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Understanding Subsidies….Bufi
Dear Editor,
I have followed with great interest the removal of subsidies on petroleum products by the Patriotic Front Government, citing the need to redirect the near KR754 million (K754 billion) cost of subsidising petroleum products to other government programmes. Having heard a plethora of perspectives for and against the removal of subsidies on various forums, I am still left to wonder as to whether there is a compelling economic argument for the removal of subsidies, and whether such a policy can necessarily improve economic performance?
To start off this discussion on the same footing, I believe it is imperative that we have a common understanding of what can be construed as a ‘Subsidy.’ There is an extensive use of the term ‘Subsidy’ in everyday economics, and yet the term itself is rarely defined. According to most online dictionaries, the term subsidy refers to ‘monetary assistance granted by a government to a person or group in support of an enterprise regarded as being in the public interest.’
Often it is used as an antonym to a tax, and as most of you might be aware, there is an endless list of taxes. For this reason, I have attempted to group all subsidies into three categories.
The first category will consist of all subsidies were the government provides goods or services at no cost or below market price, such as university education, public transport or health care. The second category consists of government regulatory policies such as border control restrictions on certain goods or services. This is particularly true on bans by government on the export or Import of certain commodities.
The third category consists of subsidies where government implores the private sector to invest in particular areas of the economy, with the government acting as a guarantor. Such subsidies will usually stimulate consumption that otherwise would not take place if the government had not acted. A good example of this is the government’s intervention in banking interest rates.
To move away from the jargon of defining subsidies, does their removal necessarily improve economic performance? Most people will argue, as does the PF government, that subsidies generally distort price indicators and are not a true reflection of the actual cost of the service or product being subsidised. The long time implementation of certain subsidies may be unsustainable and in some cases actually harmful to a free market economy.
The money generated from the removal of such subsidies can be re-invested in other developmental projects or even fund other subsidies. By any standard, the above argument sounds highly plausible.
But like I stated in the preamble of this discussion, given the current performance of the PF government, I strongly believe that the removal of subsidies will not necessary translate into any meaningful development in other areas of the economy. My argument hinges on the fact that there has to a functional economical and political equilibrium that supports policies in either field.
At the moment under the PF Government, such symmetry doesn’t exist. To mention for instance, the removal of subsidies on petroleum products and mealie meal is an astute and viable economical decision. And yet the PF government has shown very little political will in getting rid of the malignancy of corruption, nepotism and general incompetence in government.
What guarantee is there that the money generated from the removal of subsidies will be used for developmental projects? Already, there are land mark cases on the misapplication of funds meant for development such as the current corruption investigation into the $750 million euro bond loan. When the president goes on national television to castigate the anti corruption commission for investigating alleged corruption in government, you have to wonder whether the government’s economical policies are matched with its political will??
Secondly, the government has failed to develop any policies or incentives, especially in the case of the removal of mealie meal subsidies, to encourage entrepreneurship in the agriculture industry.
Unlike petroleum which is not produced in Zambia and is therefore open to international market manipulations, maize is Zambia’s staple food, locally grown too. Most countries that subsidise agriculture produce do so to prevent prices from plummeting due overproduction of the same produce, not under production as is the case of Zambia. Unless we right theses wrongs, there will be very little tangible economical growth as a result of subsidy removals.
HN
Posted by
Umungulu
May 17, 2013 at 4:41 pm
Ba NH wesu, nshumfwilepo nangu cimo, fyakosesha. Takuliko inshila mwingangushishamo uncles? Mwaishiba fwe bambi twalekele kalashi mu gledi 1 temu 1 de 1 pa bleki.
ichipondo
May 18, 2013 at 5:20 pm
Mr umungulu,what the big man is saying is that we cant trust government to use the money removed on subsidy to be used on the same developmental programs when issues like corruption are still thriving.also it is ****** of us as a country to remove subsidy on maize our staple food which is locally produced because the price of maize in the first place should be low as we locally produce ii.
