Ammon News - AMMONNEWS - The Arab Spring brought into focus the economic underpinnings of instability in the Middle East. In a region where over one in four youth is unemployed, how well people can afford a basic meal is a primary consideration.
However, the Big Mac Index – now a golden standard for measuring purchasing power– doesn’t quite size up the region’s economic situation. This index determines the purchasing power of different currencies by comparing the prices of McDonald’s signature hamburger in various countries. But in the Middle East, eating at an international food chain, like McDonald’s, is often more expensive than local restaurants. This means that a Big Mac doesn’t represent what common folk can afford.
Second, since the Big Mac is not popular in the Middle East, it has no place in what economists call a “market basket of goods” – the goods and services that a typical consumer purchases in a month. The Big Mac, as a homogenous good, is a viable candidate for standardizing a bundle of goods across 120 countries. Yet, in the Middle East, where Big Mac’s are purchased mainly by expats, the rich, and locals who crave an occasional Western meal, the index falls short as a basis for comparison.
For a more suitable metric, here’s some food for thought: the Falafel Index, first floated by The Majalla, an Arab magazine, in 2011. As a staple meal across the Middle East, falafel (crispy, golden balls of chickpeas) sandwiches provide a more region-specific, and thereby more accurate, basis for an index. The Falafel Index is culturally fitting, and based on the actual purchasing preferences that everyday citizens bring to the market.
Here’s yet another argument for falafelnomics: operating costs are less likely to differentiate falafel stands than McDonald’s franchises across the region. Falafel shops are usually humble franchises and serve food that is locally sourced. This mitigates the impact of transportation costs, consumer preferences, and other factors that would make a Big Mac in one country cost more than in another. Also, the ingredients of a falafel sandwich are mostly the same region-wide: pillowy pita bread, crunchy tomatoes and cucumbers, silky tahini, and sweet and sour pickles.
Falafel may be the big equalizer when it comes to indexing Middle Eastern economies.
After all, it is already a basis for a comparison in the region. Fadi Abboud, president of Lebanese Industrialist Association, threatened to file an international law suit in 2008 against Israel for violating a food copyright. Abboud’s charge was that falafel, which Israel markets as its original food, was a Lebanese trademark prior to the establishment of the Jewish State. A musical comedy called West Bank Story was even made about rivalries fueled by falafel. The story is about an Israeli soldier who falls in love with a beautiful Palestinian cashier from a competing falafel stand in the West Bank. The couple’s love is then tested by an over-60-year-old conflict and their families’ desires to determine the future of the chickpea in the Middle East.
database of user contributed income data. Data from Maghreb cities where falafel is not a staple meal is excluded.
A note on the methodology: The data records how much the original sandwich costs at Just Falafel, a popular chain region-wide. The sandwich from this UAE-based restaurant, much like the Big Mac, standardizes the data. In countries where there are no Just Falafel franchises, I use the price of a basic sandwich in a pita (as opposed to a baguette or a laffa, a kind of flatbread) at the most quintessential falafel joint, found after surveying various locals. These restaurants include Falafel HaZkenim (The Elders) in Haifa, ranked number one in Israel on Trip Advisor, Haidar Double in Baghdad, located next to the towering security walls of the Green Zone, and Uncle Raouf in the Gaza Strip, where some ingredients have been smuggled in from Egypt. Three data points are included from the Palestinian Territories – the Gaza Strip, the West Bank, and a refugee camp – to represent distinct socioeconomic realities. The same is done with Lebanon, Israel, and the UAE, to include cities with varied levels of average income.
The chart above displays a strong positive relationship between the dollar price of a falafel sandwich and monthly GDP per capita. But the outliers are particularly interesting.
Some Gulf currencies, particularly the Saudi and Qatari Riyal, are undervalued against the greenback. The dollar peg prevents these currencies from appreciating organically. Kuwait, which abandoned links to the relatively weak dollar in 2007, is less markedly undervalued. Falafelnomics provides further evidence for Saudi Arabia’s and Qatar’s inflation, which is well above the typically optimal rate of less than 2 percent, but still moderate given the high level of spending and GDP growth in both economies over the last few years. Both countries are unlikely to abandon the peg in the short term, in favor of maintaining currency predictability, a strong nominal anchor, and other trade-related benefits.
Another conclusion from falafelnomics: The Israeli shekel is among the most overvalued currencies in the region. The Bank of Israel is attempting to fight the strength of the shekel, which appreciated 9 percent against the dollar last year. Since 2005, food prices in Israel have increased more than in any other developed country. Currently, they are 19 percent higher than other Organization for Economic Co-operation and Development (OECD) countries, and 25 percent higher than Europe. The Kedmi Committee (colloquially referred to as the “food committee”), formed after massive protests in 2011, mainly blamed lack of competition for price hikes in food and consumer goods – and by the Falafel Index’s count, a $4.62 falafel sandwich in Tel Aviv-Yafo is no exception, even when accounting for income per head.
The price of a falafel sandwich in Syria’s war-torn capital has risen by 60 percent, largely because of the high cost and scarcity of a key condiment: tomatoes. The increase has been so large that the head of the Consumer Protection Association in Damascus has called for greater price controls. In some shops, a falafel sandwich can cost more than 100 pounds ($0.68) – this despite the exchange rate declining as the Syrian Pound collapses.
In Yemen’s capital Sana’a, where average monthly income is $37.43 less than in Damascus, the price of a falafel sandwich can be $1.18 (174 percent) more. Surges in food prices have left well over half of Yemeni children under the age of five suffering from chronic malnutrition, one of the highest rates in the world. The paucity of arable land and a water supply depleting at an unsustainable rate, largely due to the country’s overcultivation a narcotic called qat, have forced the country to import the vast majority of its food supplies. Falafelnomics shows that Yemen is one of the worst-off countries in the region, purchasing power parity.
While the complexities of purchasing power cannot be wrapped up in a sandwich, the Falafel Index offers an insight into the underlying economic problems that confront a strategic region.
*Forbes
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