Fuel shortage? Financial Times and Emirates Economist on same page

Did you hear the one about the oil-rich country that had a fuel crisis?

Financial Times

... the latest shortages in some emirates of the United Arab Emirates may stem from a different type of crisis: a longstanding economic imbalance rooted in intra-federal politics.

The petrol stations that have “run out” of gasoline are Emirates National Oil Company and EPPCO, both owned by the Dubai government.

Most affected outlets are in Sharjah, and other so-called “northern Emirates”, with more limited disturbance in Dubai. Abu Dhabi hasn’t suffered.

Initial excuses of maintenance work don’t really wash with analysts. More likely, they say, Dubai is trying to persuade oil-rich Abu Dhabi, the leader of this federation of seven emirates, to subsidise severe losses ENOC faces at the pump.

Oil companies in Dubai, which only has modest oil reserves, buy petroleum products at market rates, but they then have to sell petrol at subsidised rates set by the federal government.

The timing of these shortages is not so great for Dubai, which is grappling with a $113bn debt pile and is looking to tap the market for $5bn more....

I explained this the other day, and also back in 2008 when the same thing occurred.

I had not picked up on the part of the story where the Dubai-owned companies are taking care of Dubai, and leaving the Northern Emirates with the shortages. Traffic jams between the two cities of Dubai and Sharjah are already legendary. This adds to the chaos.

My suggestion to the government is to raise prices, and increase direct income transfers to citizens to compensate them. After all, they are only 10 percent of the population. Subsidizing through prices is never efficient, but it's especially not so if your intent is to target your citizens.

Gas lines and runs

By imposing price limits, government makes an explicit choice in favor of gas lines, in order to keep the price of whatever gas is available within reach of lower-income consumers. That may be a popular decision, but it is hardly a market failure.

That's Geoffrey S.W. Styles at Energy Outlook explaining why the Southeast US has experienced gas shortages. Read it all. Via Knowledge Problem where this in person experience with gas lines is worth reading.

America out of gas

Some parts, that is. A lesson in how to do a good job of shooting yourself in the foot. That link was written September 22; the problem persists:

ASHEVILLE, N.C. (AP) — A gas shortage that's frustrating drivers in the Southeast has prompted a community college in North Carolina to cancel classes for the rest of the week.

Officials say an increasing number of the 25,000 commuter students at several campuses of Asheville-Buncombe Technical Community College aren't showing up.

A spokeswoman for the college in western North Carolina says even professors are calling to say they're stuck at home.

Drivers throughout much of the Southeast have been scrambling to find gas since Hurricane Ike shut down or reduced work at more than a dozen refineries on the Texas Gulf Coast. Some stations don't have gas to sell, while others report long lines.

Oh, my, the shortage is leading to fist fights, and could result in the cancellation of major college football games.

There's a solution: raise the price, but that's illegal due to state price gouging laws. It's amazing how journalists can't connect price controls as the cause of the shortages.

Human activity making hurricanes worse

The TV images of the impact of Hurricane Ike on the Texas coast are dramatic. Instapundit has pictorial proof that man is making the impact of hurricanes worse.

See also, Cafe Hayek's explanation.

While we're on the subject of price controls, today's Wall Street Journal has two good articles. Who gets rent controlled apartments in New York? (If your guess is the poor, guess again.) Here's the other article.

Irony watch: Fuel shortages in the oil-rich UAE

These shortages are caused by something like price controls: state-owned retail fuel companies that are not willing (and, perhaps, able) to meet market demand at the price they have set, but are also not willing increase price to stave off shortages.

Story 1

Employees at petrol stations in Fujairah and Ras Al Khaimah say the Special variety ran out days ago, insisting that they have not been informed when they could expect further supplies.

The shortages also affected Sharjah, Ajman and Umm Al Quwain, but the company does not have a presence in Dubai.

Story 2

Abu Dhabi: A diesel shortage affected many sectors in Abu Dhabi on Monday, with trucks stuck in massive queues waiting to refuel.

Households and restaurants suffered due to a lack of a supply of essential items. The transportation of labourers from worksites to their accommodation was also affected.