Booty Leaks
May 17, 2013 at 5:20 pm
Say something a bit more sensible than the shit you have just written mada faka
kakolwe
May 17, 2013 at 6:40 pm
On maize & agro products you are right NH! I’ve just been wondering. Now that subsidies are out, how is my maize going to sell if my RSA farmer offers the same cheaply coz of RSA subsidy
Momo
May 17, 2013 at 7:12 pm
Good article bro..its a pity PF cadres cant understand or comprehend it.
wemfana
May 17, 2013 at 9:14 pm
you just insult for no apparent reason. how shallow of you. read and understand no wonder you fail. laern to appreciate what others analyze you damnass booty leaks.
BKFM
May 18, 2013 at 6:07 am
You people where do you put God when u insult like that?
Thugnificent
May 18, 2013 at 6:58 am
You pipo,this subsidy issue is going out of hand now,the thing is the govt hav jst removed their percentage,meaning thos comodities are going 2b trading at the normal prices..in this case mealie meal should cost K65-K70 without a subsidy frm govt,likewise petrol & diesel should cost around K9 per littre without a subsidy..so the percentage that govt ws putting in hs simply been removed.Take fertilizer for instance,the product costs abt K200-K250pre bag in shops all around Zambia,but when the govt came in & introduced their percentage towards the comodity in order 2lessen the cost,farmers nw buy fertilizer at a meagre K50 per bag in their respective coperatives meaning a subsidy towards that comodity is still in place..its simply a percentage dat the govt contributes 2lessen the costs,and when dat percentage is removed, the comodity starts trading at the orginal price!So mealie meal & fuel are now selling at the original price bcoz of the removal of subsidies.
Barbedwire
May 18, 2013 at 9:40 am
How I wish you have being to university or college to understand Economics (Pareto Analysis) could have assisted you but unfortunately you are such a PF fool who analyse such economical understanding from a grade 5 like Sata so I will forgive unless you ask me how Subsidies work in the real economic world. Umuntu ba sir ku pager
Chaponda Robert Kuwani
May 18, 2013 at 11:51 am
Thugnificent, I completely agree with you. These are the dynamics of economics. The government can not have a subsidy in effect perpetually. Subsidies cost money.
quest
May 18, 2013 at 12:09 pm
agreed, meali meal and fuel are now selling at their normal price, but is this in the publis’s interest? how many many people are going to afford a bag of mealie meal at these prices? you can argue that the fuel subsudy in particular was benefitting the rich few, but remaber that the poor who constitute the majority depend on what little transportation to transport their goods and when transport costs go up, we all know that everything else follows siut. so, what benefit is actually going to the poor if they now have to buy things at the increased prices? just think, mealie meal prices increased as a direct result of removing the fuel subside, now subside on maize have been removed, so we expect the price to further increase!!! as some one has already put it, the government needs to strick a balance between their economic and social policies.
umuntungwa mu zed
May 18, 2013 at 1:26 pm
u are a fuuuuuullllll
MMD Cadre
May 20, 2013 at 9:16 am
But zoona uli chikopo. That is why you failed grade 7 three time. Leave this article to people who went to school.
Farah Mudenda
May 18, 2013 at 8:06 am
One of the most unfortunate misconceptions about subsidies is that they are simply cash. In reality, a great deal of market activity involves controlling and sharing the risks and rewards of economic activities. So Mr HN, not necessarily Monetary assistance. Mr Sata has assured Zambians that the removal of subsidies is aimed at distributing national resources to equally vital sectors of the economy and to improve living standards of the people. He further claims that subsidies on fertilizer were responsible for the huge economic inequality as they only benefitted the already well-to-do middlemen. The State has also revised the Farmer Input Support Programme (FISP) in which farmers would now be paying double for inputs effective this marketing season. Removing subsidies would improve Zambia’s fiscal balance and create fiscal space for increased investment in infrastructure and other development activities… You are very right when you say The long time implementation of certain subsidies may be unsustainable and in some cases actually harmful to a free market economy… Good article!
