Fuel subsidies necessary for Rwanda

I was reading, with a lot of interest, Mansur Kakimba’s piece in yesterday’s The New Times—‘Fuel subsidisation too costly’, on the disadvantages of the current government’s fuel subsidy, which, if his statistics are correct, are as high as 50 percent (From January to Novermber last year, government has been subsidising 68.9 percent on both on disel and petrol on average-Editor). His argument was fascinating; he believed that the government’s intervention, which it attempted to somehow halt the spiralling inflation, that had reached double figures, was somehow harming the private sector. No one will dispute thecentral tenet of his argument, that the subsidies are not the best thing that could have happened for fuel importers. But, as he mentioned earlier in his article, would he prefer a situation where fuel hoarders and speculators kept raising prices just because they could? I don’t think that situation would have been healthy for the economy as a whole. The fuel sector is not like others. In terms of its strategic importance for the overall health of our economy, fuel pump prices can be the ‘straw that broke the camels back’. We have a situation where, despite the fact that fuel prices are fixed, inflation still remains in the double digit figures. Now imagine just how bad things could have become if there wasn’t any fuel subsidy. We’d have a situation where every single consumer good on the market could, theoretically, double in price; therefore creating a situation where inflationary pressures could have become overwhelming. I’m not a socialist, communist or whatever they call someone who doesn’t believe in an uncontrolled free-market. I’m just a realist. In a situation like Rwanda’s, where, as a landlocked nation without a rail system, we import most of our consumer goods by trailer, it’s pertinent that the cost of transporting goods and people remains as inexpensive as possible. We aren’t in the position of forcing the crude oil producers to lower the price of a barrel of oil at the source like the United States…so, what do we do? We lower the price for the end user by any means we can; hence fuel subsidisation. The pro- and anti-fuel subsidisation argument is part of a larger economic argument that is being won, so far by, the ‘Interventionalists’. The ‘interventionalists’ are the people that believe that the state has an active role in ensuring that the economic health of the state remains. The other side believes that market forces of demand and supply should be the paramount force, not the state. Anyone with access to a radio or television, or any other form of media, would have heard about the troubles that the US car industry had been facing. With slowing retail sales and stifling competition from European and Asian carmakers, General Motors, Chrysler and Ford had to go, cap in hand, to the US Senate to ask for a few billion dollars to survive. While they didn’t get the loan from the Senate (because of only a few votes) they got the loan from the White House, through the economic bailout money that had already been approved. If, a Republican president can put aside his core political beliefs to give taxpayers money to private business, one must wonder whether the free market economic model is totally without flaw. I believe that economic models are put in place to drive a nation forward financially; therefore, if something will cause more harm than good, it should not remain in place just for principles sake. Economic models should be flexible; allowing whatever needs to be done to keep the citizens in employment and industry galloping along without un-necessary stutter. Contact: sunny_ntayombya@hotmail.com