Diesel vehicles have had to queue at fuel stations in Mussaffah since Sunday morning, as the sale of diesel was stopped in Abu Dhabi City.
...
The huge difference in diesel prices between Abu Dhabi and Dubai has caused massive queues at Adnoc Distribution diesel pumps, where Dubai-registered vehicles queue up for cheaper diesel.

Most petrol and diesel consumed in the UAE is refined outside the country. Adnoc, owned by Abu Dhabi is not under pressure to be profitable. The Dubai-owned companies are, but have been reluctant to set prices above Adnoc's. This reluctance has broken as world prices for oil rose considerably in the last year.

Crust of bread and such

There's corruption up the wahzoo in the Egyptian bread market. AP reports:

It's a sore point for a country struggling to contain bread riots: Bakeries that get government-subsidized flour often sell it on the black market at a huge profit, taking food from poor people's mouths.

But in Egypt — notorious for low wages and corruption — bakery workers say they have little choice but to steal the flour and sell it, both to feed their families and to pay the crushing bribes demanded by government officials and police.
...
the crisis has also highlighted the widespread petty corruption pervading Egyptian life — from bakeries to hospitals to police stations — that many who earn meager paychecks maintain is the only way to make ends meet.

In one poor district of Cairo, a government official in charge of a public bakery shows his paycheck: After 20 years in his position, he earns about $55 a month, including supposed bonuses.

"I have to steal — how would I survive without stealing?" the official, a father of eight, told The Associated Press. He spoke on condition that he and the district where his bakery is located not be identified, fearing reprisals.

He admitted that he regularly sells a portion of his bakery's subsidized wheat on the black market. The government provides a ration of wheat to state-run bakeries at a subsidized price of about $1.50 for each 110-pound sack. The wheat is supposed to produce bread that sells for less than one cent per loaf. But many bakeries sell some of it to private bakeries at up to $37 a sack.

Part of the difference, the bakery employees pocket. But part is needed to pay off the host of government inspectors — from the police, the Supply Ministry, the city government and local councils — each of whom demands his own fat bribe.

"I just have to give bribes to most of them or they would file fines or close the bakery," said the official, whose bakery receives 68 sacks of subsidized flour every day.

A senior security official involved in government crackdowns on the black market wheat said public bakeries often sell off up to half the subsidized wheat they receive. He also acknowledged that many inspectors pockets bribes from bakers.

"Now if I'm an inspector and you, the baker, give me 1,000 pounds ($180) a month while my salary is 200 pounds ($37) a month, wouldn't I sell my conscience?" he said.

Unless the government "feeds the people, they will keep on stealing and receiving bribes," said the security official, who spoke on condition of anonymity in exchange for discussing the situation honestly.

One baker, Mohammed Abdel-Salam, said he used to work for a private firm that bought subsidized flour from public sector bakeries. "Very late at night or in the early hours of the morning, I used to go to the big public bakery and pick up three or four sacks of flour" for $37 each, he said. Private bakeries sell bread at market rates, up to 25 times the subsidized price.
...
Unless ambulance workers get their obligatory "tips," patients might not reach the emergency rooms in public hospitals on time — and once there, patients must be sure to gave nurses a gratuity — called "baksheesh" in Arabic — just to get basic care. In schools, nearly all Egyptian students face pressure from their teachers to pay for "private lessons" after school hours.

Galal Amin, an economist at the American University in Cairo, said corruption in Egypt is a "law that cannot be violated."

"The bribe, big and small, for public employees is not only expected but obligatory," Amin wrote in the independent daily Al-Masry Al-Youm. "Bribes are given and received openly, without embarrassment. An employee considers it part of his monthly salary."

Egypt arrests 500

Bloomberg

Egypt's government said police arrested more than 500 people across the country as it suppressed a one-day national strike to protest rising food prices.

Two hundred textile workers were arrested in the northern town of Al-Mahala El-Kobra, said a spokesman for the Interior Ministry, speaking on condition of anonymity, in accord with departmental policy. Police prevented a rally in Cairo's main Tahrir Square and also made arrests in the towns of Alexandria, Mansoura and Mahala.

Egyptian state employees from doctors to factory workers are demanding higher wages after a jump in food prices around the world pushed up the cost of living in a country that imports about half of its grain.

