Mauricio Medinaceli Monrroy
Private Consultant
Oil - Natural Gas - Energy

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Blog.033

Many cultures, one problem: the gasoline price

The other day, when I went to Sheberghan (a city in the north of Afghanistan) I saw a gas station and I thought about the price of regular gasoline in this part of the world. So at the first opportunity I went to a service station and asked the price, ok to ambitious say "asked" (Spanish is clearly very different from Dari) what I did was see the price in Afghanis and then consult the unit of measure. The result is that a liter of regular gasoline costs 55 Afghanis and petrol "premium" 65 afghanis, or U.S. $ 1.00 for regular and $ 1.20 for premium.

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These figures are sad and natural at the same time; sad because the average income in Afghanistan is very low and even that, they pay a high gasoline price; natural because this country imports the 100% of the gasoline they consume, that's why they must pay the price international. This experience motivates me, once again, to revise the gasoline prices in some countries in the world, however, as in other opportunities I'll not only discuss the absolute value... also the relative (I will be more clear later). Well, let's start as usual, in this figure we can see the price of gasoline in US$ per liter, for selected countries. These figures do not attract attention because reflects what the people usually said, Bolivia, Ecuador and Venezuela have the lowest prices in the region ... however, it's interesting the situation in Mexico and the U.S..

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Well, as my good friend Carlos will say, "pongámosle candela". now what I did is to compare the price of gasoline against GDP per capita. What, what what? A common criticism is that the previous chart does not consider the "cost of living" in each country... one dollar in USA is different from a dollar in Afghanistan. Some examples, with $ 1 in USA I can buy some things, but I can buy many things in Afghanistan, finally in Brazil (as is the real) I can buy less things. So, let's have a look of the following chart where the figures are the percentage of gasoline price relative to GDP per capita. The results are shocking, Afghanistan, Nicaragua, Uruguay and Bolivia are the countries where gasoline represents a greater percentage of the average income, on the other hand, USA and Venezuela share (comfortable) the last places.

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I could write a lot about these results, but I will not bore you, what I'll do is introduce the graph above without Afghanistan and Nicaragua. Now we can see how the ranking of countries changes dramatically from the first graph, Bolivia now stands (even at subsidized prices) in the first place ... As I wrote in a previous post, we are a poor country "pues".

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When a country is poor and the prices of petroleum products are high, what consumers do? They use less transport? Unfortunately the answer is no ... they still use the transport vehicles but a less secure one. For example, this picture shows the solution found in Afghanistan to high gasoline prices: adapted motorcycles as little busses. This is seen not only in this country, I invite you to review the experience of Latin American countries, high prices in poor regions typically results in bad and dangerous transport system.

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What to do? I belong to the group of people who are in favor of not distorting prices, but I think it is a matter of adjusting them (to rise) protecting consumers, specially the poor ones. There are no few opportunities when I argue that the elimination of the subsidy (the price of gasoline) should be accompanied with a direct subsidy to poor families (I invite you to review the experiences of Brazil, El Salvador and Iran), however, also I would like to comment that the solution of medium and long term is (I saw it in Germany) by a public massive transport system. In this sense, public investment has a lot to do, we must be aware that when the government constructs roads they encourages fossil fuels consumption, then if we choose (as in Medellín) for massive transport service that works with electricity, the situation becomes better... or as the economists will say: Pareto superior.

Perhaps many will criticize me my "GDP per capita" analysis (because this indicator hides many things... the poor income distribution is one of them), in this regard, I invite you ... yes you, to help me building the indicator: bread and gasoline. What I ask is that, through a comment (you can do below), you can tell me the price of bread "battle" (cheaper) at your country home and in a future post so I can compare: how many unit breads are equals to one gasoline liter.

Now, as I go through the Salang Pass, I think about how different are our cultures but, at the same time, we have the same problems, same solutions and same joys... at the end I want to share this thought: I can only thanks for the privilege of living this life in a globalized world and, as usual, give thanks for my dear Santi... I firmly believe that being a father made me a better economist.

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Mauricio Medinaceli

Kabul, December 6, 2012.

 

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