The average price of
Octane-95 gasoline around
the world is US$1.35 per litre. There is a considerable difference in these
prices among countries. Usually, richer countries have higher prices while
poorer countries and the countries that produce and export oil have much lower
prices (Jordan is among the exceptions to this rule). The differences in retail
prices across countries are caused by taxes and subsidies, which vary from one
country to another.
اضافة اعلان
The government in Jordan opted to
raise the gasoline and diesel prices as of September 1, 2023. It is important from an
economic perspective to figure out the standing of Jordan relative to other
countries and determine whether such an action places the economy in a
depressed state or not. To keep this article short, the focus is on Octane-95
gasoline.
Relative income and pricing
When
analyzing and comparing prices, beyond
the absolute values of gasoline prices, one needs to look at the relative
income in the country and compare the price relative to income among the
comparators. The relative price of Octane-95 gasoline in Jordan is 15 percent
of the daily income per person, which ranks Jordan as the 12th most expensive
country for gasoline in the Arab world.
In absolute numbers (i.e., in terms of the
price of gasoline), Jordan is the 15th highest Arab country. In the USA, where income is 18.2 times that
of Jordan, Octane-95 gasoline is sold at US$1.09 per litre, and in some states
it is as low as US$0.7 per litre. Imagine the riots and chaos in the US if the
price of a litre went to US$18. Even in Germany, where the average income is almost 12 times
that of Jordan, the price is US$2 per litre, which is 1.6 percent of the
average daily income there; in Jordan it is 15 percent of the average daily income, in other words,
it is 10 times as high in Jordan.
Taxation and growth
Gasoline in Jordan is heavily taxed; some
say by 75 percent (but the formula is nobody’s business, it seems). On the
other hand, principles of proper governance dictate that governments use taxes
on fuel to fix roads, address environmental issues, and subsidize technologies.
Otherwise, the taxes become a tool for additional taxation to generate more
income for the government.
Furthermore, the government is supposed to
provide alternatives that minimize the use of cars, such as proper pavements
and marked bike routes to enable bike riding, electric and hybrid cars at
subsidized rates, and proper public transport systems. All of which are
monopolized in terms of provision by the government.
Although the discussion above does not
address the recent rise in
diesel prices, which is used in freight and
production in addition to heating, it is vital to point out that raising the
price of diesel will adversely affect economic growth in the country and thus
possibly derail the achievement of some of the main goals of the Economic
Modernization Vision. Why? There are three main categories of inputs that are
used in production: capital which is machinery and manmade inputs, labour, and
land, which is energy, fuel, water, and minerals. Raising the prices of all
three (interest, wages, and energy prices) will not lead to encouraging
investment and growth.
To grow the economy the government must
utilize economic (not accounting) principles, work with a long-term
perspective, and repeal some of the hurdles already in place. Because countries
are not run as companies, there should be no time to waste.
Yusuf Mansour is CEO of the Envision
Consulting Group and former minister of state for economic affairs.
Read more Opinion and Analysis
Jordan News
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