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The Debate: Would the Arab World be better off without Energy Subsidies?

Will Stebbins's picture
The Debate

Governments in the Arab world have long subsidized the price of energy. This gives citizens throughout the region access to cheap petrol and diesel, and electricity supplied at below-market rates. But what has been the real impact of subsidies, and do they justify the huge financial burden they place on national budgets? This is a critical question in the Middle East and North Africa (MENA), as the region represents a disproportionate share of the world’s energy subsidies.

Two Scenarios for a Hotter and Drier Arab World—And What We Can Do About It

Maria Sarraf's picture
The establishment of grazing set-aside areas is particularly relevant in times of drought. Dikhil, Djibouti

If you think the summers in the Middle East and North Africa (MENA) region are hot—think again. Summers are likely to become much warmer. Global temperatures are rising; the question now is by how much and what the impact of them will be. People in the region already face very high summer temperatures—and these could get worse. Compared to the rest of the world, the MENA region will suffer disproportionally from extreme heat.

Corrosive Subsidies in MENA

Shanta Devarajan's picture

Air pollution in Cairo Half the world’s energy subsidies are in the Middle East and North Africa Region.  These subsidies have been criticized on grounds that they crowd out public spending on valuable items such as health, education and capital investment.  Egypt for instance spends seven times more on fuel subsidies than on health.  Furthermore, the allocation of these subsidies is heavily skewed towards the rich, who consume more fuel and energy than the poor.  In Yemen, the portion of fuel subsidies going to the richest quintile was 40 percent; the comparable figure in Jordan was 45 percent and in Egypt, 60 percent.
 

Dubai is ‘Switching on the Lights’ on School Performance

Simon Thacker's picture

These days, if you are looking for a new cellphone and wondering which one to buy, there are many reliable sources to turn to: a recent copy of Consumer Reports is a good start, for one. But if you are choosing a school for your child, possibly one of the most significant investments you can make, an informed decision can be far more elusive. While you may hear of the school’s reputation, learn what others think, or visit the school, unlike phones, it is often difficult to know just how good a school really is. As consumers of educational services, we often find ourselves largely ‘in the dark’.

Mind the (funding) gap, next stop: Making some extra money

Daniel Pulido's picture
Follow the authors on Twitter: @danpulido and @IrenePortabales
 

A branded metro station in Madrid
Most metro systems around the world are unable to cover their operating costs with fare box revenues, let alone fund capital expenditures. According to data from international benchmarking programs CoMET and Nova, tariff revenues cover an average 75% of operating costs, while other commercial revenues provide about 15%, resulting in an operating deficit of 10%. Similarly, a back of the envelope exercise that we conducted for Latin American metro companies showed that these had an average operating deficit of 10% in 2012. When including capital expenditures, this deficit grew to 30%. There are of course examples of metro systems that do recoup their operating costs, such as Santiago de Chile and Hong Kong, but others like the Mexico City Metro only cover half of their operating expenses with fare revenues. We should all mind this funding gap as it is a significant impediment to maintaining service quality and addressing growing urban mobility needs.

Unfortunately, the underfunding of transit systems can become chronic as public budgets are under growing pressure and the most direct solutions for increasing revenues are hard to implement: increasing fares, for instance, has proved to be politically difficult and disproportionately affects the poor, who use public transport the most; and charging a price that fully covers the social cost of private vehicle usage (i.e., congestion charges) as a way to fund transit is also politically sensitive.

In that context, transit operators are increasingly looking at new ways to tap additional sources of commercial revenue and make up for funding shortfalls, often through agreements with the private sector. Although most examples are concentrated in developed countries, some metro systems in Latin America and the developing world are looking at ways to increase non-tariff revenues:

Beyond Remittances: How 11 Million Migrants from the Arab World can Impact Development

Mariem Mezghenni Malouche's picture
Arne Hoel l World Bank

The Middle East and North Africa region has a large diaspora. According to the latest United Nations estimates, 11 million citizens from the MENA countries lived abroad in 2013. Many of the members of this group hold prominent positions in their adopted countries. They have the potential to contribute to the development of industries in their countries of origin. Executives in multinationals can influence the choice of locations abroad in increasingly defragmented supply-chains. This is especially relevant for members of the diaspora.  Seddik Belyamani, originally from Morocco, was Boeing's top airplane salesman, and was instrumental in converting an initial push-back by Boeing’s executives into an interest and a first mover investment in Morocco. 

Where Will the Jobs Come from in the Middle East and North Africa? (Hint: You need start-ups)

Marc Schiffbauer's picture


A former hotel owner in one of the region’s major cities, who wants to remain anonymous, tells a story that should have had a happy ending. Her 40-room hotel was doing well. It had built a reputation for excellent service. She decided to capitalize on her success and expand the business by adding a restaurant. This would have provided her with another revenue steam and allowed her to attract more customers, especially foreign tourists. Apart from expanding her business, the need for new kitchen and wait staff would have meant jobs for the local community. It would also have meant more business for local suppliers of everything from food to tablecloths.

With such a long list of potential benefits, who would want to stand in the way?

What Smart(er) Politicians Do With Subsidies: Jobs

Heba Elgazzar's picture


What makes smart politicians?  Jeffrey Frankel has an idea.   His recent blog examines the allure, and trap, of universal subsidies.   For one thing, they know that pulling the plug on bad policies should be done sooner rather than later.  The same can be said of other policies related to investment and labor legislation.  Economic democracy is a great thing.  However, beware of misguided routes to achieving it. 

ARAIEQ: Working Together to Improve Education Quality in the MENA Region

Simon Thacker's picture


In Tunis this month, the Arab Regional Agenda for Improving Education Quality (ARAIEQ) held its second annual meetings of representatives from institutions from across the region. The idea for this network is simple enough: Arab countries face a now well-recognized challenge—the need to improve the quality and relevance of their education systems. It therefore stands to reason that they should share solutions. They met to review the progress made in the past year and discuss how to work more closely together in the future. What have they accomplished?

Education Attainment: Another Middle East and North Africa Success Story

Farrukh Iqbal's picture
A classroom in Yemen
Education stock (measured as average years of schooling completed by adults of age 15 and above as compiled by Barro and Lee, 2013) has increased steadily in each region of the world over the past forty years.

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