what is good or bad about Subsidies?

What is the way forward?

1. Subsidies are a way of protecting the vulnerable

Economic policy decisions do not affect all of us in equal measure. Subsidies ensure that the most vulnerable among the population don’t fall through the cracks which are the consequences of economic and social policy decisions.

2. Subsidies are a universal practice

In Europe, farm subsidies have been the most controversial, yet they have been maintained to shore up incomes of farmers.

 Over half of all African countries had some subsidy in place for fuel products, and these subsidies consumed, on average, 1.4 percent of Gross domestic product.

3. Subsidies are not entirely a waste as we are made to believe

The problem with subsidy however, has to do with unintended beneficiaries benefiting from the package. 

This calls for better targeting and not total withdrawal of the support.

4. Fuel Subsidy cushions workers from high transport fares 

Transport fares will be higher than they are now, taking up substantial percentage of the average worker’s monthly income.

5. Subsidies help business to remain competitive

Fuel subsidy helps to keep production cost in check, and contributes to making the manufacturing and service sectors competitive.  

When that happens, employers will have to either cut back on their workforce as a cost saving measure or increase the prices of their goods and services.

6. Subsidies keep food prices at affordable levels

Because food consumed in urban centres is ferried by road transport, fuel subsidy withdrawal will certainly lead to increase in food prices. 

7. Fuel Subsidy secures farmers income

Increases in road haulage fares as a result of fuel subsidy withdrawal will increase farmers’ cost of transporting their produce to market centres and in that process reduce their disposable income.

8. Subsidies make utilities affordable

Two of the most essential utilities - water and electricity, depend a great deal on petroleum products.

Therefore, an increase in the prices of gas and diesel will spark off an automatic increase in electricity and water tariffs.  

9. Providing safety nets through subsidies is part of the reason 

we elect governments

This is why providing safety nets for the marginalized have become the business of responsible governments. Subsidies are therefore inevitable in carrying out the functions of government.

10. Not all those who drive are rich

The assumption underlining government’s decision to withdraw fuel subsidy is that fuel subsidy benefits the rich more than the poor.

Many have been compelled to take loans to buy cars because of the non-existence of a decent and reliable public transport system. Driving now, has become more of a convenience than a luxury.

Assume the governments spends an average of half of 13 kwacha 70 ngwee to subsidize a litre of petrol ,it means for every 20 liters you buy per week, the government pays for you 137 kwacha meaning in a month over 548 kwacha is spent. 

The rich benefits more because in a month they buy thousands of liters to power their office, homes, cars and so on while an average citizen can only manage to buy 50 litres in one month which amounts to 342 kwacha.

There is nothing commendable about fuel subsidies, unless you are a vote-buying politician. Subsidies encourage wasteful consumption, and drain national treasuries.

But fuel subsidies—like all subsidies—are exceedingly difficult to eliminate.

This calls for better targeting and not total withdrawal of the support.

The Speech Analyst