulf Business Insight. Some observers and economists believe dollarization would be a solution to the crisis and a way to secure monetary stability.

Dollarization explained

Dollarization is the process of replacing the domestic currency with a foreign one to serve the essential roles of money in the economy. This occurs when a country’s currency loses its usefulness as a medium of exchange due to hyperinflation or instability.

Businesses begin to dollarize

The decline in the LBP’s value has led to businesses pricing their items in USD, where customers pay the local currency based on the daily parallel market rate. In March 2023, shops and supermarkets began to price their products in USD. Other businesses have started charging for their goods and services—including rent, household items, clothing, gas, health insurance, and medical care in USD. Outside the public sector, employees are fully or partially paid in USD.

Why are organizations in Lebanon dollarizing?

Trust and confidence in the LBP have waned over the past three years due to many factors and recent events.

Currency devaluation. Since 1997, Banque Du Liban (Lebanon’s central bank) has set the exchange rate at 1,507.50 LBP to 1 USD. The rate remained unchanged for 25 years.

In February 2022, Banque De Liban revalued the official exchange rate to 15,000 LBP to 1 USD—a 90% devaluation from the longtime peg. Officials say the measure is a step towards stabilizing the LBP and eliminating the many exchange rates that have emerged in recent years. But the official exchange rate is well below the rate on the street, says Al-Monitor. According to parallel market rates on LiraRate.org, the LBP trades at 79,000 to 1 USD as of 6 March 2023.

ECA International foresees more devaluations of the official rate in months to come.

Presidential vacuum. Political paralysis has made matters worse for Lebanon. Since the end of October 2022, the country has been without a president. Its deeply divided Parliament has yet to elect a new head of state. This deadlock is unsustainable and paralyzes the government at all levels, says the International Support Group for Lebanon (ISG).

With only a caretaker government and limited authority, an economic plan with reforms required by the International Monetary Fund (IMF) has yet to be devised. The ISG has urged leaders to immediately harmonize exchange and adopt the laws needed to restore investor confidence. Unifying exchange rates, including the parallel market rate used for most goods and services, is a precondition the IMF has set to secure a US$3-billion aid package.

Central bank governor under investigation. European investigators are currently probing the alleged state fraud and actions of Banque Du Liban governor Riad Salameh, who has held the post for three decades. Salameh is suspected of financial misconduct, including money laundering and embezzlement. In March 2023, Lebanese prosecutors charged Salameh, his brother, and an associate with forgery, illicit enrichment, and tax law violations.

How Birches Group can guide your organization

It’s not wrong to dollarize, but denominating salaries in US dollars requires careful thought. Remember that returning to the local currency is difficult once you’ve dollarized. Carefully consider how this process will affect your pay practices and staff.

Is your organization in Lebanon considering paying staff in US dollars? Get guidance on making such a big switch. Contact us today to learn how we can help you develop a Special Measures Policy that includes dollarization.

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Egypt Inflation

Egypt’s Surging Inflation: What is Happening and How Employers Can Prepare

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group reports on the current state of labor markets that are making headlines around the world, bringing you up to date on the news.

Egypt, Africa’s third-largest economy, has been battling inflation for almost a year. Supply chain issues and tight financial conditions have also made Egypt vulnerable to external shocks.

Egypt’s inflation rose to 26.5% in January 2023, up from 21.9% in the previous month and 8% in January 2022. Steve Hanke, an economist at Johns Hopkins University, estimates the actual inflation rate to be 101%.

A currency crunch

The crisis began in February 2022 with Russia’s invasion of Ukraine. The conflict has severely affected Egypt’s economy. The country saw food and energy prices soar. Its tourism industry, which relies on Russian and Ukrainian visitors, further declined. Foreign investors also pulled out over US$20 billion in investments. The Egyptian government responded to the flight of capital by restricting imports. Inflation, which was at 8% the month before, entered the double digits zone at 10%.

With dwindling foreign currency reserves and teetering on the brink of an economic collapse, Egyptian authorities turned to the International Monetary Fund (IMF) for aid in March 2022.

A new IMF loan

After several months of meetings and negotiations, Egypt and the IMF reached a staff-level agreement in October 2022. (The loan agreement was approved by the IMF’s Executive Board in December 2022 but only publicly published in January 2023.) The IMF would provide a support package totaling US$ 3 billion in exchange for implementing several economic reforms, including:

  • Liberalizing the exchange rate,
  • Raising interest rates by 2%, and
  • Scaling back the economic role of the state and military.

