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.

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…?