CHIMBWALI
May 18, 2013 at 10:59 am
YOU ARE SUPER,MANJE ECONOMICS MWALINWA ELO MULAFUMYA SANA BANE.NGA TWAMIPELA JOB ATI TRANSFORM THE ECONOMY MULA FILWA NINSHI PROBLEM NICHANI.MAGANDE ,PENZA,PAUL TEMBO,ALOT MORE WHO HAVE TALKED ABOUT BIG ECONOMIES OF THE WORLD HAVE FAILED US.WHY ZAMBIA WHY
Thedead
May 18, 2013 at 8:50 am
Baane, this article is good, but in truth the subsidies have been removed as a result of govt failure to plan… How did they plan on funding all these new districts? How did they plan on funding the weekly by-elections? This money isn’t going to developmental projects but more by-elections and maybe just maybe some of these ever rising districts. Indeed it is Poor Finishing.
quest
May 18, 2013 at 12:16 pm
why wasn’t this mentioned in the budget presentation that subsides would be removed half way through the budget cycle? as far as we are concerned, everything should have been budgeted for, but alas…
kapandula
May 18, 2013 at 9:26 am
poor finishing indeed how do you as normal being budget for by elections and create unnecessary districts with the little resources we have
Wanyafye FC 1 Sonyeko 2
May 18, 2013 at 10:32 am
Kula umone, icalo tacitalala ngamusunga.
Again, ifiikala cimbwi tefikala inama ikata. If the GRZ channels the savings on subsidies to better roads and schools, we will be waiting to see. Umunwe balaya umusunga wenda uwa konkomana mukwai.
Ounce
May 18, 2013 at 11:42 am
Good article bro!Now I understand the merits and demerits of SUBSIDIES.Now people,does it mean our farm products will be the most expensive in the region? If yes,then most of ZEDS wont be happy.
mwewa in South Africa
May 18, 2013 at 12:31 pm
Otherwise here in South Africa things produced here are too expensive, meaning the Govenment here does not subsidise those things comodities.The price of petrol per litre is R12.77 equivalent to K8.2. But the revenue here has been well utilised by the government as can be seen by the infrastructure development that has taken place such as good buildings, good roads, good hospitals e.t.c . Now because majority of our people there are too poor, that move will just aggravate their suffering as most commodities will be too expensive. We are still very concerned about the corruption in our government institutions which have cost us a lot of money more than subsidies.There is too much talking in the current government more than we anticipated when we voted them into power in 2011. Ba Sata, please reverse that move and simply clean up your Government institutions as you promised us and stop those by-elections which are costing our country colosal sums of money. I beleave that is where you want that money you are talking about to go. That money will not benefit anyone apart from politicians.The poor have been put on death pernalty because of this move. All the necesities have their prices increased abnormally.Whom are you pleasing ba Kateeka wesu,those poor people who voted for you or those politicians who sponsored you?
umuntungwa mu zed
May 18, 2013 at 1:27 pm
a fuuu
salamano
May 18, 2013 at 2:05 pm
uncooked data, u get to the dictionery to arrive at definition 4 subsidy..y nt wait 4 economists to pump sense in u………lolost
kakolwe
May 18, 2013 at 5:19 pm
Ci Thedead naci Barbed wire muli fikopo! We all are going to feel the pinch between now & june next year coz of Sata’s bravery. Next year if I produce a bag of maize, it will sell highly.
