Petroleum Price Hikes:Government Plays Cat and Dog

After the recent price increment in some pretroleum products in Cameroon,the government has carried out different consultative meetings with stakeholders to avert a strike action previewed for Monday 7 July.

When the government announced the decision to increase prices of Gasoil,Super and domestic gas on June 30,reactions from various syndicates was an indication that the administration did not consult these bodies before the decision.And when the bodies decided to go on a strike action,the government now comes in to play cat and dog.

During an inter ministerial meeting held in Yaounde that ended in a deadlock,transport minister gave the impression that all went well,whereas all is not well.
Commerce Minister is now moving from one market to the other reassuring locals that prices of good and services will not increase.

Who is fooling who here?Now the government has succeeded to oil the mouth of some transporters who have back down from an announced strike action this Monday.

Strike action previewed all over the country(credit photo businessdayonline)

Strike action previewed all over the country(credit photo businessdayonline)

IMF possible influence

The International Monetary Fund (IMF) had in 2011 directed African nations to discard the idea of fuel subsidy citing rising global oil prices and the Europe recession. The managing director of IMF, Christine Lagarde at that time, visited Cameroon’s neighbour and Africa’s largest economy, Nigeria to meet with President Goodluck Jonathan in December that year to ‘ensure compliance.’

By January 2012, Africans were groaning in pains of fuel price hike and sought to resist the change with by embarking on street protests and strikes. In Nigeria, a nationwide strike that followed the President’s announcement of subsidy removal halted economic activities for two weeks. A lesson might be learn by Cameroon, which introduced subsidy after the 2008 civil unrest over fuel price. Cameroon shelved plans to remove fuel subsidy at the time but international donors will be pleased with the recent move by the French speaking nation, after calls by the IMF for cut in subsidies, which the global lender puts at $600 million a year.

The IMF had been accused in the past of inducing riots in Indonesia during the 1997 Asian Financial Crisis; its call for removal of subsidies has also been regarded as a similar move to attain a similar result to Indonesia, with several European economies still in the early stages of recovery. African counterparts are experience contrasting fortunes; seeing continues record of unprecedented growth.

The global lender had in May forecast a 5.5 percent of GDP overall fiscal deficit for Cameroon in 2014, citing fuel subsidies as one of the main reasons. It also forecast a further increase in the deficit to 5.7 percent in 2015, apparently informing the subsidy removal by the government of Cameroon.

“The cost of these subsidies remains elevated and crowds out other expenditure that could promote more inclusive growth,” Reuters quoted IMF as saying, reiterating the call for subsidy removal. “The mission advised the authorities to phase out these subsidies gradually and to replace them with targeted social programs.”

The social effect

Violence broke out in Cameroon’s major city, Douala on February 24 2008 starting with a taxi strike to protest fuel prices. The protests spread to other cities, including capital, Yaoundé, even after organisers of the strike declared it was over. Scores died as protests went violent with gun duels reported and destruction of property.

Observers had at the time said that the strike was only a catalyst for Cameroonians to vent their frustrations at the decay in the country’s economic system and deteriorating living standards. Although the country’s economy has been growing at an average of 3.8 percent annually over the past decade, the effect of this growth is hardly felt by the people and therefore a reaction to subsidy removal similar to the fuel price protest of 2008 should be expected in Cameroon.

Already, transport workers have threatened to embark on a strike next week – the 2008 civil unrest started with a taxi strike. The taxi drivers had wondered why fuel prices should be raised without transport fares increased. “If the government wants to prevent the strike, it should also increase transport fares,” said Pierre Nyemeck, head of a transport union in Cameroon.

Why now?

Cameroon has stalled for years to cut subsidies, with fears of a repeat of the 2008 unrest always limiting bold steps from the West Central African nation. It seems determined now to stop subsidies, urging Cameroonians to show some responsibility at this crucial time. “I call upon our people to accept these adjustments with responsibility, understanding and civic-mindedness…,” said Issa Tchiroma Bakary, spokesperson for the government. The government also promised to consider increasing minimum wage, among other measures to lessen the pains the subsidy cut might cause the people of the country.

The pump price of petrol is now 650 CFA francs ($1.36) per litre, while diesel sells at 600 CFA francs and this is what the people of Cameroon would be reacting to. Cameroonians may be unimpressed by the government’s promises and call for understanding as the country’s current economic situation has been attributed to ineffective leadership by President Paul Biya who has ruled since 1982 – a 32-year reign and running. Protests loom again in Cameroon.

Nigeria was faced with a similar situation. Now Africa’s largest economy, with an average GDP growth of 6.7 percent, a large percentage of Nigeria’s over 170 million people still live on less than $2 a day. The effect the removal of subsidies may have on the welfare of the people was responsible for the 2012 protests. The pump price of petrol was increased to N140 per litre from N65 per litre (about $1.51 per gallon) as against less than $1 per gallon in most oil producing nations. The price was pegged at N97 per litre after protests.

With international donors insisting subsidies should be removed as that was best for African economies, the Nigerian government will try again in 2015. The Federation Accounts Allocation Committee (FAAC) had on April 15, 2014 resolved that a subsidy cut was best for the nation, calling on President Goodluck Jonathan to act. The government had often argued that the money spent on subsidy can be put to better use. As much as many Nigerians understand the government’s position, most doubt money realized from subsidy cut would be channeled to the right places, with allegation of corruption often smearing African governments.

In a matter days, the immediate impact of the removal of fuel subsidy on Cameroon will be in the news and how the government contains the social and political backlash will be crucial. No removal of subsidy is however expected in Nigeria until after the general elections in 2015.

A possible solution

A 2012 analysis by the African Development Bank (AfDB) suggests alternatives to ‘linear’ fuel subsidies, salient points which would “diminish the full scale cost of the subsidy removal”, while also pushing reasonable arguments for the removal of subsidies. Countries in sub-Saharan have however relatively failed in building people’s confidence in their government, giving rise to protest for almost any policy change. It is therefore important that proper sensitization is done before policies like removal of subsidies, which has great impact on the people.

Nfor Hanson Nchanji with reports Cameroonweb news.

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