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Opinions of Thursday, 21 April 2005

Columnist: Adjei, Nsiah

Petrol Price Increment-the 3rd Argument

Over the years-and at the beginning of every budget year for almost 30yrs now. The axiom has been that- Petroleum products price has to be raised. The 3 reasons given for the increment are:

  • The smuggling of these products to neighboring countries. Because petrol?s cost higher in these countries-than in Ghana
  • The removal of ?subsidies?.
  • Rising oil prices on the world market The inability of various governments to stop smuggling across the borders by raising local petrol prices -indicates the failure of the first policy. And makes that whole policy uneconomic.
Where there is smuggling-there is want. Where there is want-there is opportunity and profit. And since petrol is not contraband, the way forward is for Ghana government officials, to lobby, study the cost analysis and supply chain of our neighbors-all of who pay higher than us. And refine and export petroleum products to these countries. This is economics-the investigation and satisfaction of human wants.

If that is done-the money being acquired by smugglers to sell petrol for say F48,000 in Burkina Faso would be channeled into government coffers. And there would not be the need to raise petrol prices by large margins every year.

The second reason for petroleum price increment is the removal of ?subsidies? so that Ghanaians pay economic price. The reason- a greater percentage of petrol is consumed by the well-to-do who own and use private cars. And the moneys being spent on subsidy could be channeled into health, Education and infrastructure development.

What this means is that if government spent say US $ 10 million a month to subsidise petrol every month. The budget allocation for health, education etc must shoot up by that same amount every month after the removal of the so-call subsidy. Whether this has happen since the 80?s when the removal of agric input subsidies started are there for us all to ?appreciate?. An assignment for mathematicians.

Ironically, the removal of subsidies on petroleum products affect the poor the most and the rich-the less. The rich after every petroleum price increment- gang up and resist salary increment by the poor. And then fix higher wages for themselves and lower wages for the poor. The rich have access to income generating assets, fat per diem, loans and a flexible transportation allowance. They command the power to migrate from one job and country to the other-the poor lacks all.

In fact, the greatest thing that happen to development economics in the 20th century is the re-engineering and introduction of subsides and venture capital funds. Subsidies are good if you have the means. And know when and where to slap it. The ?free spraying? of cocoa farms, which resulted in Ghana becoming the world?s largest producer of cocoa attest to this .Any nation that cannot provide subsidy to its citizens is not a nation worth living and dying for.

The 3rd argument that petrol prices must be raised with taxes, levies et al whenever there is a rise on the world market, would be the last straw that could ground Ghana Industrial base to a halt. Come cars, come petrol- with India, China and most Eastern European economies sprinting for sustainable double digit growth-petrol consumption is about rising. And its price could hit a 3-digit figure in the not-too-distant future.

Any accompanying rise in local market prices would be translated into higher inflation, interest and unemployment rate.

The end -A victory for buy-and-sell economy.

Nsiah Adjei
Current Solutions
1st Floor, Mobil
Sahara, Dansoman


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