Analysis – Amid flood of protests, fuel subsidies appear difficult to end By Reuters

Written by Libby George

LONDON (Reuters) – Like thousands of Nigerians and millions of others in developing countries, the high cost of fuel has angered Antonia Arosanwo.

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

His journey from Ojuelegba, a bustling suburb 8 miles north of Lagos' business district, has more than doubled in price to 700 naira (45 US cents) since the government announced the end of fuel subsidies last year – allowing fuel prices to rise. to repeat three times.

Arosanwo's anger echoes that of thousands of other Nigerians, whose protests across the country last week demanding protection from rising inflation, spreading hunger and job cuts rocked the government.

Almost all of them had one core complaint: fuel prices.

Across Africa – and a host of other emerging market countries – debt-laden governments trying to end expensive fuel subsidies are running into people angry about years of rising living costs.

Egypt and Malaysia have raised prices this year to reduce the use of subsidies, while Bolivian President Luis Arce, who resisted a coup attempt in June, called this week for a referendum on fuel subsidies. The government expects gasoline and diesel subsidies to cost Bolivia nearly $2 billion this year.

Arce, like others, is dealing with a dollar shortage and a struggling economy.

“Difficult times call for strong, mature, thoughtful decisions and people who don't give up in the face of adversity, and this is such a moment,” Arce said in a speech in the Bolivian city of Sucre.

But the fumes of the protests are dimming the government's hopes of ending fuel subsidies, as sluggish economic growth and budget cuts make life difficult for citizens.

The leaders of Angola and Senegal are struggling like Nigeria.

“In the context of high cost of living and inflation, (expensive fuel) becomes unbearable,” said Bismarck Rewane, CEO of Financial Derivatives Co in Lagos and government economic adviser.

Removing subsidies, he said, must be done according to two principles – “one, what the government can afford (and) two, what the people can afford?

IN THE FIRE

Almost every nation in the world has some form of energy subsidy, the cost of which reached a record 7 billion dollars in 2022 – a whopping 7.1% of GDP – according to the International Monetary Fund.

Experts criticize the subsidies as unreasonable tools that favor richer car owners over poorer ones – and that they favor corruption and environmental damage.

The biggest spenders, according to the International Energy Agency, are Russia, Iran, China and Saudi Arabia – countries that can, by and large, cover the costs.

But in developing countries, saddled with high debt and high global interest rates, financing these loans is very punishing.

“It's difficult now, because countries have financial problems,” said Chris Celio, senior economist and strategist at ProMeritum Investment Management. “And then the question is, why do you have financial problems? Well, one reason is that you have this hole in your budget going to something that isn't working well … and you have problems financing it.”

Nigerian President Bola Tinubu announced that he was ending the subsidy after taking office last year. But when pump prices tripled, he froze them. And when the naira currency crashed, the subsidy returned – despite higher pump prices.

UNLIKELY TERMS

Now, inflation-minded leaders are looking to revolt in fear elsewhere of unpopular economic policies. Bangladesh's prime minister resigned after hundreds died in protests against job cuts, and Kenya's president sacked his cabinet and backed down on tax hikes after deadly protests in June.

“If there was any reluctance to raise fuel prices before the events in Kenya … that reluctance, if any, is likely to be very high,” said Goldman Sachs senior economist Andrew Matheny.

“Politicians around the world are dealing with this cost-of-living crisis … that's probably reducing the willingness of policymakers to make changes that may, at least in the short term, be unpopular.”

That could further strain the budget. Nigeria's subsidies are worth 3% of GDP, Matheny said, and its oil company owes billions in imports. Senegal's subsidies for electricity and fuel amounted to 3.3% of GDP last year, while Angola's 1.9 trillion first ($2.1 billion) subsidy bill for 2022 was more than 40% of spending on social programs, according to the IMF.

Angola has promised to end fuel price subsidies by the end of next year, even though five people died in protests over price increases last year.

Celio of ProMeritum said that a sustainable budget is important in attracting investors and the money these countries need.

In a post on X, Tinubu appealed for patience and promised public support, such as access to affordable education.

“I ask all of you to look beyond the temporary pain that exists, and look at the bigger picture,” he said, without commenting that he would raise the cost of fuel again.

But Rewane noted that the “shock therapy” of higher fuel costs would have even greater consequences for Nigeria than Kenya's proposed tax hike. Arosanwo, firstly, asked why he should “stop talking”, or protest, for the double cost of travel and since he is struggling to support his family.

“The government has political will,” said Rewane. “But … time is not everyone's friend at the moment.”

($1 = 1,550.0000 naira)

($1 = 889.5000 FIRSTs)