King soloman
May 18, 2013 at 5:26 pm
@salamano,if you have little understanding on the issue at hand, the best way is to keep quiet and allow intellectuals have a say
kakolwe
May 18, 2013 at 5:26 pm
@Icipondo, U’ve produced it locally using ported Niombo fertiiser. With NCZ fertiliser soft short term fertiliser loans can be given at MARKET PRICE & recouped at marketing timeby govt. None wll die of hunger.
kakolwe
May 18, 2013 at 5:34 pm
I say Sata is brave coz he touches the sensitive NSHIMA way b4 election time so that by 2016, those yapping sh!t will be comfounded. Remember, this step will seperate NSHIMA from politics. Later U’ll agree
THE ZAMBIAN
May 18, 2013 at 11:18 pm
TOMORROW WHEN BENEFITS FROM SUBSIDIES MONEY START YIELDING RESULTS PEOPLE WILL BE SAYING LET US KEEP SATA’S LEGACY.
THE SUBSIDY MOVE IS A GOOD ONE IF FUNDS WILL BE WELL UTILIZED.
EVEN IN HOMES,WHEN YOU MAKE ADJUSTMENT IN SPENDING TO SAVE MONEY FOR PURCHASING SOMETHING EXPENSIVE,CHILDREN COMPLAIN A LOT. YOU PURCHASE A HOUSE OR SAY A CAR AND YOU WILL SEE THEM SO HAPPY AND TELLING IT TO EVERYONE.
YES,LETS COMPLAIN NOW BUT TOMORROW DAD WILL DRIVES US TO SCHOOL IN A CAR ON A VERY COLD MORNING IN A WARM CAR. WHEN IT RAINS,HE WILL COME PICK US UP INSTEAD OF US RUNNUNG ABOUT ON MUDDY ROADS.
LET US THINK ABOUT TOMORROW LADIES AND GENTLEMEN
pat
May 19, 2013 at 5:05 am
timely adevice to zambians.find land and farm atleast enough maize for yo family.giv enough tim the man of action his on action.HH.mumba.bwalya are dremars who cant even offer anything to zambians
Isuad Akad-Asia
May 19, 2013 at 7:12 am
I can’t understand why you BEMBAs insult like that,common guys grow up and find a life in JESUS CHRIST!
You have to be prepared for the eng is near,we are in the millenium when the Beast,the Dragon and False prophets are very active!
Read Revelation chapter 20
tumfweko
May 19, 2013 at 11:15 am
YOUNG MEN AND WOMEN, IT IS A WASTE OF TIME TRYING TO EXPLAIN TO PF CADRES ABOUT MATTERS THAT ONLY THE EDUCATED AND THE INTELLIGENT WILL UNDERSTAND. THEY DO NOT UNDERSTAND SUCH LANGUAGE. ALL THEY DO IS SUPPORT THEIR BEMBA LOST FELLOW. HIM AND HIS GOVERNMENT HAVE REALLY LOST IT. BUT IT IS GOOD FOR HIM SO THAT HE WILL LEAVE A STORY THAT HE ONCE WAS GIVEN A CHANCE TO LEAD BUT MISERABLY FAILED. THOSE THAT ARE FOLLOWING HIM ARE THERE FOR STOMACH AS WE HEARD. THEY WILL LEAVE HIM SOON. FR BWALYA HAS SEEN IT EARLY.
Loverchibs
May 19, 2013 at 1:03 pm
A subsidy is truly a cost and anyone can only undertake a cost when he or she is in apposition to so.When subsidy is cut off,money can be channelled to other developmental programmes(normal way).My encouragement is that people should accept the factthat this is the way the PF Government hopes to procced attain development. Let us allow them space to work,remember they were voted into Office for 5 years.Let us not derail them.Give them enough rope to hang themselves
Accumen
May 19, 2013 at 5:06 pm
Please bane, Sata is doing a great decision they are hard to make, but they are of good intention as much as we can’t predict exactly how the execution of the money will be.Let us all support him for our common good thank you.
Kulekwamyo Kapyololo
May 20, 2013 at 12:36 am
This is a well written article but why some people fail to understand it vexes me. Especially Umungulu in number one, one is left wondering whether the guy is on drugs or it’s just an excessive gift of stupidity from god he is endowed with. Could actually be both.