Today's arrests came as President Hosni Mubarak, Egypt's longest serving leader in modern times, increases pressure on his critics. Police arrested at least 140 members of the outlawed Muslim Brotherhood, the country's biggest opposition group, last month and a journalist was sentenced to six months hard labor for reporting that Mubarak was ill.

Demonstrators outside the headquarters of the lawyers' guild in Cairo today shouted slogans including: ``Keep burning us with prices and you will be burned by chaos soon'' and ``Down, down with Mubarak.'' Egyptian inflation accelerated to 12.1 percent in February from 10.1 percent in January. Bread and grain prices have jumped more than 25 percent in the past year.

Cement in Oman

Arabian Business:

Oman said on Saturday [March 15] it was considering reducing import duty on building materials in an effort to put a cap on rising inflation in the construction sector.

"We are revising the import duty on building materials to help reduce the cost of cement, steel and wood," Chamber of Commerce and Industry Chairman Khalil Al-Khonji told reporters.
...
Oman had restricted the import of cement two years ago to support the sale of local firms Oman Cement Company and Raysut Cement Company, but the move caused shortage in the market.

Said Al-Barwany, chairman of Al-Barwany Construction, told newswire Reuters Oman needed an extra 20,000 tonnes per day of cement to help reduce the shortage.
The price of cement has doubled in the past year, according to Baljit Singh, a building materials trader.

"A 50-kilogram bag of cement rose from 2.4 rials ($6.24) last Sunday to 3.6 rials today; it is too much. This time last year, it was only 1.3 rials per bag," Singh said.

Meanwhile, Oman Cement is in discussions with the government on plans to raise the price of cement to offset the soaring price of imported clinker, which is used to make cement, Chief Executive Jamal Al-Hooti told Reuters last week.

Muscaticonfidential points to evidence that this is a black market in cement. According to the Oman Tribune,

Two Asians were caught red-handed while selling cement at exorbitant price in the Wilayat of Ibri on Tuesday [March 24].

The two expatriates were selling cement at the rate of RO2.900 per bag.

The arrest was made as part of a campaign run by the Ministry of Commerce and Industry against people manipulating prices.
...
In spite of the Ministry of Commerce and Industry’s continued inspections to check illegal trade practices and the arrests being made by the police, in addition to the authorities’ warning of stringent action against the violators, some traders and their aides have been ignoring the warnings and were selling cement at high prices.

Trade Arabia adds,

Oman Cement Company, the country's largest cement firm by market value, said it is in talks with its government owner about raising prices or possibly face a fall in profit this year.

'If we don't increase cement prices by 1 to 2 rials per tonne, profit might come down in 2008,' Oman Cement chief executive officer Jamal Al Hooti said in an interview in Muscat on Wednesday [March 12].

Black market opportunities for profit exist when buyers cannot fulfill their planned purchases at the official price. In other words, there is a shortage, a gap between the quantity buyers would like to purchase at the official price and the quantity sellers are willing to produce. Frustrated buyers are willing to buy (a smaller amount) at a price above the official price, sometimes much more. The "Asians" had a profit opportunity if they could acquire cement at the official price and resell it at a higher price.

A natural question is how the black marketers came into possession of the cement in the first place. The most innocent possibility is that they were able to purchase it without any favoritism from the original seller be it from a producer or an importer. Otherwise, there is some corruption involved beyond the violation of selling above the official price.

Import duties do not create shortages. They reduce imports, and drive up the domestic price. Shortages are created by price ceilings -- the official price above which it is illegal to sell. These prevent price from rising to bring the quantity demanded into balance with the quantity supplied.

The additional complication in the Omani cement market is that the major domestic producers are government owned. Yet the government-owned cement producers have to obtain permission from the government to raise the price. What they can do, as is evident from the fact of a shortage, is restrict quantity; they are not obligated to satisfy demand for cement at the official price. If their objective is to maximize profit, or to meet a target level of profit, then an increase in the price of an input (in this case clinker) will decrease the amount they are willing to produce at a given cement price.

Reducing the import duty would reduce the shortage. So would raising the official price for cement.

