Ramadan is one of the main events in the Muslim calendar. Plus, because Islam is a religion has around 1.7 billion followers (just under a quarter of the world’s entire population, the observation of the month’s fasting has a big effect on the wider world. But, exactly what is this effect? Is productivity lowered, or does it cause a surge in retail spending? In this post, we take a look at how Ramadan affects businesses and financial markets.

What is Ramadan?

But, before we begin, a quick introduction to Ramadan is required.

Ramadan is the ninth month of the Islamic calendar year. This is separate to the Gregorian calendar year, and it means that the month Ramadan is held in changes every year. Sometimes it is held in summer, while other times it is held in winter.

During Ramadan, Muslims cannot eat, drink, smoke or even chew gum during daylight hours. There are, however, exceptions to this rule, and small children, pregnant women, ill people and the elderly are exempt from Ramadan.

Muslims observe Ramadan as a sign of faith, and it is not uncommon for people who are exempt from still observing Ramadan.

How does this Affect Businesses?

During Ramadan, Muslims will wake early and go to bed late in order to eat before the sun rises or after it sets. This prevents them from breaking the fast. However, in summer months, this can be incredibly early or very late, meaning that their sleep patterns are disrupted.

For Muslims in full time work, this can cause them to become lethargic during the day, lowering productivity. This was confirmed by economist Samer Sunnuqrot, who said that the productivity of workers declines during Ramadan by 35-50%.

In addition, in some mainly Muslim countries, decisions and meetings at board level are kept until after the close of Ramadan to prevent any rash decisions from being made. This can cause some problems in the forex markets (if you don’t understand forex then you can read this guide put together by CityIndex for an overview). This can lead to losses for businesses which are reflected in the foreign exchange markets; particularly because this often happens with governments. The pausing of government transactions can impact on a country’s currency’s performance, so traders must be careful, as must stock brokers who have invested in companies where the management structure will be observing Ramadan.

But is it all bad?

However, this doesn’t mean that Ramadan is bad news for businesses, as it also has a highly positive impact as well.

For example, during the holy month of Ramadan, the demand for goods and services is much higher, and so is consumption. Fasting during the day does not reduce food demand, and in some countries, food demand actually increases. This is because Muslims observing the fast will consume more on a morning to ensure they have energy throughout the day.

The increase in demand not only brings higher sales for businesses, but also higher prices. This, in turn, creates higher profit margins for businesses, as well as restaurants and retail outlets.

Overall, this level of high consumption leads to high levels of economic growth in certain countries. Admittedly, this is only a short-term effect, but it does still affect the markets, with business growth affecting shares and currency performance affecting the forex markets by bolstering the country’s currency.

To conclude, Ramadan has both a positive and negative effect on businesses in general and the financial markets. Although productivity is lower, and big decisions are often put off, increasing consumption drives growth and higher prices.