Why African Countries Should Flee From Energy Subsidies- AfDB

African countries should flee from energy subsidies, the African Development Bank (AfDB) has advised, proffering reasons why this should be so.

The bank gave the admonition in its 2023 Africa’s Macroeconomic and Performance Outlook report which was released on Thursday, January 19.

The AfDB stated first observed that governments throughout the continent employ energy subsidies as one of the most readily available and crucial fiscal and political tools.

It added that they do so, hoping to safeguard households from potential welfare losses brought on by changes in the cost of food and energy as well as other exogenous shocks.

But then, the energy subsidies should be avoided as according to it, it is distorting of economic policies and hence contentious.

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Energy consumption in Africa is lower than in other comparable regions due in part to its low level of energy security, reflecting inadequate production to meet the rising demand. In 2019, the per capita consumption of electricity in Africa was 550 kilowatts per hour (kWh) compared with 2,300 kWh in Asia.

The high disparity in energy security and consumption across low-income countries— mainly non-oil exporting on one hand, and high-income countries on the other—could also be attributed to the level of energy subsidies,” the bank said.

In Nigeria, The World Bank has repeatedly called for the removal of fuel subsidies, saying that wealthy Nigerians benefit more from the initiative than the low-income earners. In November 2022, the National Bureau of Statistics (NBS) said that 133 million Nigerians are living in multidimensional poverty. In a 2022 review report, the World Bank stated:

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“The potential rise in transport and electricity costs therefore further exposes poor and vulnerable Nigerians to any increase in petrol prices. Overall, assuming a 20% pass-through from petrol prices to inflation, removing the petrol subsidy, could cause the headline inflation rate to rise by an additional 3.0 percentage points over the following two years. This poses a significant threat to purchasing power. With no compensating measures for the poor and vulnerable, removing petrol subsidies thus risks pushing many Nigerians into poverty.”