06 Dec Many cultures, one problem: The price of gasoline
The other day, while heading to Sheberghan in northern Afghanistan, I passed by a gas station and wondered how much regular gasoline costs in this part of the world. At the first opportunity, I stopped to check the price—though “ask” might be too generous a word (Spanish and Dari are worlds apart). Instead, I simply looked at the posted prices in Afghanis and verified the unit of measurement. The result: one liter of regular gasoline costs 55 Afghanis, and premium 65 Afghanis—roughly $1.00 and $1.20 per liter, respectively.
These numbers are both unsurprising and troubling—unsurprising because Afghanistan is a full-fledged fuel importer, meaning it pays international market prices; troubling because, despite the country’s low average income, gasoline remains expensive. This realization led me, once again, to examine fuel prices across different countries. But as always, I won’t just look at absolute prices—I’ll also explore their relative impact (I’ll clarify this shortly).
Let’s start with the basics. The first chart (attached) presents gasoline prices in USD per liter for selected countries. The results are in line with what we often hear: Bolivia, Ecuador, and Venezuela have the lowest fuel prices in the region. However, the cases of Mexico and the United States also stand out.
Now, as my good friend Carlos would say, it’s time to “turn up the heat.” I compared gasoline prices to GDP per capita. What? Yes, you heard that right. One common criticism of price comparisons is that they don’t account for differences in purchasing power—after all, a dollar in the U.S. isn’t the same as a dollar in Afghanistan. To illustrate: with one dollar in the U.S., I can buy a few things; in Afghanistan, I can buy significantly more; in Brazil (given the exchange rate), I can buy even less. With this in mind, the next chart presents the cost of one liter of gasoline as a percentage of GDP per capita. The results are striking—Afghanistan, Nicaragua, Paraguay, and Bolivia are the countries where gasoline represents the highest burden relative to average income, while the U.S. and Venezuela enjoy the most affordable fuel.
I could analyze these results in depth, but I don’t want to lose you. Instead, I present the same chart again, this time excluding Afghanistan and Nicaragua. The ranking shifts dramatically—Bolivia, even with subsidies, still ranks among the highest. As I wrote in a previous post: we are still poor, after all.
When a country is poor and fuel prices are high, how do people cope? Do they stop using transportation? Unfortunately, the answer is no. Instead, they switch to less safe alternatives. In the photo I share, you’ll see a creative yet risky solution from northern Afghanistan—motorcycles retrofitted to transport passengers. This isn’t unique to Afghanistan; in many parts of Latin America, when fuel is expensive and poverty is widespread, transportation tends to be unreliable and dangerous.
What Can Be Done?
I firmly believe in avoiding price distortions, but simply increasing fuel prices without protecting consumers is not the answer. Time and again, I’ve argued that eliminating subsidies should be accompanied by direct financial support for low-income families (I encourage you to check the cases of Brazil, El Salvador, and Iran). However, in the medium and long term, the real solution lies in mass public transportation systems—a lesson I learned firsthand in Germany. Public investment plays a critical role here. Expanding road networks encourages more fossil fuel consumption, but investing in electric-powered mass transit, as seen in Medellín, leads to a much better outcome—or, as we economists like to say, a Pareto improvement.
Of course, many will challenge my use of GDP per capita for comparison, arguing that it hides key issues—income inequality being one of them. So, I have a proposal let’s create a new indicator—the “bread and gasoline” index. I invite you to share, in the comments, the price of the cheapest basic bread in your country. In a future post, I’ll compare how many loaves of bread equate to one liter of gasoline.
Now, as I make my way across the Salang Pass (see photo), I reflect on how diverse our cultures are, yet how fundamentally alike we remain—same problems, same solutions, same joys.
To close, I leave you with this thought: I am profoundly grateful for the privilege of experiencing this globalized world. And as always, I give thanks for my dear Santi—I truly believe that becoming a father has made me a better economist.
S. Mauricio Medinaceli Monrroy
Kabul
December 6, 2012
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