{
  "title": "Time for Change—Shifting Energy Spending in Africa",
  "publication": "IMF Blog, March 28, 2013",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2013/03/28/time-for-change-shifting-energy-spending-in-africa",
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  "summary": "Countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity; for both sources of energy combined, this averages around 3-4 percent of GDP.",
  "sections": [
    {
      "heading": "Expenditure and distributional consequences",
      "content": "- Countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity; for both sources of energy combined, this averages around 3-4 percent of GDP.\n- Most fuel subsidies are consumed by higher income groups.\n- Electricity subsidies are even more skewed because a large majority of the poor are not connected to the grid.\n- Subsidized fuel can be smuggled to higher-price neighboring countries, meaning benefits sometimes do not stay in the country.\n- Oil exporters generally have higher subsidies because they are less likely to face financing constraints when international oil prices are high.\n- Subsidy costs can be less transparent—sometimes appearing as lower profits of state oil companies rather than explicit budget costs.\n- Removing subsidies will affect all income groups, since the poor receive some benefits, including from lower transport prices on food costs."
    },
    {
      "heading": "Growth and investment costs",
      "content": "- Subsidies distort investment decisions by both the public and private sectors.\n- Failure of power companies to recover costs leads to a vicious circle of underinvestment: neglected infrastructure crumbles, frequent power outages reduce competitiveness and depress potential growth, and private investors are discouraged from expanding supply.\n- Since the mid-1980s, per-capita energy production and consumption in sub-Saharan Africa have barely increased.\n- Excluding South Africa, installed capacity for the entire region is still about one-third that of Spain.\n- Without a significant increase in power generation capacity, sub-Saharan Africa will not be able to maintain current economic growth rates for the next two decades.\n- World Bank simulations suggest that if electricity infrastructure in all sub-Saharan countries were improved to that of a better performer (such as Mauritius), long-term per capita growth rates would be 2 percentage points higher.\n- In many countries, small-scale operations and reliance on expensive thermal systems or emergency power drive up costs.\n- Countries with low-cost hydro or natural gas resources need to increase production and build infrastructure to invigorate regional trading through power pools.\n- Energy subsidies directly crowd out other critical spending, including infrastructure and social services; for example, even after recent reductions, Nigeria’s government spends more of their outlays on energy subsidies than on education and health."
    },
    {
      "heading": "Environmental and competitiveness costs",
      "content": "- Subsidies encourage overconsumption of fuel products relative to other forms of energy, producing environmental costs.\n- Subsidies undermine the competitiveness of renewable energy sources (hydro, solar) despite Africa’s considerable renewable resources."
    },
    {
      "heading": "Reasons subsidies persist",
      "content": "- Energy subsidies are an easy way for governments to transfer resources, especially when social safety nets are undeveloped.\n- Politically vocal interest groups who benefit from subsidies resist reforms.\n- The general population may distrust that savings from subsidy removal will be used for better social protection or growth-enhancing investment."
    },
    {
      "heading": "Path to reform — lessons and policy guidance",
      "content": "- Careful preparation and sequencing:\n  - Build public understanding of how much is spent on subsidies and who benefits.\n  - Build consensus over time; Namibia and Kenya required many years of preparation before successful reforms.\n  - Conduct strong public communications campaigns.\n  - Introduce compensatory measures for those most affected and demonstrate how savings will be used.\n- Strengthen institutions:\n  - Example: Tanzania’s fuel subsidy reform included establishing a specialized regulatory entity to issue licenses, set technical regulations, keep the public informed about prices, and review market functioning.\n- Go beyond tariff increases for electricity subsidy reduction:\n  - Tariffs in sub-Saharan Africa are already considerably higher than in other regions because of higher costs.\n  - Efficiency gains are possible through improved governance, lower distribution and commercial losses, and higher revenue collection rates.\n  - Low levels of public debt in many sub-Saharan African countries provide an opportunity for significant investment in cheaper sources of energy production."
