Think through decision to phase out fuel subsidy

Yesterday, the National Treasury gave not-so-pleasant news. It revealed its plan togradually phase out the fuel subsidy programme beginning July-the new financial year.

This came on the day motorists woke up to shocking pump prices, with Super Petrol retailing at a record high of Sh159.

National Treasury Cabinet Secretary Ukur Yatani, has given valid explanations grounded in sound economic thought: that subsidies tend to be inefficient.

But, as they say, things on the ground can be different. And they are different.

It is not just fuel prices that have gone up; the price of goods and services been increasing by a rate of 7.1 per cent, the highest since February 2020. Prices of cooking oil, wheat products, maize flour, rice, soaps, have already gone through the roof. The government must be very careful not to antagonise Kenyans further.

It is true that subsidising fuel tends to directly favour the rich and the middle-class; the car owners, at the expense of majority of poor Kenyans that make their trips on foot.

According to the census results of 2019, of the 12 million households sampled, just about 6.8 per cent (758,710) owned a car or cars. In Nairobi, with close to 1.4 million households, there were 192,813 households with cars, giving credence to a 2016 World Bank report that Kenya is largely a walking nation.

The report showed that 83 per cent of all trips in Nairobi include walking as the primary or secondary mode of travel.

If they are not walking, a lot of Nairobians are on a matatu, from which they still have to complete the last leg of the trip on foot.

"Compared with other African primary cities, Nairobi has the largest share of walking trips,” reads part of the report by the World Bank, which notes that only 17 per cent of all trips are made without walking.

To this extent, it is proper to say that it is only the rich that benefit the most from subsidized fuel.

However, the subsidy has also been directed towards Kerosene, which benefits mostly the poor. Moreover, diesel, which is used to power heavy machines, lorries, trucks and buses, has also been subsidised. This means that the subsidy benefits everyone.

So, it is critical that the rethinking of the subsidy be done in such a way that takes care of everyone’s interests. This is because even the rich and middle-class who own cars pay taxes, including the Sh5.40 for every litre of fuel that goes into the Petroleum Development Levy, which is used for stabilisation of fuel prices.