x Abu Dhabi, UAESunday 23 July 2017

Fuel and food subsidies create powder keg in North Africa and Middle East

Region's traditional recipe for social peace backfires in Sudan, a development that may spread to countries with large poor populations.

Critics of blanket subsidies say they benefit the wealthy more than the poor – like this mother of a malnourished child in Darfur – diverting public funds from health, education and welfare. Albert Gonzales / EPA
Critics of blanket subsidies say they benefit the wealthy more than the poor – like this mother of a malnourished child in Darfur – diverting public funds from health, education and welfare. Albert Gonzales / EPA

KHARTOUM // Sudan’s deadly street riots, provoked by a near-doubling of fuel prices, highlight a problem that has become critical across North Africa and parts of Middle East: the subsidies that for decades have kept down the cost of basic needs for societies where poverty is rife.

They pose a growing challenge to governments in the region, particularly in the aftermath of the Arab Spring uprisings. Fuel and food subsidies have become increasingly unaffordable, taking huge bites out of national budgets, and international lenders want to see such spending scaled back, but governments fear violent backlash.

The elimination of Sudan’s fuel subsidies last week hiked the price of such basics as bread, cooking gas and bus fares. The result was the worst unrest in Khartoum in two decades, with a harsh government response and dozens reported killed.

Many Sudanese worry that their livelihood won’t survive without subsidies.

A widowed mother of seven who sells tea and home-made custard on the streets of Khartoum said she has switched from cooking with gas to coal, but that overall “life has become unbearable”.

Another vendor who had laid out colourful rings and necklaces on a pavement said his main challenge now was paying for transport, school fees and sandwiches for his three children. “There was nothing like this before,” he said, glancing nervously at a bank guard nearby.

Critics say the government has mismanaged the economy, using up resources during an oil boom while investing little in education, hospitals or agriculture. Sudan took a further hit with the secession of oil-rich South Sudan in 2011 while fighting rebels on three fronts. Faced with empty coffers and spiralling inflation, the government was finally forced to hit subsidies.

The case of Sudan, a country with one of the world’s poorest populations, is perhaps extreme. But the problem is widespread.

In 2011, half the world’s pre-tax energy subsidies, or US$240 billion (Dh880.8bn), were spent in the region’s 19 countries, according to the International Monetary Fund. Subsidies gobble up one-third of Egypt’s $84.5bn budget, according to domestic figures, and the IMF says the Arab world’s most populous country spends three times as much on energy subsidies as on education.

“Across the Arab world, there is increased addiction to these subsidies,” said Farah Halime, the editor of the regional blog Rebel Economy. “It’s very difficult to tell a nation that we are going to take these away, even if it means that it will benefit the people who really need it.”

Big subsidies were long a part of the Arab world’s social contract, buying social peace in the absence of political freedom and economic opportunity.

But job creation lagged far behind population growth and helped drive the protests that erupted in 2011, toppling rulers in Tunisia, Egypt, Libya and Yemen and igniting civil war in Syria.

Many hopes have since been dashed, particularly those for jobs and economic reform.

In Egypt, neither President Mohammed Morsi of the Muslim Brotherhood, elected in 2012, nor the military that toppled him a year later, has tackled the subsidies, seen as a major obstacle to economic recovery.

Critics say blanket subsidies benefit the wealthy more than the poor, divert public funds from health, education and welfare and encourage overconsumption and corruption. Subsidised food is often traded on the black market or wasted.

Reformers say subsidy cuts should be coupled with targeted support for the poor and warn that without such a buffer, poverty could increase sharply.

For example, Egypt’s official poverty rate of 25 per cent of the country’s 85 million people could rise to 34 per cent without food subsidies, according to a study by the World Food Programme and the International Food Policy Research Institute. And some non-governmental estimates put the number of poor already at 40 per cent or more.

Aida Mohamed, 42, a widow who earns $115 a month as a postal worker, said she depends on subsidised rice, cooking oil and sugar to make ends meet, because she already spends $20 on rent and $72 on market-price food.

The economies of the region’s richer oil-exporting countries in the Gulf are also distorted by subsidies, though they face less urgency than the poorer oil-importing countries to cut spending.

Jordan, Morocco and other oil importers have begun trimming subsidies.

Last year, defying unusually violent protests, Jordan eliminated virtually all fuel and gas subsidies, switching to cash payments to the neediest. Flour, animal feed, water and electricity are still being subsidised, but the government is considering cuts there as well.

In Sudan, a country of 38 million people, the government had been promising since January to increase minimum wage and public sector salaries. After last week’s riots it announced one-time aid payments of $21 each to 500,000 families and said it would make good on the promised salary hikes.

The cuts, said Abdel Rahman Al Khidri, the governor of the Khartoum district, were “bitter medicine needed for treatment and recovery”.

* Associated Press