Mali : Harmful Subsidies

Subsidies and other exemptions are State aid to a given sector of the national economy with the objective of supporting the sector in order to lower prices and thus increase the purchasing power of the poorest.

Presenting it this way seems ideal, public aid to demand which allows an economic recovery by consumption, however these subsidies have a cost and in some cases do not favor private investment, therefore supply.

Take the example of Energie du Mali (EDM) company, production in GWh rose from 631 to 1500 between 2003 and 2014, and public subsidies from 7 to 57 billion Francs CFA . The average cost of production in 2014 was 113 francs per Kwh when the average cost of sale was 96 f / Kwh.

In summary you have a public company that receives billions in subsidies each year and sells at a loss. It accumulates debts and increasingly needs to be supported by the State which locks itself up in public spending to maintain an artificial price.

You understand that at some point, with pressure from international donors, prices will rise to avoid the bankruptcy of EDM with the consequences that we know on the lives of households, and to prevent the State from continuing to get into debt.

Clearly we are faced with an economically losing-losing system. A recovery plan for the 2014-2020 period has been put in place but it is already insufficient in view of the scale of the difficulties.

EDM S.A needs a colossal and sustained investment with a diversification policy of energy sources (Solar, wind).

It is worth noting that thermal power plants have a running cost that depends on the price of oil, which is also subsidized by the State. So you have subsidies to pay for a subsidized product, to sell a product at a loss.

So to save EDM, there should be more emphasis on investment than on subsidies and momentarily accept an increase in price that will have an impact mainly on the favored class, more consuming than the poorest. Lowering subsidies favors private investment which is better able to provide quality service at lower cost.

Another subsidized sector, food and specifically rice. Again we must be frank, import subsidies have simply contributed to the weakening of local production. These subsidies, granted for reasons that may seem logical at first sight, have a negative impact on food security.

According to figures by Djibril Aw recognized expert « the production of rice in Mali was 185 000 tons of paddy in 1961 with a population of approximately 3 425 000 inhabitants in the proportion of 27 kg of rice per inhabitant against 2 500 000 tons In 2015 with a population of about 18 million inhabitants and 81 kg of rice per inhabitant per year ».

Mali now imports an average of 300 000 tons of rice per year. The country therefore needs to increase its rice production to meet domestic demand. Rather than investing in land development and yield per hectare, we chose to offer public money to companies or men to import. With the population explosion, the share of imports will increase, but food self-sufficiency is a political objective to be achieved when we want to develop.

In conclusion, the subsidy, if it profits for a time to consumers, harms production because imported rice does not have the same level of competitiveness as locally produced rice, ultimately we kill a sector, destroy jobs and create poor people .

What to remember about these two emblematic cases?

That subsidies are likely to curb private investment and without private investment, it is difficult to develop a sector and provide the population with adequate services. It appears necessary for the State to increase its share of investment in the modernization of the water, energy and agriculture sector and subsequently to withdraw for the private sector.

Maintaining these sectors under subsidies and / or encouraging imports means building the fragilities of tomorrow. A strategic State must support key sectors, while having a disengagement plan to give way to the private sector.

On the political level, it is difficult to tell people that they will go through a difficult period with rising prices because of the State’s disengagement, but we have to go through this to restructure these key sectors.

Translated by Mahaitou Ibrahim Maiga