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. One would expect average prices to be cheaper in poorer countries, where labor and property costs are lower. This falafel barometer accordingly adjusts for average income in various Middle Eastern cities and countries. The relationship between the price of a falafel sandwich on one hand, and income per head on the other, can be used to estimate the fair market value of a currency. The gap between the price of a falafel sandwich, predicted by the blue “line of best fit,” and the actual price, adjusted for GDP per capita, shows currency under- and overvaluation. 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. 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.
