According to government, it has already spent over K500 billion in 2013 on fuel subsidies and that the projected cost for the entire year would be K1.1 trillion. Among the other reasons which government has indicated to have necessitated this move was the imbalance and leakage in the trickledown value chain of the subsidy that was being provided. Because of this situation, Government says the poor have been subsidising the rich on fuel pump prices. Government has indicated that it plans to invest the savings accruing from this decision in social programmes such as building health and education facilities, road construction so as to reduce the gap between the rich and the poor. Due to the removal of the subsidies, the cost of petrol has increased by 21 percent to Kr 9.91, diesel to Kr 9.20 and kerosene to Kr 6.83. The proportion of Zambia’s population living in multidimensional poverty is currently at 64.2 percent with 68.5 percent living on less than $1.25 a day. This might entail that affordability of essential commodities and services consumed by most Zambian citizens is questionable. Government has also indicated that the benefits of the removal of the subsidies will not be felt immediately.
It is also important to note that the price of crude oil and finished petroleum products have gone down on the international market due to a reduction in demand for these products from the US and China. With supply generally consistent, the reduced demand has pushed the international price lower and has contributed to counties such as South Africa making a decision to reduce local fuel prices at the same time Zambia was increasing hence, different stakeholders among which the Civil Society receiving this development with varied reactions as observed earlier. There are the proponents who strongly support the removal of these subsidies and are calling upon other stakeholders to support the development while citing the need to save funds for re-distribution as a major reason. Secondly, there are also neutralists who argue that the subsidy removal was ill-timed, abrupt and considering the current poverty levels, they are proposing that this subsidy reform path should have been done in a phased manner (after appropriate compensatory measures were put in place). Thirdly, there are also the opponents who are calling for the immediate reversal of this decision while highlighting the fragile economic state of the country and inflationary effects this developed is having on most basic consumer goods and services (which the poor cannot afford) as a major concern.
However, what is clear from these varied positions is the absence of a researched position on the potential impact (both positive or negatives) of this decision on the ordinary people and the economy. Specifically, there has been a paucity of consideration regarding the counterfactuals of phasing or removal of the fuel subsidy. Therefore, research remains a key tool in accurately informing any advocacy position or awareness generation activities.
It is from this context that Consumer Unity and Trust Society (CUTS), Agriculture Consultative Forum (ACF), Economics Association of Zambia (EAZ), and Zambian Voice (ZV) are conducting a research based advocacy and awareness generation intervention. This consortium of organisations are partnering with a common understanding that, for any meaningful policy engagement and capacity building to ensue, evidence is required to inform subsequent debates.
The overall objective of this initiative is to contribute to deeper understanding of the nature and dynamism of the fuel subsidy removal on the Zambian economy. The research will aim to shed light on the impact (POSITIVE or NEGATIVE) of this decision on the aggregate demand (consumption investment, government expenditure and net-export) and aggregate supply side (cost of production etc). Further and more specifically, the research will also assess how the removal of fuel subsidy affected the distributional broad-spectrum macroeconomic and microeconomic variables such as National income, Gross Domestic Product (GDP), employment, household income in both agricultural and non-agricultural sectors. A better understanding of these issues will shed light on the kinds of policy interventions and capacity building/awareness generation needs that are needed to inform state and none-state actors’ actions moving forward.