Speaking of cement, is this the headline you'd give this story?:

Growth in cement imports plummets

Growth in cement imports into Dubai slumped 60% last year, state-owned conglomerate Dubai World said on Sunday, without giving a reason for the drop.

Dubai World said cement imports shot up 73.6% to 2.960 million tonnes in 2007, but the growth fell well short of the 184% increase in imports seen in 2006.

My point is, 73.6% growth is enormous growth by any measure.

And finally, on the cement front, the UAE has eliminated the duty on cement and rebar to ease inflation.

The price of subsidies

Voice of America

In Egypt, a shortage of subsidized bread has resulted in long lines and occasional clashes in which several people have been killed. The president has ordered the army to use its bakeries to try to end the bread crisis, but the roots of the problem are more than just simple supply and demand. Rising food prices and poverty have combined with corruption to create a bread problem that will not be easily solved. VOA Correspondent Challiss McDonough has more from Cairo.

About 30 people are crowding around two small windows at a Cairo bakery, shouting at each other and jostling for the best place in line. The heat is blistering already, and women in the crowd shade themselves from the sun with plastic bags.

A woman named Fatma says she waits here for two to three hours every day to buy bread for her family of five.

Gesturing toward the chaos at the bakery window, she says, "What can I say? You can see this bread problem for yourself. The prices of everything have gotten so high."

This bakery is selling round loaves of government-subsidized bread, known locally as "balady" or country bread. The price is fixed at five Egyptian piasters, or less than one U.S. cent a loaf.
...
Economist Hanaa Kheir el-Din is executive director of the Egyptian Center for Economic Studies.

"All other food prices have risen. There are a lot of food prices which rose sizably - look at the oil price for instance, rice, sugar, everything is rising - but balady bread has been kept at five piasters a loaf, and the flour which goes into it is delivered at a much lower price while the baker can sell it on the black market at several times the price," said Kheir el-Din.

The corruption is not limited to selling subsidized wheat flour on the black market.

At the bakery, a heavy metal door swings open and then clangs shut quickly, and a man scurries away holding five round pieces of freshly baked bread.

Another man who gives his name only as Samir waves his hand angrily toward the door.

He says the bakery employees let some people inside to get bread quickly while he and the rest are waiting in line outside in the sun for hours.

This is an emotional issue. Bread is such a vital staple food here that Egyptians use a different word for it than other Arabic-speakers do - they call it "aish," which literally means "life."
...
There is no shortage of bread for those willing and able to pay higher prices for it. Some people who buy the subsidized product resell it just down the street for twice the price. And unsubsidized bread is in plentiful supply at local markets, but that costs five times as much.
...
The last time the Egyptian government tried to remove subsidies on bread, in 1977, riots broke out and more than 70 people were killed.

But food subsidies now take up a huge portion of Egypt's annual budget, one that is growing as global food prices rise.
...
Back at the bakery, Fatma sighs as she stares at the raucous crowd pushing and shoving to get closer to the front. She shakes her head and moves into line, saying under her breath, "May God have mercy on the poor."

At the very least, Fatma surely values those two or three hours spent daily in line.

In the classic textbook analysis of subsidies there is no shortage. In this real life example there must be more going on. Either the government has limited the quantity it will subsidize, or it has it is not only subsidizing, but it is also controlling the price the bakers can charge. Otherwise, there would be no shortage, no favoratism, no reselling, no black market.

The same sort of policy mix is applied in Iraq in the petrol and diesel markets to sometimes deadly effect.

In Eypgt and in Iraq the governments needs to figure out how to remove these inefficient, distortionary and corrupting policies in a manner that is politically acceptable.

Central Bank turns tables on money changers

Yesterday's post was entitled Money changers throw out the dollar. Anticipating a revaluation, UAE money changers were not willing to buy dollars at the official rate.

The Central Bank is now saying the money changers must defy the law of gravity (r.e., the market forces of supply and demand), and obey the official rate. The Gulf News reports:

The UAE Central Bank on Monday directed money exchange houses to refund to their clients any differences arising from purchasing US dollars at rates outside the official band on the weekend.

