REGIONAL PRICE SURVEY - INSIGHTS INTO REGIONAL TRADE

UNCLAS SECTION 01 OF 03 CONAKRY 000176 DEPT FOR AF/W DEPT FOR EB/IFD/OMA DEPT PLEASE PASS TO USTR FOR LAURIE ANN AGAMA DEPT PLEASE PASS TO COMMERCE FOR SALIHA LOUCIF TREASURY FOR OFFICE OF AFRICAN NATIONS SIPDIS E.O. 12598: N/A TAGS: ECON EPET PGOV GV SUBJECT: REGIONAL PRICE SURVEY - INSIGHTS INTO REGIONAL TRADE REFTEL: CONAKRY 0064 ¶1. (U) SUMMARY. An inter-Embassy regional price survey of select necessities in Guinea and its neighboring countries shows that while there is a rough parity in prices, significant differences remain. With respect to Guinea, the data illustrates why the GOG's newly imposed export ban is bad economic policy. The apparent differences in prices from country to country for specific goods, especially rice and fuel, suggest opportunities for cross-border trade and/or smuggling. END SUMMARY. ¶2. (U) Embassy Conakry conducted an informal survey of regional prices for staple good, in coordination with our embassies in Mali, Senegal, Cote d'Ivoire, Liberia, Gambia, Guinea-Bissau, and Sierra Leone, during the week of April 14. The survey covers gasoline, domestic and imported rice, potatoes, and flour. (NOTE: The production figures mentioned herein may not be reliable as they are reported by the GoG, whose data collection is haphazard at best. END NOTE.) -------------- GASOLINE -------------- ¶3. (U) Gasoline ranges from 1.05 USD per liter in Monrovia to 1.63 USD per liter in Dakar, with a rough median around 1.55 USD per liter. All reported prices are within one standard deviation, except for outlier Liberia. (NOTE: Standard Deviation is a statistical measure of dispersion of data points around the mean. A smaller number indicates less dispersion. END NOTE.) ¶4. (U) Prior to terminating a gasoline subsidy which resulted in a gasoline price increase on April 1 (REFTEL),Conakry had the cheapest gas in the region at about .95 USD per liter. This price reportedly spurred rampant gasoline smuggling from Guinea into neighboring countries. For example, the local World Bank representative told Econoff that prior to the end of the subsidy and subsequent price increase on April 1, Siguiri, a town of about 50,000 people near the Malian border, consumed the same amount of gasoline as Conakry, a city of two million. ¶5. (U) According to the survey it now appears that Liberia has the lowest price for a liter of gasoline, suggesting that Guineans may start looking to import fuel from Liberia, if they are not already doing so. Guinean gas is still .25 USD cheaper than that sold in Sierra Leone, suggesting continued opportunity for smuggling out of Guinea, although probably less than before. -------------- DOMESTIC RICE -------------- ¶6. (U) The survey indicates that prices for domestic rice range from 17 USD per 45 kg sack in Liberia to 56.12 USD for a 50 kg sack next door in Sierra Leone. All reported prices are within one standard deviation, except for outliers Sierra Leone and Liberia. ¶7. (U) In Guinea, domestic rice is reported to be preferred to imported rice. However, because imported rice is cheaper, it is in greater demand. The interesting phenomenon is that the price for domestic rice rises in lock-step with imported rice, even though little of the domestic rice is legally exported. The World Bank reports production of domestic rice is five times the quantity of rice imported. President Conte grows rice on his private plantations, most of which is reportedly exported, although exact information is not available. It is rumored that the president's rice shipments are not subject to export controls. ¶8. (U) For domestic rice, this rapid price increase could be a result of one of the provisions of the tripartite agreement settling the general strike in early 2007, which set the price of rice set at 87,500 Gnf per 50 kg sack. The arbitrary price control was insupportable in the open market, leading to corrective market adjustments. (NOTE: That agreement reduced the price initially for several months, and then gradually allowed the sellers to adjust prices according to the market rates. END NOTE.) -------------- IMPORTED RICE -------------- ¶9. (U) The survey indicates that prices for imported rice range from 30 USD per 45 kg sack in Liberia to 54.74 USD for a 50 kg in CONAKRY 00000176 002 OF 003 Cote d'Ivoire. All reported prices are within one standard deviation, except for outlier Cote d'Ivoire. The price of imported rice in Cote d'Ivoire is more than two standard deviations from the mean. ¶10. (U) In 2007, according to official government figures, Guinea produced domestically about one million three hundred thousand (1.3 million) tons of rice; while importing about three hundred thousand (300,000) tons. The Government of Guinea reports that India was the main supplier of rice for 2007, with China a distant fourth. However, even with a drop-off in rice imports from China during 2006-7, for the period 2001 to 2007, China supplied 1/3 of all rice imported to Guinea. ¶11. (U) In Guinea, the price of imported rice appears to drive the price of domestically produced rice, although the correlation is not exact. In