New AfDB study on energy reform in Africa uses Nigeria as case study

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The cost to the Nigerian government of its fuel subsidy shot up by almost five times to USD 9.3 billion between 2006 and 2011, and accounted for 30 percent of all federal expenditure – a statistic quoted a new study on reforming the energy sector in Africa by the African Development Bank.

The study, published by the AfDB’s Chief Economist department, uses the case study of Nigeria for lessons in how to carry out such an energy reform program, particularly with regard to cutting or eliminating fuel subsidies while avoiding or minimising adverse effects such as supply-shock inflation and social unrest.

It notes that after the Nigerian authorities eliminated the fuel subsidy in January 2012, fuel prices more than doubled and the country suffered eight days of national strikes.

The study recommends a broad-based approach to energy reform in Africa.  It maintains ‘the key message is that a holistic approach to liberalizing the energy sector is needed and removing fuel subsidies is just one element of a broader reform agenda.’

That agenda should also include improvements in regulatory frameworks, an increase in transparency and should ensure the wider public can see the benefits.

The study notes: ‘It is equally important to remove fuel subsidies gradually and ideally when there is strong economic growth, so that consumers and businesses can adapt their fuel consumption over time without major economic disruptions.’

In that regard, the study quotes the example of Ghana, which in 2005 decided to increase the price of future, but at the same time introduced a targeted anti-poverty program and also eliminated school fees.