The Central Bank has asked persons involved to approach its Dubai office with original invoices within a month. "The Central Bank will arrange with the money changers to send the difference amounts to their addresses," the statement said.
...
Exchange firms widened the spread between the dollar's buying and selling prices to Dh3.35 and Dh3.685 respectively on December 1 and 2, compared to the rates prevailing on the previous day of Dh3.65 and Dh3.68 set by the commercial banks.
...
[T]he central bank considered the move a clear violation of its regulations and warned exchange firms of severe penalties if it happens again.

There's no statement about what the severe penalties would be, or why -- given that the regulations were so clear -- there were no penalties this time.

What will happen when the money changers must choose between a regulatory penalty and the penalty of financial lost? They might simply close their exchange window.

Meanwhile, the two day summit of GCC leaders has concluded with no dollar announcement:

[T]he final communiqué, to be released later, will not make reference to the burning issue of the declining US dollar to which most Gulf currencies are pegged, official here have said.

Mugabe-cide Economics

Some things in life you just can't buy. Like inflation statistics in Zimbabwe.

BBC:

Zimbabwe's chief statistician has said it is impossible to work out the country's latest inflation rate because of the lack of goods in shops.
"There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media.

Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation.

September's inflation rate was put at almost 8,000%, the world's highest.

Other reports suggest the rate could be at near 15,000% and the International Monetary Fund had warned it could reach 100,000% by the end of the year.

Mugabe-cide economics would be funny if it wasn't so sad. From an earlier BBC report:

People are starving. The evidence is in the hospitals where tiny, wizened babies lie dying in their cots while their mothers look on helplessly.

One mother cradles a child who is losing her hair and her skin, a sign of the most advanced form of Kwashiorkor or vitamin deficiency.

It is certainly the first time I have seen this condition in 20 years of reporting on the developing world.

"Zimbabwe once offered the most comprehensive medical service in Africa," a doctor explains. "It is now becoming a textbook case of medical horror."

Price controls divorced from reality

Here's what you get when you combine growing demand fueled by growing oil income with tough enforcement of price controls:

The lines formed at dawn and remained long throughout the day - hundreds upon hundreds of _____s queuing up to buy scarce milk, chicken and sugar at state-run outdoor markets staffed by soldiers in fatigues.
...
The long lines for basic foods at subsidised prices are paradoxical for an oil-rich nation. Shopping malls are bustling, new car sales are booming and privately owned supermarkets are stocked with American potato chips, French wines and Swiss Gruyere cheese.

Yet other foods covered by price controls - eggs, fresh chicken - periodically are hard to find in supermarkets.

Fresh milk has become a luxury, and even baby formula is scarcer nowadays.

It's not a paradox. Paradoxes don't have explanations. This is Venezeula under Hugo Chavez. Price controls create shortages. Milk has become rare only because the price is artificially low.

It's interesting that the Gulf News is running this AP story. The story concludes,

The government's price controls are also "totally divorced" from reality - in some cases below production costs - making it unprofitable for suppliers to sell their products at official prices, said econ-omist Pedro Palma of consultants MetroEconomica.

Bread shortage created by municipality

If prices are allowed there won't be shortages. Here's a classic example from today's news of a shortage created by government price intervention:

Fujairah: For the second day running, small bakeries have stopped supplying grocery shops over a price dispute with the municipality.

A number of bakeries have already hiked the price of Arabic bread to Dh3, after getting approval from the municipality's consumer protection department.

The dispute started after the consumer protection department insisted on vetting each bakery's price list. The municipality had ordered small bakers to roll back their prices until the case of each bread-maker is assessed.
...
Bakers cite a steep increase in flour prices, along with other costs of labour and transport, as the main reason for rising prices.

Read it all in the Gulf News.

And here's more bread news from the yesterday's Gulf News: Bread to cost 20% more from next week .

Price ceiling on a cup of tea

It's impressive that RAK officials will regulate the price of a cup of tea sold in the hundreds of cafes and other outlets across the emirate.

Gulf News reports

Ras Al Khaimah: Municipal authorities have ordered all restaurants and cafeterias to roll back the price of tea to 50 fils from Dh1.

Municipal officials said cafeterias in the emirate arbitrarily raised the price of tea twice in the last few weeks.

A senior municipal official said the price was increased without consulting or notifying the concerned authorities.

