PRICE CONTROL

WTO cautions against misuse of subsidies

WTO director-general Ngozi Okonjo-Iweala said subsidies make for “complex subject matter.”

In Summary

•WTO Director-General Ngozi Okonjo-Iweala noted that subsidies and their international dimensions make for “complex subject matter.”

•"Governments should work expeditiously to clarify and strengthen international disciplines around subsidies," the report read.

World Trade Organisation (WTO) Director-General Ngozi Okonjo-Iweala at the WTO headquarters in Geneva, Switzerland, April 12, 2021. REUTERS.
World Trade Organisation (WTO) Director-General Ngozi Okonjo-Iweala at the WTO headquarters in Geneva, Switzerland, April 12, 2021. REUTERS.

Subsidies are raising economic efficiency concerns and contributing to trade tensions in sub-Saharan Africa, according to four global organisations.

A recent joint report dubbed 'Subsidies, Trade, and International Cooperation', shows the increase in subsidies with poorly targeted policy objectives has spurred the use of unilateral trade defence measures.

The International Monetary Fund, the Organisation for Economic Cooperation and Development, the World Bank and the World Trade Organisation prepared the report.

They observe that subsidies can distort trade and investment flows, undermine the predictability and stability created by trade commitments, and erode public support for open trade.

The report highlights transparency as an essential first step to understanding how government subsidies impact regional and international trade and how to minimise any negative effects.

"Governments should work expeditiously to clarify and strengthen international disciplines around subsidies while recognising the important roles that well-designed subsidies can play in some circumstances," the report states..

WTO Director-General Ngozi Okonjo-Iweala says that subsidies and their international dimensions make for a “complex subject matter.”

"Subsidies can clearly be an important tool to address market failures, examples abound where subsidies do little to achieve their intended goal, or do so at an unnecessarily high cost, domestically, abroad or with regard to the global commons,” she says.

The WTO boss says to build a broad coalition of interests across borders, it should be possible to improve the effectiveness of subsidies, and limit any negative international spillovers from their use.

Kenyan consumers are enjoying the cheapest fuel in East and Southern Africa, thanks to the ongoing government subsidy programme meant to cushion them from volatilities in the global market.

On Saturday, the government announced monthly retail prices for the month to June 14.

A litre of super petrol is now retailing at Sh150.12 in Nairobi up from Sh144.62 while that of diesel is going for Sh131 up from Sh125.50.

A litre of kerosene on other hand will retail at Sh118.94 up from Sh113.44 until June 14.

Were it not for the subsidy, a litre of petrol would retail at Sh176.47, diesel Sh174.94 while kerosene mostly used for lighting and cooking would trade at Sh169.26. 

While the prices are the highest in the country's history, they are still cheaper compared to countries in the East and parts of Southern Africa.

In Uganda a litre of Super petrol is retailing at Sh164, diesel at Sh142 while a litre of kerosene is retailing at Sh138.

Kenyan farmers are also enjoying lower fertiliser prices after the government released a Sh5.7 billion subsidy.

This saw the average price of a 50kg bag of DAP drop from Sh6,000 to Sh2,800.

Last month,  IMF cautioned against  price controls and export restrictions as an inflation control measure saying this could worsen supply constraints.

Ii instead been urged countries to come up with policies that ensure targeted and direct transfers to vulnerable households. 

"Fiscal policy needs to react in a targeted manner, aiming at protecting vulnerable segments of the population from the increase in energy and food prices without adding to debt vulnerabilities," the lender said in its economic update.