True Bemba
May 20, 2013 at 9:11 am
In order to address and correct the mono-crop syndrome the PF government shall:
• Work for a better balance of crops grown by small farmers. It has been seen that, when conditions are right, Zambia’s small farmers can produce many crops in quantity and of high quality, including for export. These include barley tobacco and cotton under out-grower schemes, as well as the sweet potato “chingovwa” in Northwestern province, under private sector initiatives. Many years ago Zambia was a major exporter of groundnuts – especially from Eastern province – but this has collapsed as all the money continues to go into maize;
• Subsidize agriculture, especially small-scale farming;
• Encourage farmers in remote areas to focus their cash cropping on high value commodities like tobacco and cotton, apart from growing some food for domestic consumption; and
• Tailor subsidies, market guarantees and extension services towards production of specific crops in particular areas as some areas of the country are very suitable for certain crops because of their geographical placement and weather pattern;
• Promote out-grower programmes in all cash crops;
• Introduce programmes for optimum utilization of flood plains and wetland areas for the production of non-traditional cash crops such as rice and sugar cane;
• Compliment the private sector by being a buyer of last resort especially from emerging farmers in rural areas;
• Review the Food Reserve Agency Act in order to rationalize its operations and functions including its role in maintaining strategic reserves of food crops.
Toka
May 20, 2013 at 9:26 am
Ine pelenikofye ibala ndeya mukulima, ifyama subsidies nshafyufwe. Uyu asosa atinifi naumbi naoati nifi. Alamwifulunganya.Umuteko wa Ubunga bwena tabwabala ububweko nangu panono. Subsidy or no subsidy cimocine
ukwalinsoke
May 20, 2013 at 1:49 pm
WHAT IS A SUBSIDY AND HOW DO YOU PROVIDE IT.
IF PARTLY IT IS AT THE EXPENSE OF MY EVER KILLER
INCOME TAX THEN TO HELL WITH IT. I NEED MY MO0NEY.
Yambayamba
May 21, 2013 at 4:26 am
The author starts well but I think s/he strays from his original (I am guessing here) intent. I was looking forward to a good argument for and against Subsidies, regardless of the party in power. And this is where the article falls flat on its face.
I am not sure if the author thinks that subsidies (in Zambia’s case) are good and should have been maintained simply because we are NOT SURE we can trust the PF govt to do the right thing with saving that will accrue from this action. Or is her/his point that consumer subsidies make GOOD ECNOMIC SENSE? I can’t tell one way or the other where the author stands.
Yambayamba
May 21, 2013 at 4:27 am
continue…
After citing a lateen of PROS advanced by the proponents of the removal of the two subsidies, which I suspect the author does NOT agree with given his/her thesis statement “Understanding Subsidies….Bufi”, I expected him/her to give CONS as to why this is “Bufi”! And the arguments/facts should be economically based irrespective of the Party in power. But to argue an ECONOMIC TRUTH based on the political players implementing such a TRUTH is to miss the point.
Yambayamba
May 21, 2013 at 4:28 am
continue…
We (I include the author in ‘we’ here) cannot argue, with a straight face, that consumer subsidies make any economic sense whatsoever, or can be sustained by our small and weak economy forever whether it is PF in power, MMD in power, UPND in power, NEREP in power, or whatever political party in power. I think it is only fair to acknowledge the enormous courage it took on the part of the PF govt to touch such a politically sensitive issue. Our aim at this point should be to hold the PF’s feet to the fire and make sure the savings are used for projects/infrastructure they are telling us the money will be channeled towards. And not simply support subsidies for political expedience.
The issue of subsidies should stand or fall on their own economic merits or demerits, period! This is exactly what I personally feel this article has failed to articulate.
Deja Vu
May 21, 2013 at 5:26 am
Only the third part has attracted me. It is important to put subsidies in productiove areas rather than consumption which is a bottomless pit and will not yield anything atall. Problem with subsidies is these tend to be misused
ck
May 21, 2013 at 1:13 pm
maybe let govnt. bring back mealie meal coupons…