The support package would be gradually given to Egypt within four years, subject to periodic reviews. The IMF loan is also expected to catalyze another $14 billion in funding from international and regional partners.

The shift to a flexible exchange rate

One of the IMF’s conditions for its latest loan was to liberalize the exchange rate. With a permanent shift to a flexible exchange rate, the Egyptian pound’s value would be determined by forces of supply and demand rather than set by the central bank.

To comply with the IMF’s terms, the Central Bank of Egypt (CBE) announced in October 2022 the shift to a flexible exchange rate. The CBE has since been devaluing the Egyptian pound in phases. Since the end of January 2023, it has been trading at above EGP 30. The Egyptian pound lost over half of its value in less than a year.

As a result, the depreciating pound has been fueling inflation and adding to the woes of Egypt’s 106-million population.

An economic crisis

Egypt’s fiscal measures have strained its citizens, especially the poor and middle class.

Egyptians are feeling the pinch. Many imported products are unavailable, and food staples have doubled in price. Tens of millions of people cannot afford basic staples, limiting their spending. Families have been cutting back on meat, medicine, and clothing.

Citizens are complaining about their income shrinking. More middle-class Egyptians have turned to charities for support.

In an opinion piece for Middle East Eye, former investment minister Yehia Hamed cites that nearly 70% of Egyptians believe the government is “doing too little to meet people’s need for an acceptable standard of living.”

How is the government responding

According to the World Bank, the government announced various measures to help alleviate the impact of higher prices on the vulnerable. These measures include revising the minimum wage, delaying adjustments to electricity prices, and extending existing food subsidies and cash transfers. The government has also opened outlets where food is sold at lower prices.

But conditions are still problematic. Poverty is elevated in Egypt: roughly 1 in 3 Egyptians live below the poverty line, according to official figures as of 2020.

What analysts say

The immediate outlook for the Egyptian pound is more challenging, says S&P Global. Experts predict that, over the next 3 to 12 months, the Egyptian pound will trade at 32 to 35 pounds against the dollar.

Analysts also predict that inflation will continue to rise in the short term. The World Bank (WB) forecasts Egypt’s inflation to remain double-digit until the fiscal year ends in June 2023. WB also notes that economic activity and real incomes are expected to be adversely impacted.

What our Market Monitor indicates

Egypt has been on our Market Monitor report since its first publication in mid-June 2022. From mid-July to September, the North African country was at Level Two for two months. Level Two reflects dynamic market conditions where there has been a movement of over 20% in the exchange rate in the past year.

In October, Egypt was dropped from our list of volatile labor markets as the movement in the local exchange rate fell below 10%. Nonetheless, we continued to examine the Egyptian Pound’s exchange rate movement against the US Dollar. Egypt reentered the list in November and remained at Level Two until early January 2023.

In mid-January 2023, Egypt’s level of volatility jumped from Level Two to Level Four. As of the time of writing, Egypt’s exchange rate movement for the past six months is 59.2%, showing sudden and rapidly evolving conditions.

How Birches Group can help

Employers in Egypt should keep a close eye on the local situation, as rapid economic events can drastically impact business continuity.

As inflation rises, organizations must respond proactively to the emerging crisis. In the 15 February edition of our Market Monitor report, we highlight Egypt as a case study of what organizations can do in a turbulent market. Join our mailing list today to learn about our recommendations for special measures in Egypt and other volatile labor markets.

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Philippe Francey Joins Birches Group as Senior Advisor

Written by Bianca Valencia on . Posted in Uncategorized.

March 2023

Birches Group is pleased to announce that Mr. Philippe Francey has joined Birches Group as a Senior Advisor as of 1 March 2023, based in Geneva, Switzerland.

In this newly created role, Philippe will bring unique insights into the evolution and development of Birches Group’s products and services. Initially, Philippe will work closely with international NGOs and other development sector employers headquartered in Europe to strengthen and reinforce our client relationships within the international development sector and expand the awareness of the Birches Group Community™ platform for integrated HR Management.

Philippe will also participate in selected client projects and help introduce the application of Birches Group Community Skills as a diagnostic tool to assist organizations in the identification of inequities in their pay systems and provide practical solutions to remedy these inequities.

