Does fuel subsidy really serve any useful economic purpose in oil-rich countries?
Thanks Prof Umeji, I follow your drifts, quite insightful
In developing economies, Subsidy is helpful for some time.
Not for ever.
In competitive world, market function is important.
On the surface, subsidies for fuels seem good and useful but beneath, it is still a ploy for the enrichment of the politicians who mercilessly drink excessively from the financial milk of their countries! Fuel subsidies in developing countries is akin to a wolf in sheep covering!
Dickson Adom
I believe that subsidies must be given to the needy to meet the basic needs of everyday life (redistribution of wealth). These subsidies can be of an economic nature or in the form of tax-free consumer goods regardless of the wealth of the country. While subsidies for fuels or other subsidies must be given to big and small factories, big and small businesses, artisans and farmers, mainly in developing countries or in less developed regions of rich countries, as an aid and investment incentive to industrial research and to enlarge the company both from a structural and the staff (more workers) point of view.
I think that fuel subsidy in Saudi Arabia is waste of money. People there are not poor, but got used to subsidies. Maybe in Nigeria or Venezuela, where people are poor, some subsidy is useful. Just not to stop commuting, to allow people to go to work in another city, to family, etc. But I would also develop public transport, it is cheaper.
P.S. Fuel is not public but a private good. Public goods (like a bridge or park) can be used by many people without destruction. In some case it makes sense to provide public goods for free or with subsidy.
It can be benefit in the short term but in the long term it will be counterproductive
Strategic and strategic projects must be considered
Where adequate employment is available
Which in turn increases income and economic recovery
May be we can have an expanded view on this question. In most countries subsidies are even granted on pilgrimages and such benefits accrue vastly to more visible members of the society. These are still people who can afford such things on their own. This obviously direct funds that would have been for more inclusive public goods to these subsidies that may not have beneficial evidence on the generality of the people or even the economically underprivileged.
In the short term it can help in boosting mobility of people and to match skills to resources and therefore boost the economy. In the long term subsidies can become unsustainable and provide disincentives on becoming self sustainable individuals.
Subsidy is good especially in developing countries whose citizens are poor but the corruption associated with it is so massive. For me I think it will be better to let market forces control price of commodity.
I think you are specifically asking whether fuel subsidies in oil-rich countries are helpful. In other words, deriving those subsidies from the revenues obtained from a major export commodity, as opposed to deriving subsidies from a few taxpayers or from businesses. For example, in countries that do not produce oil, fuel subsidies are of questionable help. They artificially reduce investment and growth in other sectors of the economy to favor personal mobility.
But in oil rich countries in which the oil industry has been nationalized, such fuel subsidies divert some of the country's revenues to providing easier mobility for its citizens, as opposed to other endeavors which might also be valuable. As our other colleagues have said, it can be a good temporary boost to personal mobility, but you need to ask yourself what other uses that national treasure can be put to, which might have even better long term effect. Education? Infrastructure? Medical care? As long as the money is in government coffers, the government needs to determine how best to distribute that wealth within the economy.
The problem with fuel subsidies to citizens is that it seems to be an easy ploy to help politicians. One would need to see how that wealth is apportioned overall, to see whether the fuel subsidy itself is reasonable. Another point is that if the oil wealth belongs to the government, it belongs to the people. People should be allowed to spend their own money any way the please. Problem is, people have a way of squandering money that comes too easily, so this can be seen as just another such example.
Albert,
Great point on the incentives for the politicians which puts into perspective the views of the other posts on corruption. It is also a good point on the balance between diverting revenues for fuel subsidies versus other more pressing matters. What good is mobility if the rest of the infrastructure is ruined. It might help some individuals on mobility, but might leave another bigger segment of the population without the medical support that they need.
The answer then might be better framed based on how to balance the different incentives for the different actors (individuals politicians, corporations, etc.) on the short vs the long term objectives within the infrastructure of the developing nation.
May be for the very poor section of people only.
But it should go directly to the poor consumers, not through any middleman.
Thanks Pattanayak for bringing in another dimension to this discussion. The subsidy distribution channel should be looked at to ensure that the subsidy and its concomitant benefits get to the intended people. Thats quite thoughtful of you.
No. i do not think it does. I suppose the oil is in abundance and therefore already relatively cheap in such countries. I do not see what it helps to subsidize an already cheap commodity
Very Well Borden, reexamine some of these countries and you will see that most of them do not have the local capacity to refine the crude. They export crude and import refined products at high landing cost. This is where subsidy comes in to help the end users especially the poor and economically disadvantaged ones.
Kalu.
Subsidy is supposed to be for the good of the people but ends up not to be.I will prefer the use of the term, 'oil-producing' to your 'oil-rich', for the countries are not rich in spite of oil production.Note that the United States has more reserves than any country, yet they import oil.There should not have been emphasis on oil in the economy. It would have been competing with say, agriculture, mining and others. Are agriculture and other sectors subsidized? Have you forgotten that Nigeria, for example, had many refineries in the past. In those years, they were not importing refined products.
You must also consider the other factors controlling the economy, such as: What killed the refineries? Who has the contract to import refined products? What is the production price outside the country and at what price is the contractor ready to sell the import?
When human factor overrides the economic aspect, the simple problem becomes complicated. Do not rule out ethnic and religious undertones in this importation of finished product as well. It is not all about subsidy as a need.
Obianuju P. Umeji
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