    },
    {
      "heading": "Overall conclusion",
      "content": "- Energy subsidy reform is a critical policy challenge central to the future growth agenda in sub-Saharan Africa.\n- A gradual approach may be appropriate given political and practical difficulties, but the payoffs from successful reform are huge.\n- There is an urgent need to approach subsidy reform with renewed vigor—there is no time to waste.\n\nSource: Time for Change—Shifting Energy Spending in Africa (Antoinette M. Sayeh, March 28, 2013).\n\n---\n\n Content in this bundle\n\n- 改革的时间已到——非洲国家能源支出亟需变革; 作者：Antoinette M. Sayeh; 2013年3月28日\n  - 改革的时间已到——非洲国家能源支出亟需变革; 作者：Antoinette M. Sayeh; 2013年3月28日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 改革的时间已到——非洲国家能源支出亟需变革; 作者：Antoinette M. Sayeh; 2013年3月28日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 変革の時‐アフリカのエネルギー支出のシフトが必要な理由, アントワネット M. サイエー, iMF direct ブログ 2013年3月27日掲載\n  - 変革の時‐アフリカのエネルギー支出のシフトが必要な理由, アントワネット M. サイエー, iMF direct ブログ 2013年3月27日掲載 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 変革の時‐アフリカのエネルギー支出のシフトが必要な理由, アントワネット M. サイエー, iMF direct ブログ 2013年3月27日掲載 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Energy Subsidy reform--Lessons and Implications; IMF Policy Paper; January 28, 2013\n  - Energy Subsidy reform--Lessons and Implications; IMF Policy Paper; January 28, 2013 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Energy Subsidy reform--Lessons and Implications; IMF Policy Paper; January 28, 2013 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Время перемен — доводы в пользу переориентации расходов на энергоресурсы в Африке\n  - Время перемен — доводы в пользу переориентации расходов на энергоресурсы в Африке (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Время перемен — доводы в пользу переориентации расходов на энергоресурсы в Африке (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- energy subsidies\n\nSource: https://www.imf.org/en/blogs/articles/2013/03/28/time-for-change-shifting-energy-spending-in-africa"
    }
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    "Authors: Antoinette M Sayeh",
    "Published: March 28, 2013",
    "Countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity; for both sources of energy combined, this averages around 3-4 percent of GDP.",
    "Most fuel subsidies are consumed by higher income groups.",
    "Electricity subsidies are even more skewed because a large majority of the poor are not connected to the grid.",
    "Subsidized fuel can be smuggled to higher-price neighboring countries, meaning benefits sometimes do not stay in the country.",
    "Oil exporters generally have higher subsidies because they are less likely to face financing constraints when international oil prices are high.",
    "Subsidy costs can be less transparent—sometimes appearing as lower profits of state oil companies rather than explicit budget costs.",
    "Removing subsidies will affect all income groups, since the poor receive some benefits, including from lower transport prices on food costs.",
    "Subsidies distort investment decisions by both the public and private sectors.",
    "Failure of power companies to recover costs leads to a vicious circle of underinvestment: neglected infrastructure crumbles, frequent power outages reduce competitiveness and depress potential growth, and private investors are discouraged from expanding supply.",
    "Since the mid-1980s, per-capita energy production and consumption in sub-Saharan Africa have barely increased.",
    "Excluding South Africa, installed capacity for the entire region is still about one-third that of Spain.",
    "Without a significant increase in power generation capacity, sub-Saharan Africa will not be able to maintain current economic growth rates for the next two decades.",
    "World Bank simulations suggest that if electricity infrastructure in all sub-Saharan countries were improved to that of a better performer (such as Mauritius), long-term per capita growth rates would be 2 percentage points higher.",
    "In many countries, small-scale operations and reliance on expensive thermal systems or emergency power drive up costs.",
    "Countries with low-cost hydro or natural gas resources need to increase production and build infrastructure to invigorate regional trading through power pools.",
    "Energy subsidies directly crowd out other critical spending, including infrastructure and social services; for example, even after recent reductions, Nigeria’s government spends more of their outlays on energy subsidies than on education and health.",
    "Subsidies encourage overconsumption of fuel products relative to other forms of energy, producing environmental costs.",
    "Subsidies undermine the competitiveness of renewable energy sources (hydro, solar) despite Africa’s considerable renewable resources.",
    "Energy subsidies are an easy way for governments to transfer resources, especially when social safety nets are undeveloped.",
    "Politically vocal interest groups who benefit from subsidies resist reforms.",
    "The general population may distrust that savings from subsidy removal will be used for better social protection or growth-enhancing investment.",
    "Careful preparation and sequencing:",
    "Strengthen institutions:",
    "Go beyond tariff increases for electricity subsidy reduction:",
    "Energy subsidy reform is a critical policy challenge central to the future growth agenda in sub-Saharan Africa.",
    "A gradual approach may be appropriate given political and practical difficulties, but the payoffs from successful reform are huge.",
    "There is an urgent need to approach subsidy reform with renewed vigor—there is no time to waste.",
    "**改革的时间已到——非洲国家能源支出亟需变革; 作者：Antoinette M. Sayeh; 2013年3月28日**",
    "**変革の時‐アフリカのエネルギー支出のシフトが必要な理由, アントワネット M. サイエー, iMF direct ブログ 2013年3月27日掲載**",
    "**Energy Subsidy reform--Lessons and Implications; IMF Policy Paper; January 28, 2013**",
    "**Время перемен — доводы в пользу переориентации расходов на энергоресурсы в Африке**",
    "[energy subsidies](http://imf.org/external/np/fad/subsidies/index.htm)"
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