“We are delighted to have Philippe on board as a Senior Advisor. He is a true expert in his field and brings a wealth of knowledge and insight to Birches Group. I know our clients will benefit from his experience and advice.” – said Warren Heaps, Birches Group Partner

“Building on my experience in several economic sectors and 8 years leading the Compensation and Benefits function in a leading global humanitarian organization, I am looking forward to joining Birches Group, it will be exciting to contribute to the evolution of Birches products, while fostering effective partnerships with the Birches customer communities.” – said Philippe Francey, Birches Group Senior Advisor

About Philippe

Philippe began his professional career over 30 years ago, with stints at the Swiss Ministry of Foreign Affairs, Union Bank of Switzerland, Nokia, Agie Charmilles (Georg Fisher Group), Reuters and Thomson Reuters.  Most recently, he served as the Head of Compensation and Benefits for the International Committee of the Red Cross (ICRC) in Geneva.  During his career, he has worked in Switzerland, Finland, Brazil, the United Kingdom, and the United States.

In his last position at the ICRC, Philippe experienced Birches Group’s products and services as a customer. His insights as a technical expert and former client will be invaluable to the growth of Birches Group.

Philippe holds a B.S. degree in Politics and a post-graduate diploma in Statistics and Computer Science from the University of Geneva.

For more information

To learn more about Birches Group’s collaboration with Philippe and his work with our European clients, you can email him at Philippe.Francey@birchesgroup.com or reach out to anyone from our Business Development team.

Download a copy of this press release

Crisis in Syria

A Closer Look at the Economic Crisis in Syria

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the conditions in these markets.

Now approaching its 12th year, the conflict in Syria is one of the most complex geopolitical and humanitarian emergencies of our time. The International Crisis Group describes the situation as a “constellation of overlapping crises” with years of ongoing hostility.

What began as part of the Arab Spring uprisings has developed into an unending civil war involving world powers. Today, the Syrian Arab Republic faces massive economic hardships and limited political progress. 15.3 million Syrians—almost 70% of the population—need humanitarian aid, says the United Nations Office for the Coordination of Humanitarian Affairs (UN OCHA).

A matter of strength and survival

Over a decade of conflict has had disastrous effects on the local economy. 90% of Syrians live below the poverty line, and unemployment among the youth has reached 60%, the UN Development Programme reports.

The socioeconomic impact of the conflict in Syria is growing and ever-deepening. Conditions are deteriorating, and life is more challenging than ever. Syrians are dealing with a multitude of shocks, especially the following:

The Syrian pound depreciates. The Syrian pound’s unprecedented weakness is one of many indicators of a worsening economy. The Syrian pound has lost almost 75% of its value against the United States (US) dollar throughout 2022. The Central Bank reduced the official exchange rate for the second time in four months from 3,015 to 4,522 Syrian pounds for one US dollar. The rate in the parallel market, which is used for most local economic activity, is much higher at around 6,500 Syrian pounds.

Basic commodity prices skyrocket. The depreciation of the Syrian pound has led to rampant inflation, eroding real wages. According to Euro-Med Monitor, necessities are unaffordable, with prices increasing eightfold in the past two years. The Syrian regime has also led an austerity campaign, pulling subsidies for essential goods and services. And yet the income of most families has not increased.

A fuel and electricity crisis hits Syria. A longstanding agreement with Iran has faltered as shipments have stalled. The Wall Street Journal reports that Iran has restricted its monthly oil supply to Syria due to price increases and high demand in winter. This recent development has crippling effects. Since December, a severe fuel crisis has affected almost every sector in Syria. Three-quarters of Syrian households have less than eight hours of electricity every day. The power outages have driven many to rely on candles to light their homes. People burn shoes, clothes, trash, tires, and even pistachio shells for heat. The government has cut its work week to four days to save on energy costs, and working overtime has been banned.

Syria’s economy may have hit its lowest point since the start of the civil war in March 2011. Associated Press reports that, since wages don’t come close to meeting the cost of living, most Syrians live on remittances, multiple jobs, and humanitarian aid. The Center for Disaster Philanthropy also notes that the situation has forced people into survival strategies, such as eating less and selling fuel aid to buy food.

Without a political solution to the conflict, the economic crisis in Syria is expected to continue, and analysts expect hyperinflation to begin this 2023. The situation is still bleak as the country goes deeper into the crisis.

