Energy subsidy reform key to Africa growth: IMF

Sub-Saharan Africa may have recorded sustained and robust growth since the start of this year but policy choices such as on energy subsidies will determine whether such progress would continue, an International Monetray Fund (IMF) official has said.

This was noted this week by the Director of the IMF's African Department, Antoinette Monsio Sayeh, while presenting the body’s outlook for the region in Cameroon capital Yaoundé.

The 117-page outlook, Building Momentum in a Multi-Speed World, projects a regional economic growth of 5.5 per cent between 2013 and 2014, compared with 5 per cent last year.

This makes Sub-Saharan Africa the second fastest–growing region in the world, trailing only emerging Asia even though growth patterns vary between countries.

Ms Sayeh said the region would have to guard against downside risks that hold down its economic performance but laid particular stress on reforming the region’s direct and indirect schemes that subsidise energy consumption.

These energy subsidies tend to be costly, crowding out spending on much-needed social and infrastructure projects, she said.

"Also, although subsidies may in some cases benefit the poor, most accrue to the more affluent segments of the population, making them an ineffective instrument of social protection," the IMF report states.

The report doles out lessons for countries like Nigeria where the IMF says energy subsidy reforms have not been successful and Cameroon which is in the throes of reforming its own scheme.

The study documents some cases of successful energy subsidy reform like Ghana’s well-communicated 2005 reform which was supported by an independent poverty and social impact analysis which assessed those who benefited and those who missed out on subsidies and subsidy removal.

'Best practices'

It also cites Kenya and Uganda’s multitude of reforms in the early 2000s which shot up the annual average power supply by 5 per cent and 9 per cent respectively, a boon for countries that rely heavily on hydropower and suffered from the adverse effects of drought between 2008 and 2009.

"The need for careful preparation and sequencing; the key role of strong institutions to support the reform process; and the importance of deploying well targeted social safety nets to offset the impact of the reform on the poor," are best practices, the IMF recommends.

Cameroon has been struggling to reach a consensus with unions about scrapping subventions on fuel since last year.

Some trade unions and opposition parties had threatened violent clashes if the government went ahead with plans to raise fuel prices last August.

But the government has already intimated the raise cannot be avoided. Prime Minister Philemon Yang met trade unionists and consumers’ associations in July 24 last year where he warned that the increase was "inevitable" but broached measures that he said would lessen the impact on the oil price raise.

Finance minister Mr Alamine Ousmane Mey has said a commission comprising the civil society, politicians and government officials has been set up to explore the issue.

Only when this commission presents its recommendations, the minister said, would government decide whether or not to scrap energy subventions.

Source: AFRICA REVIEW