Tuesday, March 19, 2013

The Cayalá Phenomenon

Guatemala might not have dual currencies like Cuba, but one doesn't have to look far to see the signs of a two-tier economic system here – there are businesses charging in Quetzales and businesses that are either explicitly or implicitly charging in US Dollars. And the thing that concerns me most is that many of the latter are doing so even when their staff costs and other overheads are effectively priced in Quetzales. 

Now I am no economics licenciado, but I really don't think this can be a good thing for the country in terms of its development both economically and politically, and were I ever in a position of unassailable power in a land such as this, I would tweak the fiscal system in order to seriously dis-incentivise this practice. 

Perhaps the greatest concentration of evidence of its deleterious effects can be witnessed here in Antigua with its mass of empty, overpriced restaurants. 

Yet for me, the poster-boys of what I shall call the Cayalá phenomenon (after Guatemala's brand new walled garden of dollar consumerism, Z16's Paseo de Cayalá) have always been the foreign-owned – and generally less empty – fast food chains. Domino's for example, almost certainly pays no rent in this city as they own the freehold of their site, surely pays its employees at local rates, and buys its tomatoes, as we do, from a local finca at around Q1 a pound, and yet expects the end consumer to pay developed world prices for their pizzas. 

Mark, of the fondly-remembered GuateLiving blog, once suggested to me that these prices reflect the additional risks of doing business here. Perhaps so, but from the outside it looks more like a nice-little-earner rather than a reckless gamble, and there's really nothing to stop companies in Guatemala from putting their own price on this sense of risk, charging according to what they think affluent, dollar-earners can pay, and in a manner that is only loosely connected to things like demand and supply and their cost base. 

It seems to work for the fast food giants, but one can't help thinking that many businesses in Antigua would be better off lowering their prices a bit in order to increase the number of actual sales as well as appealing to a wider customer base. (I'm surprised that more don't at least use flexible prices to bring in more customers on otherwise slow days.)

Anyway, this post is not so much about improving business performance in the retail and restaurant sectors, it's about the affordability gap that exists between the quetzal and dollar-based economies. In Cuba one notes that while the average state salary works out at around $20 a month, the lighter-skinned population are much more likely to benefit from both better-rewarded positions and from remittances sent over from the 'exile' community in the USA. The end result, an economic chasm with some rather insidious racial connotations. There may well be ethnic repercussions of a more recondite nature here in Guatemala, but it is the economic defile that looks the most damaging to me, because it has to be holding up the development of the middle class, for there will be individuals pursuing white-collar careers in this country, earning less than their US equivalents, and yet expected to pay US prices for many of the goods their peers up north habitually consume. 

The problem may not be as monolithic as I have painted it. For every Domino's there's a Cinépolis –  firms offering an aspirational, middle-class products at prices more in line with local equivalent earnings power. But the gap is still there, and not only is a dollar-based pricing system one of things putting the brakes on Guatemala's economic potential, there are also political consequences, for without a middle class capable of providing a genuine bridge between the extreme ends of wealth and poverty in this country, the state is always likely to be the playground of oligarchs and populists, with enlightened, social-democratic governance only popping up periodically as a commitment which will inevitably flatter to deceive. 


norm said...

The Gringo Price: We were in Ticul, Yucatan Mexico a few weeks ago, went into a restaurant and picked up a menu off a table and started reading it. A waiter snatched it out of Linda's hand and handed the three of us menus in English that were priced 20% more than the first menu we saw. We asked for the Spanish menu back and the manager came over and said it was not possible. We walked out and ate around the corner. We were in Ticul for 5 days-How much custom did they forgo? That same day we inquired at a hotel on the same village square for a few rooms. We asked for the 400 peso rooms and were told they were all sold but they had plenty of the 700 peso rooms. We went across the plaza and paid 380 for very nice rooms. That night, I walked over to the Gringo Price Hotel and looked for lights in the rooms-not one was lit up. It is not just a Guatemala problem.
On Antigua pricing: they charge as much as they can for the most part. The backcountry places seem to be more inline with the local wage structure. We ate in many town square type places in Guatemala this past winter, the prices were high considering average wages "in country" but not so mush that middle class workers could not afford to eat.
You have a good point in today's post, if a person who understood market pricing were to open a large restaurant in Antigua, he/she could make a packet.

Inner Diablog said...

On one level, charging foreigners 20% more is one way of stimulating the growth of your economy. At least it also shows understanding of price flexibility. It's no different really from what a lot of American firms do online, using cookies to offer different prices to different categories of customer. I have learned never to accept the first fare offered by Expedia for example, because I know I can game the system by searching repeatedly for the same journey and that I will eventually get a better price. It's also always worth seeing how the price varies depending on whether you are logged into your account or not! (Or using private browsing with no cookies...)

That said, your Ticul experiences are also an obvious sign of what I call Central America's game theory for dummies - literally - whereby businesses try to overcharge or scam their customers even in the circumstances where it is clearly not in their rational best interests to do so.

I find that in a trend that goes against the US online model, the more I do business or demonstrate loyalty to some Guatemalan businesses, the more they try to raise their prices on me!

And when working with my own suppliers I have sadly yet to find any who won't in the end either try to cheat me or let me down badly, no matter how much I have tried to demonstrate good faith. With one guy who was helping us with our land we even planned to eventually reward him by making him a sort of partner with joint ownership, but he still decided to take maximum advantage in the meantime...

As to your last point, the understanding of market pricing on the part of the business owner would need to be complemented by a local administration with an understanding of sensible regulation, something that is right now very much lacking in Antigua Guatemala...

Inner Diablog said...

On a separate note, this old gag has an updated version now...

You have 2 cows.
You give one to your neighbour

You have 2 cows.
The State takes both and gives you some milk

You have 2 cows.
The State takes both and sells you some milk

You have 2 cows.
The State takes both and shoots you

You have 2 cows.
The State takes both, shoots one, milks the other, and then
throws the milk away

You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy
You sell them and retire on the income

You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by
your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption
for five cows.
The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States , leaving you with nine cows. No balance sheet provided with the release.
The public then buys your bull.

You have two giraffes.
The government requires you to take harmonica lessons.

You have two cows.
You sell one, and force the other to
produce the milk of four cows.
Later, you hire a consultant to analyse why
the cow has dropped dead.

You have two cows. You borrow lots of euros to build barns, milking sheds, hay stores, feed sheds,
dairies, cold stores, abattoir, cheese unit and packing sheds.
You still only have two cows.

You have two cows.
You go on strike, organise a riot, and block the roads, because you want three

You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce
twenty times the milk.
You then create a clever cow cartoon image called a Cowkimona and
market it worldwide.

You have two cows,
but you don't know where they are.
You decide to have lunch.

You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

You have two cows.
You worship them.

You have two cows.
Both are mad.

Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the ** out of you and invade your country.
You still have no cows, but at least you are now a Democracy.

You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

You have two cows.
The one on the left looks very attractive...

norm said...

The second comment is a hoot. And the first one explains the backward nature of Guatemala.