Africa's bold move to end fuel subsidies

Angola just joined the bandwagon of nations phasing out cheap petrol. All subsidies will be gone by late 2025, the government announced.

• This is despite public protests over rising prices, including for fuel. 

Cutting edge: Several major African nations announced in the past year that they’re ending subsidies.

• Senegal: January 2023  

• Ghana: March 2023

• Nigeria: May 2023

• Kenya: September 2022

Cold reason: Climate consciousness is not the main driver. Surging debts and fuel prices are.

• Many governments can simply no longer afford to pay. 

• Nigeria spent 15% of its government budget on subsidies.

• More than education (8.2%) and health (5.3%) together.

Climate impact: Fossil fuel use is one of Africa’s largest generators of CO2. 

• Africa’s contribution to total global emissions is about 4%.

Why it matters: Amid slow and expensive climate progress, removing subsidies is an accessible and immediate step toward cutting harmful emissions.

• Fossil fuel use may go down by as much as 30% after subsidy removal. 

• Nigeria expects to save as much as 15 million tonnes of CO2 annually (the equivalent of planting 600 million trees). 

Even better: Reducing emissions is not the only benefit of subsidy cuts. They also make sustainable alternatives more competitive, thus boosting investment in clean-tech.

• Electric vehicles win as more expensive fuel renders them comparatively cheaper, which should boost transition and adoption.

• Renewable energy also wins. Power generation from fossil fuel becomes more expensive, levelling the playing field for solar, geothermal and more. 

Less obviously: Other climate sectors on the continent also get a boost. 

• Sustainable agriculture benefits as the advantages of using diesel pumps for watering decline. A cost increase for old-style agriculture makes eco-farming more competitive. 

• Carbon markets benefit indirectly as competitive opportunities to buy & sell credits increase with the overall acceleration of the green transition. 

Reality check: The survival of fuel subsidies until now, especially in Africa, is not an oversight. Strong political constituencies have long demanded them, including business and the poor.

• This makes removing subsidies tricky. 

• Cuts are often met with violent unrest.

Strategic clarity: What African governments are learning to do now is explain the need for cuts better and finesse the implementation. 

• Experts advocate phased or gradual cuts rather than all-in-one. 

• Also useful is the reallocation of funds to benefit those hardest hit by higher fuel prices.

• This may take the form of tax cuts and more generous welfare payments.

Economic logic: Above all, governments need to win the battle of ideas by convincing the public of the toxicity of subsidies. 

• They cause fiscal strain, distort resource allocation, pile up public debts, deplete foreign exchange reserves, foster pollution and primarily benefit higher-income households.

• Removing subsidies and revising foreign exchange controls could save Nigeria $27 billion by 2025, says the World Bank – money that could be invested otherwise. 

• Global nominal fuel subsidies cost a record $1 trillion in 2022. The IMF reckons the true cost is more like $7 trillion, equal to about 7% of global GDP. What if a fraction of that was invested in African climate solutions…?