Fuel subsidies difficult to remove amid widespread protests

LONDON — Like thousands of Nigerians and millions of others in the developing world, rising fuel costs irritate Antonia Arosanwo.

“I’m angry,” the 46-year-old mother of five said at a bus station in Lagos, the bustling commercial capital of Africa’s most populous country.

She was travelling from Ojuelegba, a bustling suburb just 13km north of Lagos’s business district, where fuel prices have more than tripled to 700 naira (45 cents) since the government announced last year that it would remove fuel subsidies.

Arosanwo’s anger reflects the rage of tens of thousands of Nigerians who launched nationwide protests last week demanding protection from soaring inflation, spreading hunger and dwindling jobs that are unsettling the government.

Almost all have one core complaint: fuel prices.

Across Africa and a host of other emerging-market nations, debt-ridden governments have tried to wean themselves off expensive fuel subsidies but have run into resistance from citizens angry about years of rising living costs.

Egypt and Malaysia have raised oil prices this year to cut subsidy spending, while Bolivian President Luis Arce, who successfully thwarted an attempted coup in June, called this week for a referendum on fuel subsidies. The government estimates gasoline and diesel subsidies will cost Bolivia about $2 billion this year.

Like others, Arce faces a shortage of dollars and a weak economy.

Arce said in a speech in the Bolivian city of Sucre that difficult times require firm, mature, well-thought-out decisions and people who remain unshakable in the face of adversity, and now is such a time.

However, the protests have clouded the government’s hopes of removing fuel subsidies as stagnant economic growth creates a budget gap and makes life harder for citizens.

Leaders in Angola and Senegal are working to cut those spending, as are Nigeria.

Bismarck Rewane, chief executive of Lagos-based Financial Derivatives and an economic adviser to the government, said it had become more unaffordable amid the cost of living crisis and high inflation.

He said the elimination of subsidies must be implemented in phases based on two principles – “one, what can the government afford? (two) what can the people afford?”

Throw into the fire

Almost every country on Earth provides some form of energy subsidies, with the cost reaching a record $7 trillion in 2022, or 7.1% of GDP, according to the International Monetary Fund.

Experts criticize subsidies as a rigid tool that benefits wealthy car owners more than poorer ones, and that they are prone to corruption and harmful to the environment.

According to the International Energy Agency, the countries spending the most are Russia, Iran, China and Saudi Arabia – countries that can largely afford the costs.

But financing is more difficult for emerging countries that are burdened with high debt and where global interest rates remain high.

“It’s a very serious situation right now because countries are having fiscal problems,” said Chris Celio, senior economist and strategist at ProMeritum Investment Management. “The question is, why are they having fiscal problems? One reason is that there are holes in the budget, and those holes are being used for inefficient things … and there are problems financing them.”

Nigerian President Bola Tinubu announced an end to subsidies when he took office last year. But when oil prices tripled, he froze the subsidies. When the naira currency depreciated, the subsidies were quietly restored despite the increase in oil prices.

Unpopular policies

Now, leaders considering further price increases are also nervously watching protests elsewhere over unpopular economic policies. Bangladesh’s prime minister resigned after hundreds died in protests over changes to job quotas, while Kenya’s president sacked his cabinet and abandoned plans to raise taxes after deadly demonstrations in June.

Andrew Matheny, a senior economist at Goldman Sachs, said if people were reluctant to increase fuel prices before the Kenya incident … then that reluctance is likely to be higher.

“Politicians around the world are focused on this cost of living crisis … and that may really limit the willingness of policymakers to make reforms that, at least in the short term, may be unpopular.”

That could further strain the budget. Nigeria’s subsidies amount to 3% of GDP, and its oil companies owe billions of dollars on imports, Matheny said. Senegal’s electricity and fuel subsidies amounted to 3.3% of GDP last year, according to the International Monetary Fund, while Angola’s subsidy bill for 2022 is 1.9 trillion kwanzas ($2.1 billion), more than 40% of spending on social programs.

Angola has pledged to remove fuel price supports by the end of next year, despite five deaths last year in protests against rising oil prices.

ProMeritum’s Celio said sustainable budgets are key to attracting the investor money these countries need.

In a post on X, Tinubu called for patience and pledged social support such as providing affordable education.

“I urge everyone to look beyond the immediate pain and look at the bigger picture,” he said, without saying whether fuel costs would rise further.

But Rewane noted that the “shock therapy” of raising fuel costs could have a greater impact on Nigeria than Kenya’s proposed tax hikes, while Arosanwo questioned why she should “stop talking” or protest when transportation costs have doubled and it’s difficult to feed her family.

“The government has the political will,” Revane said. “But … the timing is not right for everyone.”

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  Reuters

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