Columnists

Reform fuel subsidies to cushion them from politics, achieve goals

Friday August 25 2023

Reform fuel subsidies to cushion them from politics, achieve goals. FILE PHOTO | SHUTTERSTOCK

In a free-market system like Kenya, the forces of supply and demand ought to determine fuel prices. But fuel has been a political tool in the country, often used to woo voters during elections.

Last year, for example, President William Ruto promised voters that removing the fuel subsidy would stabilise fuel prices, a concept that has proven to be economically unfeasible.

While most economists view a subsidy as a failure if it doesn’t improve the overall economic performance, policymakers may still deem it successful if it serves different roles.

Many subsidies may be economic failures in the long run but still achieve political aims.

The staunchest supporters of subsidies are often those who benefit directly or indirectly, and the political temptation to appeal to special interests is a compelling incentive for Kenyan politicians and policymakers.

How do we stop this politicisation? Reforming government subsidies is a multifaceted task that demands a profound understanding of the political dynamics.

Addressing this issue requires a strategy compensating stakeholders willing to consent to policy change or shielding reforms from opposition.

Transparency is essential, especially regarding the cost and purpose of subsidies. Many, particularly indirect or hidden ones, endure because those burdened are unaware of the costs.

By enhancing transparency, the Kenyan government can foster a more informed and constructive policy debate on dealing with subsidies.

Enhancing subsidy design is also crucial when subsidies are unavoidable due to political considerations or legitimate public interests.

Intelligent design can achieve goals more effectively with fewer unintended consequences, creating a feedback loop that minimises harmful effects and eases future reforms.

More importantly, investment in refined administrative tools is vital for successful reform. Broad-spectrum subsidies, though inefficient, are often used due to a lack of alternatives.

Developing targeted and adaptable tools can enhance the government’s ability to meet societal needs without blunt subsidies.

In conclusion, Kenya’s path to effective subsidy reform has political, administrative, and design challenges.

By understanding political motivations, committing to transparency, focusing on intelligent design, and building alternative administrative tools, the Kenyan government can create efficient, fair, and sustainable subsidy policies, contributing to immediate public interest and long-term stability and equality.

Joab Onyango Odhiambo, PhD, is a Lecturer at Meru University of Science and Technology (MUST)

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