African nations should reduce subsidies on products including fuel to increase their scope for stimulus spending as Europe sinks into recession, said African Development Bank President Donald Kaberuka.
“In countries where the subsidies are not targeted, we are encouraging governments to reduce product subsidies,” he said in an interview in Addis Ababa, Ethiopia, at the World Economic Forum on Africa. Europe is Africa’s top trading partner.
In Egypt, energy subsidies account for 8 percent of gross domestic product, Kaberuka said. “If you reduce, even by half, the energy subsidies, that is about 4 percent of GDP. That is money you can use for stimulus spending,” he said. “For me, that is the first place to begin.”
Nigeria fixes gasoline prices by subsidizing oil importers such as state-owned Nigerian National Petroleum Corp. and Total Nigeria Plc because Africa’s largest oil-producing nation doesn’t have the refining capacity to meet domestic needs.
President Goodluck Jonathan faced protests after he scrapped subsidies worth 1.2 trillion naira ($7.6 billion) earlier this year, leading to a rise in gasoline prices. The caps were partly reinstated.
Other measures African governments should take to bolster stability include increasing economic buffers, improving natural resource management and continuing investments in expanding infrastructure such as power-generation and roads, Kaberuka said.
“In terms of reserves, debt levels, deficit, it was possible in 2008 for African nations to expand the economy with monetary and fiscal instruments,” he said. “So now countries need to reinforce the shock absorbers.”
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