"They have no right to do that," said the official.

Recent Abu Dhabi price control news here.

In unrelated news, in Ajman,

As many as 37 water bottling and distribution companies in Ajman have been ordered closed and several others warned by Ajman Municipality for hiking the price of bottled water and ignoring international hygiene standards. There are 64 such companies in the emirate.

Pork Surge in China

China has begun to release pigs from its strategic pork reserve. CNN reports on the, um, spare ribs:

China has begun releasing pigs from its central reserves into the domestic market to counter surging pork prices that have helped lift inflation to 11-year highs, according to a media report.

Prices for pork, China's staple meat, have soared due to shortages blamed on a decline in pig rearing, rising feed costs and an outbreak of a pig disease that killed more than 70,000 animals and infected 280,000 this year.

Under a plan issued jointly by the Ministry of Finance and the Ministry of Commerce, China is releasing 30,000 tons of live pigs from its central reserves between September 10 and October 15, a person who saw the government notice told Dow Jones Newswires Friday.

Read it all, including more about the government's attempts to curb inflation.

Thanks to Freakonomics for the link.

Iran under pressure, self imposed, economically

From the Washington Post:

Rationing Fuels Discontent in Iran

A month after raising gasoline prices by 25 percent, the government began fuel rationing Wednesday, which sparked violence in Tehran. Angry Iranians smashed shop windows and set fire to a dozen gas stations.

With armed guards protecting gas stations Thursday, calm returned to the capital as motorists lined up to fill their tanks. But many were still seething. "Ahmadinejad promised paradise, but his government has made life hell for Iranians," Mohsen Nosrati said as he waited at a gas station in central Tehran.
...
This month, about 60 economists wrote to Ahmadinejad blaming rising prices on his mismanagement and flawed economic policies.
...
The international pressure has made it difficult to tackle one of the country's most significant economic problems -- gasoline subsidies that cost the government billions of dollars a year and encourage high demand. Iran is one of the world's biggest oil producers, but it does not have enough refineries, so it must import more than 50 percent of the gasoline consumed domestically. The rationing is part of a government attempt to reduce the $10 billion it spends each year to import fuel that is then sold at below cost to keep prices low.

The Iranian economy was mismanaged before Ahmadinejad came to power; he has only made it worse. International power (sanctions for Iran's nuclear program) have intensified the necessity of reform. While sanctions may have made reforms more difficult they also made them more likely.

The Iranian government has little trust among the populace. The people have learned that the most likely way in which the oil wealth of the country is shared with them is through price subsidies. Subsidies are wasteful of resources, but in the Iranian context (appropriate distrust of government) they make sense.

High prices and the state

Rising fast food prices in the UAE are viewed with concern by the state. Yet they are the result of higher costs to the retailers (mostly due to rising costs of imports transmitted through the fixed exchange rate with the dollar).

Meanwhile we wonder whether a reduction in the state's royalty burden on telecom profits (currently 50%) would be coupled with a change in state regulation that would allow price competition between etisalat and du. Price competition would reduce the burden of high prices on the people.

Shouldn't the mission of the Telecom Regulatory Authority be to promote competition rather than to protect competitors?

We also wonder why the telecoms don't capitalize their names.

Price ceilings and product quality

A day after saying the UAE Dairy and Juices Association was not involved in the recent decision of producers to hike prices, its general manager is now saying that if the Ministry of the Economy bans the price increases then quality will suffer:

The Ministry of Economy's decision to restrict price increases for diary products will force firms to compromise on quality in order to reduce costs, the Chairman of the UAE Dairy and Juices Association has warned.

Dr Ahmad Al Tijani said the ministry can stabilise prices by subsidising dairy products instead of prohibiting a price increase.

Economic theory tells us that government imposed price ceilings have different effects depending on whether the market is monopolized or competitive.

Consider first the case where quality cannot be varied, only quantity. (Alternatively, think of this as the case where the government monitors quality and sets the price ceiling accordingly.) In this case, an increase in costs will push up the competitive market price. If the government freezes price, then producers will cut production and a shortage arises. Monopoly prices also increase when costs increase. A price freeze, however, will in this case actually cause the monopolist to choose to expand output for a cost increase that is not too large.