November 2007, imported rice cost 27.90 USD per sack, while domestic rice cost 34.88 USD. That 7 USD difference has now shrunk to about 2 USD per sack, but both prices have increased to the 42 to 44 USD range. -------------- POTATOES -------------- ¶12. (U) The survey indicates that prices for a 50 kg sack of potatoes range from 10.53 USD in The Gambia to 60.82 USD in Cote d'Ivoire. The price of potatoes has the widest spread of all prices surveyed. This wide disparity in price could be a result of taste preference, rather than other economic forces at work. ¶13. (U) Guineans prefer rice to potatoes, even though the Fouta Djalon region produces significant amounts of high quality potatoes. Contacts have asserted that Guinea produces nine thousand tons of potatoes domestically, but only consumes five thousand tons. These potato producers reportedly export their product to other surrounding countries. The significant price differential between rice and potatoes reflected in the survey for Guinea (approximately 30 USD) is greater than that for any other country surveyed, save the Gambia, and could reflect the preference of Guineans for rice over potatoes. The evidence of a substitution of potatoes for increasingly expensive rice could show up as an increase in the price for potatoes. -------------- FLOUR -------------- ¶14. (U) According to the survey, flour ranges from 41.05 USD in the Gambia to 71.77 USD in Cote d'Ivoire. Only Cote d'Ivoire is outside of one standard deviation from the mean. ¶15. (U) In Guinea during December 2007, the price of local flour and imported flour were the same, at about 36 USD per 50 kg sack. Currently, there is a 5 USD difference between local flour and imported flour, but the prices have risen to between 45 USD and 50 USD. This difference equates to a 38% increase in the cost of domestic and imported flour over the last 5 months, while the cost of bread has risen about 20% so far this year. The difference in increases may be explained by unconfirmed local press reports of pressure by the government on bakers not to raise prices too much because the population is reportedly very sensitive to the price of bread. -------------- COMMENT -------------- ¶16. (U) COMMENT: The regional price survey provides some useful data as to price trends in the region. With respect to Guinea, the data illustrates why the newly imposed export ban of the government of Guinea is unlikely to succeed, and may have unintended consequences for Guinea. For example, the current interdiction of the export of potatoes could force producers out of business since the domestic potato market cannot support a significant increase in supply without a corresponding price decrease in an already inexpensive product, without an increase in demand. ¶17. (U) The data also illustrates why Guinea's previous subsidized pricing of its gasoline at .95 USD per liter reportedly led to massive smuggling since there was a more than .50 USD difference per liter between Guinea and its neighbors. The recent increase in fuel prices in Guinea means that fuel smuggling out of the country will CONAKRY 00000176 003 OF 003 likely taper off, but there may still be an interest in smuggling into Sierra Leone. There may also be increased interest in smuggling fuel in from Liberia, where it is sold for .50 USD less than in Guinea. ¶18. (U) Given the relatively low prices for rice and gas in Liberia, Guinea could experience an influx of cheap rice and gas from Liberia, thus increasing supplies of these staples. Similarly, if the current export restrictions on potatoes stay in place, Guinea could experience an increase in potato smuggling to neighboring countries. Contacts report that most of the prices of substitute goods for these staples are also rising, leading little left but potatoes once rice become unaffordable, assuming the export ban on potatoes has not driven the producers out of business first. ¶19. (U) The market mechanism for prices is complex. For example, if Guinea's export ban is successful in bringing down the price of domestic rice in Guinea, the resulting affordability could encourage an increase in rice smuggling to neighboring countries to take advantage of the differential, thereby driving up demand and thus price. This would nullify the purported justification for the export ban. ¶20. (U) Embassy thanks Wallace Bain for Senegal and Guinea-Bissau, Brian Bachman for The Gambia, Amantchi Beugre for Cote d'Ivoire, Amy LeMarr for Sierra Leone, Lucy Abbott for Liberia, and Glenn Fedzer for Mali who willingly collected the data from each of their respective posts. END COMMENT. Senegal Guinea Guinea-Bissau Cote d'Ivoire Gas 1.63 1.55 1.56 1.49 Dom.Rice 48.66 44.44 42.58 39.53 Imp.Rice 42.57 42.22 36.50 54.74 Potatoes 31.63 13.33 21.90 60.82 Flour 53.53 50.00 43.80 71.77 Liberia Sierra L. Mali Gambia Gas 1.05 1.30 1.54 1.57 Dom.Rice 17.00 56.12 42.16 42.11 Imp.Rice 30.00 40.82 38.93 39.47 Potatoes 15.00 32.32 31.93 10.53 Flour 45.00 44.22 52.92 41.05 Notes: All prices are in USD Gas is priced per liter All other quantities are for 50 kg, except Liberia at 45 kg Prices are for week of April 14 CARTER