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Business can rekindle Africa economic revolution

         Date: 2012-03-29

           Tag: Africa economic, Africa economic revolution

Summary: It is true their credentials as democrats are untested and their ability to manage an economy is unproved. But a strong showing by the Muslim Brotherhood’s Freedom and Justice party was no surprise…

Hope that people’s circumstances might improve in this life, not the next, needs to be restored.

It is true their credentials as democrats are untested and their ability to manage an economy is unproved. But a strong showing by the Muslim Brotherhood’s Freedom and Justice party was no surprise, and the FJP has articulated an apparently coherent economic policy.

This cannot be answered by a new government, of any political stripe, alone. A business community tainted by the crony capitalism of a few has helped create such sentiments; it must now help broker a new social contract. The success of our venture into democracy will be judged by how we prepare our youth for real jobs that pay living wages; how we care for our sick; and how we protect our minorities.

Solutions will not come from abroad. Egypt must take action on many fronts – beginning by grabbing firmly the “third rail” of our politics: the subsidy programme.

This takes courage and real political leadership, especially given the reactions elsewhere in Africa recently when long-established subsidy regimes have been tapped for reform. The violent national protests over the cancellation of Nigeria’s fuel subsidy clearly demonstrate the political risks inherent in re-thinking subsidies.

General protests began against the removal of the fuel subsidy under the banner ‘Occupy Nigeria’ shortly after the announcement and were later significantly augmented by the Nigeria Labour Congress and Trade Union Congress, which called for an indefinite general strike starting on January 9th.

This nearly compromised Nigeria’s 2 million bpd output when oil workers threatened to join the strike. A week later, on January 16th, a decision was made by President Jonathan to announce a compromise fuel price of N97, which the unions subsequently agreed to.

Although many Nigerians don’t oppose the government’s desire to save the country billions of dollars in annual subsidy costs, many of the country’s poor believe such “savings” will end up in the coffers of the elite as faith in the transparency and accountability of government is negligible.

Similarly in Uganda, the government’s decision to phase out power subsidies has been backed by ruling party legislators.

Although many disagree with this proposal, diverting money away from power subsidies which currently benefit only ten per cent of the population and harnessing it for social development purposes will benefit more citizens.

Yet the subsidies are simply not sustainable. Measured by their contributions to the economy, Africa’s main assets – oil and gas, water, electricity, infrastructure and mining – are underperforming, largely since they are yoked to an inefficient, corrupt subsidy programme that indiscriminately benefits everyone on African soil, rich or poor.

We are a net importer of diesel, which we then subsidise. If we expanded domestic refining capacity; promoted rail and river transport over trucking; and liberalised diesel prices over 10 years, petrol prices over five years and fuel oil over three years, we would save billions – and help the environment.

A bold politician might end energy subsidies at once. Along with more efficient use of state assets, and the end of food subsidies, this would save $58bn annually – freeing $20bn for direct cash payments to qualified welfare beneficiaries and $38bn for health, education, job creation and cutting the budget deficit. Similar programmes have succeeded in Brazil, Mexico and Iran.

These solutions are within reach, but demand decisive action by legislators willing to trust the business community. Whether they will do so is an open question.

Since the revolution, which should have been a joyous, once-in-a-lifetime event, Egypt has lost at least 10 months of economic growth.

In the months ahead, inflation and the need to create jobs will increase the subsidy budget. The desire to punish business for its past excesses – coupled with a rising nationalism – will make it popular to install trade barriers, reverse privatisations and impose new taxes and regulations.

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