If quality can be varied and the government does not monitor quality, then market forces can pretty much undo the effect a price ceiling; this is true whether markets are competitive or monopolized. I say "pretty much undo" because exact undoing can only be achieved when the one "quality" of the product that is not monitored is the size of the package. If size of the package is still monitored then firms respond to price ceilings by changing other characteristics of the product and the effect of the ceiling is not completely undone.

Cartels are one means of monopolizing a market. In a price-fixing cartel members agree on price. The agreed upon price acts like a price floor and creates excess supply. Members of the cartel then compete with each other for sales by increasing quality. In general, consumers view the quality to be too high in the sense that the premium in quality over the competitive level is not justified by the price hike.

The bottomline? If a trade association organizes itself as a cartel, then a cost increase together with a government imposed price freeze will have the following result. The cost increases will cause each of the producers to reduce quantity. Excess supply will shrink or disappear, dissipating the excessive competition in quality. Quality will fall towards the competitive level; that is, a desirable fall in quality.

Landlords find new ways to get around Abu Dhabi rent cap rule :: Gulf News

Quote:

Residents interviewed said they are not issued with tenancy contracts and so they cannot complain to the Rent Committee over illegal increases.
...
A. Abdul Qudoos, another resident, said people who have shared accommodation but have not signed contracts have no legal rights and have no where to complain to.

Abdul Qudoos said one of the many ploys employed by middlemen is to ask the tenant to vacate the flat because the contract is not renewable or the building is to be refurbished or demolished.

Another trick, he added, is that the landlord wants the building for his personal use. "After vacating all existing tenants, the landlords will rent these flats out to new tenants with a 50-100 per cent rent increase."
...
Our landlord has kept a notice near the lift announcing that the rent has been increased by 10%, and if anybody has objections, they have to vacate within seven days. All maintenance expenses should also be borne by the tenants.
R. Sabu
Abu Dhabi,UAE
...
I am living in a Bur Dubai apartment for the last seven years and the building always had parking facilities on a first come first basis. Last week, all the tenants received notice that they have to pay Dh 5,000 per year for reserved parking and it will no longer be on a first come first basis. This is very disappointing coming from such a reputed landlord.
Pete
Dubai,UAE

Holding rents below equilibrium levels creates a shortage. Landlords know there is a line of eager renters who have not been able to find accomodation. Thus they can shift costs to renters, charge for services previously provided without charge, and skimp on maintenance without fear of losing tenants. And find ways of harassing tenants to leave.

None of this would occur were rents free to adjust to their new equilibrium level.

If Abu Dhabi has become too expensive to live in then in a free market the adjustment takes place this way: Workers begin to leave pushing up salaries until a new equilibrium is established.

Price controls spread on bread :: Khaleej Times

Yesterday it was Ras Al Khaimah (item 2). Today it's Ajman that wants to control the price of bread:

The Ajman Municipality has ordered that all bakery owners in the emirate, who hiked the price of bread recently without its prior approval, should revert back to the earlier retail price.

The Ajman Municipality has also intensified its market price control campaign following the recent price hike of ‘Samoon’ bread in particular, a popular bread variety consumed by a large majority of Arab nationals.

The bakeries have raised the price of samoon bread and other bakery items from 25 fils to a dirham. Earlier, a pack of six samoon bread was sold at 75 fils, but now the price at most bakeries ranges from Dh1.25 to Dh1.50 per pack.

Bakery owners say they have raised the prices of their products, including samoon bread, due to a hike in the price of various ingredients such as flour, wheat, milk, butter, etc. A public notice regarding this hike in price was recently issued by most bakeries in Arabic, English and Urdu.
...
Meanwhile, Sawsan Al Tayeb, a housewife said she has noticed that those which have not increased their price have reduced the size of their loaves of bread, or reduced the number of pieces per pack.

Since there are no shortages reported, and the increase in price (or, equivalently, decrease in package weight) is widespread, it appears the municipalities have not been successful in enforcing the controls.

Talk, no action. In this case that's a good thing. What is not a good thing is the inflationary environment in the UAE, particularly because prices are growing faster than wages. Those are not problems, though, that are solved by price controls.