The African Development Bank (AfDB) has blamed subsidies for the insecurities Africa is experiencing in the energy sector. This was contained in AfDB 2023 Africa’s Macroeconomic and Performance Outlook report issued on the 19th of January.
The AfDB report posited that energy subsidies are distortionary and controversial in nature. It noted that the African government use subsidies to protect households against potential welfare losses arising from food and energy prices.
Revealing that Africa’s low energy consumption is hinged on the low level of security, the African bank blamed energy subsidies for both.
Energy subsidies in Nigeria
Recall that the Executive Secretary of the Nigerian Extractives Industries Transparency Initiative (NEITI), Ogbonnaya Orji hinted that within the period 2005 and 2020, Nigeria spent N13,7 trillion on fuel subsidy payments. The payment which is on the high side has largely contributed to the country’s accumulated debts.
These spending have birthed several calls for the removal of the energy subsidy. The Nigerian government and other stakeholders believe that the removal of the subsidy will aid the maximization of the oil sector and ensure that funds are directed to other important sectors of the economy. The current administration of President Muhammadu Buhari has announced that it will remove fuel subsidies by the second quarter of 2023.
World Bank on Nigeria’s energy subsidies
On several occasions, the World Bank has called for the removal of fuel subsidies in the country. The bank also believes that the subsidy favours only the wealthy than the low-income earners. Furthermore, it noted that removing subsidies without a viable option will plunge many Nigerians into poverty. The bank went ahead to propose a redistribution mechanism.
This redistribution mechanism will use a portion of the financial savings to protect lower-income households and yield a great net gain in government revenues. According to World Bank using this mechanism would lessen the harsh impact of the subsidy removal on low-income earners. It further suggested that the government can begin with compensatory cash transfers.
Africa’s Macroeconomic Performance and Outlook is the African Development Bank Group’s new biannual publication that offers an up-to-date evidence-based assessment of the continent’s macroeconomic performance and short-to-medium-term outlook.
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