What our Market Monitor shows

Since we first published the Market Monitor report in mid-June 2022, Syria has been on Level One in the first five months of our monitoring. Level One reflects standard market conditions, with a 0 to 20% movement in the local exchange rate over the past 12 months.

But in our November and December 2022 reports, Syria was excluded from our list of volatile markets. During this time, the movement in the local exchange rate fell below 10%. By early January 2023, the exchange rate had not significantly moved in the last two months.

Syria reentered our list at Level Four in our latest (mid-January 2023) report. This abrupt level increase shows a sudden and unexpected socioeconomic event and a local currency devaluation of 50% or more in the past six months.

How Birches Group can help

Policies and procedures for keeping pay programs functioning in markets like Syria are critical. Develop a Special Measures Policy with triggers and immediate responses for supporting staff. Also, decide how your organization plans to carry out its next steps. Employees need to know they can rely on their employer to help them during times of crisis.

Birches Group can help your organization design responses to recent developments in Syria. We are experts in developing Special Measures Policies for organizations across sectors, including nonprofits and leading multinational companies. Get in touch with our consultants today to learn how we can create a Special Measures Policy for you.

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Iran’s Countrywide Protests and What They Mean for Employers

Written by Kai Donesa on . Posted in Uncategorized.

Birches Group monitors labor markets that are making headlines worldwide and wants to share news and updates on the conditions in these markets.

“Blood that is spilled unfairly will boil until the end of time,” goes an old Persian saying. For nine weeks, the streets of Iran have been shaken by protests calling for the overthrow of the religious theocracy that has ruled for over 40 years. Iran’s countrywide protests began on September 16, when 22-year-old Mahsa Amini died in police custody. Amini was detained in Tehran for allegedly not observing the country’s dress code for women and collapsed into a coma at a police station. A photo and video of Amini in the hospital were shared online and quickly went viral.

Iran has a long history of demonstrations and unrest. But the events since mid-September are different. They are led by women and young girls with no organizing force or leadership. They are spontaneous, persistent, widespread, and supported by people from different layers of society. Students and older Iranians, merchants and labor unions, and the middle and working classes have taken to university campuses and onto the streets of over 100 villages, towns, and cities across the country. Iranian expatriates have also rallied in support in Berlin, Washington DC, and Los Angeles.

And despite violent clashes with security forces, more than 14,000 arrests, and mobile and internet restrictions, dissent rages on with remarkable defiance.

The protests and the economy

The demonstrations across Iran now go far beyond Amini’s death and women’s rights. They have moved from demands for reform to demands for systemic changes, an expert told NBC News.

The protests have quickly swelled in response to the Islamic republic’s economic stagnation. The BBC says that, on average, Iranian families are “quite a lot poorer than they were 15 years ago.” Iran’s middle class has shrunk dramatically since 2018, with a third of its population falling into poverty. 23% of the youth population is unemployed, according to the Financial Times.

Additionally, Iran is facing a record inflation of 42.9%. Its currency, the Rial, has sunk to all-time lows. Since August, the Iran Rial has lost more than 20% of its value against the United States (US) dollar.

Businesses, shop owners, and bazaar traders in several cities closed their stores and went on strike, joining the protests in solidarity, Bloomberg and Iran Wire report. According to a primer from the United States Institute of Peace, factory workers in the energy and petrochemical industries also went on strike.

The Iran Chamber of Commerce warns that every hour of internet restrictions due to the protests costs US$1.5 million in damages to the Iranian economy. Research from the Tehran Computer Trade Union Organization states that 47% of internet businesses have lost more than 50% of their income. If the internet disruptions continue, 73% of businesses with less than 50 employees will lose over US$1,100 daily.

The government is considering a 20% pay raise for state workers. Still, the Rial’s sharp fall has eaten away at any benefit for workers, says London-based Iranian news website Iran International.

How we can help

Policies and procedures for keeping pay programs functioning in highly volatile markets such as Iran are critical. Organizations must develop a Special Measures Policy to determine the triggers and equivalent measures to support staff and ensure business continuity during political unrest. In addition, decide how your organization plans to implement the next steps for your staff. Employees need to know they can rely on their employer to help them during times of uncertainty.

We at Birches Group have extensive expertise in developing Special Measures Policies for organizations across different markets and sectors. Speak with our consultants today to find out how we can create one for you.

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