The Intricacies of Subsidies

By Nicholas Phiri


The removal of subsidies on fuel and mealie meal has sparked myriad reactions from a cross section of society.  This is not unusual in the field of economics particularly where the emotional issue of subsidies is concerned.

The debate on subsidies has neither losers nor winners, only casualties; and rightly so because both sides of the divide hold very strong and valid views and arguments for and against subsidies.

The sensitive and intricate nature of this debate therefore requires every stakeholder to approach it with a deep sense of magnanimity and seriousness, sincerely reflecting on the pros and cons of especially maize subsidies in the short, medium and long term.

On the other hand, government should also be very clear on what it has set out to achieve, spelling out tangible anticipated costs and benefits as well as outlining how it government would cushion the sudden impact resulting from these measures particularly on low income households.

In this way, it would be much easier to build consensus among all players and strike a delicate balance between facilitating the restructuring of the subsidy regime without compromising economic prospects, undermining social justice and fuelling social agitation.

Notwithstanding the merits and demerits of subsidies, a subsidy is a very powerful tool which can be used to achieve economic objectives, promote social protection and justice and at the same time provide political leverage to political entities.

The decision whether government should or should not subsidies certain industries or commodities is not an easy one. It is embroiled in a web of intricacies with far reaching economical, political and social ramifications.

It is because of this intricate nature of subsidies that government should consciously and cautiously articulate policy prescriptions to ensure that decisions regarding subsidies do not cause economic, social or political anarchy.

The anti subsidy camp claim that subsidies on consumption are a burden on the national treasury; divert resources from other critical sectors of the economy and does not benefit the majority poor among other things.

In case of subsides on maize, the argument is that diversification within the agriculture sector has been significantly affected and hampered by subsides on maize, accounting for more than 45% of the total agriculture sector national budget.

Further, it is argued that that subsides distort the market pricing mechanisms there by hampering the development and growth of a private sector lead agri industry.

The Zambian Economist Magazine noted that maize subsidies have not translated into poverty reduction and improved livelihood among the most vulnerable small scale farmers in Zambia.

Those advocating for subsidies on the other hand argue that the removal of subsidies on maize will compromise household and national food security and push the already impoverished households further down the poverty datum line.

The poor, it is argued, have potential to break the poverty cocoon in which they are encapsulated but government needs to facilitate this process by way of subsiding maize production and marketing.

With the cost of living skyrocketing and many people already living in poverty, it is feared that an environment for social unrest that may ultimately plunge the county into chaos would be in the making.

From the normative point of view, subsidies are neither a permanent nor a sustainable way of addressing poverty, inequality and desegregated social and economic development.

Ironically, it is also an important tool in facilitating and stimulating development among the vulnerable but viable industries and groups of people in society, depending on how it is structured.

The United States of America introduced farm subsidies through the enactment of the Agriculture Adjustment Act of 1933 by the New Deal Administration under President Franklin Delano Roosevelt to avert the impact of the great depression of the 1930s on farmers.

To date, the American agriculture industry remains one the most subsidized in the world despite the many disadvantages this move has created both on the local and global markets.

Why do successive regimes in the USA continue subsiding wealthy American farmers despite glaring evidence of the negative effects including market distortion, unfair competition depressing of agriculture development in developing countries and transfer of income from tax payers and consumers to relatively rich farmers and farm operators?

In Zambia, the benefits of subsidies on maize production and consumption in as far as poverty reduction is concerned are yet to be seen. While there has been remarkable improvement in household and national food security partly attribute to maize subsidies, the majority of small scale farmers in rural Zambia are still wallowing in excruciating poverty.

Numerous and complex reasons account for this. For instance, the structure of the agriculture subsidy in Zambia encourage maize mono cropping at the expense of equally viable, profitable and low cost production alternatives such as rice and livestock development.

Whichever way one looks at it, maize subsidies in Zambia had become unsustainable to the point that restructuring of the entire maize subsidy regime was invertible in the long term. The question was when and how this would happen?

While the scrapping off of subsidies on fuel and maize are being substantiated by economic and social rationale, there are still a number of things that government has not and might have to embark on in order to ensure that the intended good does not turn into evil.

Government should have articulated a systematic plan of action and communicate the same to the nation than ambushing people as it were. Secondly, such measures should be gradual and systematic to allay economic shocks and social agitation among the citizens.

Thirdly, there must be consultation, dialogue and engagement among various stakeholders across the breadth and width of the nation to build consensus. Fourthly, and most important, government should not only talk the walk but walk the talk. Currently, while government claims to serve for national development, the actions and practice on the part of government point in the opposite direction.

It does not make sense to undertake drastic austerity measures aimed and serving  resources on one hand while spending carelessly on the other hand. It would be appreciated if the PF government took practical steps to avert unnecessary financial expenditure by downsizing government, avoiding unnecessary by elections and cutting down some allowances for ministers and other constitutional office bearers.

All those measures put together would greatly inspire the nation to serve and sacrifice for posterity.

As far as the nation is concerned, the removal of subsidies on maize and fuel look like an act of financial desperation and nothing less than   haphazard, abrupt and insensitivity to the social-economic reality prevailing in the country.

There is need for the PF government information and communication apparatus which seems to have gone to sleep to be revived and speak to the masses on government policy and actions.

While a Press Statement is one way of communicating with the masses, the President needs to consider engaging the nation directly especially on sensitive and serious issues of national importance. When push comes to shove, the axe falls on the Presidency.