Fuel subsidies do not work

By: Adel Murad

Much has been written about the political and economic repercussions of the recent lowering of fuel subsidies in Egypt.

Most writers were of the political kind and expected popular protests to further their own political agendas.

The truth of the matter is fuel subsidies should never have been applied in the first place in a county with huge budget deficit.

The same logic applies to the GCC as well.

Even though the region is rich in fossil fuels, every gallon sold locally at a subsidized price is a gallon of exported fuel lost at world prices.

Citizens and residents of the region can afford international fuel prices as much as they can afford high rent levels or services offered at commercial levels.

In fact, fuel subsidies are bad for the market.

Governments get involved in commercial activities that should not be their business.

Investors ignore the sector for being unprofitable and subsidized.

Most serious of all is that focus on fuel subsidies actually leads to more pollution by people using cars for un-necessary journeys at all hours.

In addition, and due to lack of investment, fuel quality in the GCC is of low grade and diesel is un-usable in modern passenger cars.

Does that situation benefit anyone?

Governments should leave fuel prices to be determined by supply and demand.

Governments should focus instead on quality control of emissions and regulate the market for fuel quality.

As for the case of harming the poor in Egypt, there is nothing more ridiculous.

The poor do not own cars and do not use taxis; they see their priority in food not fuel.

Some of the gains from removing subsidies should go to support the poor to use the un-subsidized public transport and live a minimum of decent life.

Subsidies distort the marketplace and lead to waste and lack of investment.

Subsidies are acts of disruption to proper economic mechanism, paved with the best intentions.

________________

Adel Murad is a senior motoring and business journalist, based in London.
Email: adel.murad@ntlworld.com

 
 
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