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It is safe to say that the Transitional Government in Yemen, sworn into office in December 2011, faces daunting political and security challenges, not to mention economic and fiscal challenges that rarely make the headlines. Among these economic obstacles is the fiscal imbalance caused by subsidizing fuel products in Yemen. This article examines the current state of Yemen’s fuel subsidy program, and proposes an inclusive, participatory approach to lifting the subsidy while also minimizing the social unrest that typically results from such reductions.
The Fuel Subsidy: A General Overview
Yemen has the highest fuel subsidy in the Middle East and North Africa region, constituting up to 9 percent of the country’s GDP. According to the Central Bank’s Annual Report 2010, the fuel subsidy constituted 22.2% of government expenditures in 2009. For many Yemenis, the fuel subsidy is an important and sometimes essential poverty reduction mechanism. The subsidy impacts households not only through their direct fuel consumption but also through their indirect use of fuel, through fuel-consuming activities such as transport and agriculture. Table 1 shows how the subsidy is used in different economic sectors, shedding light on how it affects household consumption:
Table 1: Role of Fuel Products in the Economy
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While the fuel subsidy’s main objective is to assist in poverty reduction, it has proven to be an ineffective tool. The rich often consume more fuel than the poor – they spend more on cooking, gas and electricity, have more cars, and buy more products. As such, the scheme yields more benefits to those who are well-off than to those living in poverty. Subsidies have also tended to promote the smuggling out of Yemen’s cheap fuel for sale at higher prices in foreign countries. The smuggling out of Yemeni fuel is estimated to cost the country hundreds of millions of dollars every year.
In the past, attempts to remove subsidies have resulted in social unrest and violence in Yemen. In 2005, an attempt to lift the fuel subsidy led to widespread riots that left 26 people dead and over 300 injured. In the end, the Government reversed its decision and reduced the fuel prices back to the subsidized rate. Since then, the Government has taken steps to gradually reduce the subsidy, with the last increase in fuel prices taking effect in October 2010. These reductions are, however, sporadic and not part of a clear and publicized strategy to eliminate subsidies.
A Proposal for Lifting the Fuel Subsidy
There are two key considerations that are typically raised in discussions regarding the lifting of Yemen’s fuel subsidy. The first is whether the subsidy should be lifted gradually (over a period of 2 to 5 years) or immediately and all at once. The second consideration relates to how money saved in eliminating the subsidy should be used: should it, for example, be applied to reduce the budget deficit, should it be transferred directly to poor households, or should it be invested in productivity enhancing investments?
My focus will not be on analyzing these two key considerations as I believe the authors of the “Petroleum Subsidies in Yemen” report have already done this very well. Instead, I will focus on the best approach to implementing these reforms with maximum buy-in and minimum social unrest, particularly in the current context of heightened tension and instability in Yemen.
To be successful in post-revolutionary Yemen, any attempts by the new Transitional Government to reduce the fuel subsidy must be transparent, fair, and participatory. The Government must carefully balance the urgency of implementing these reforms with the risk of losing popular support and dragging the country into further conflict. The recommendations below are an attempt to begin thinking of creative ways to engage the public in implementing subsidy reforms particularly in light of the Arab Spring and the public’s desire for more transparency and inclusion in public policy and government administration.
1- Establish a taskforce for the fuel subsidy reform. This taskforce, chaired by the Prime Minister, will be composed of cabinet ministers or deputy ministers from the Finance, Oil, Electricity, Media, Industry & Trade, and Agriculture ministries. The taskforce will have two main objectives: to design and implement the most effective “Fuel Subsidy Reform Plan” and to develop a program to engage the public in this plan.
2- Implement Deliberative Polling process. To foster public engagement, the taskforce should begin by implementing a Deliberative Polling process to understand public opinion on fuel subsidies, and inform and educate the public on the issue. Deliberative Polling was developed by Professor James Fishkin of Stanford University in 1988. The process would involve polling a random, representative sample of Yemeni citizens on the fuel subsidy issue. After the baseline poll is established, members of the sample would be invited to gather at a single place for a weekend to discuss the subsidy issue. Participants would be given materials and presentations that explain in details all sides of the fuel subsidy debate. They would then participate in small group discussions with trained moderators before engaging in dialogue with experts and political leaders. Portions of the weekend events would be publicly broadcasted on Yemeni television. After the deliberations, the sample would again be polled on the fuel subsidy issue. Any observed changes in opinion would reflect the expected public outlook should Yemenis generally be given the opportunity to become more informed and engaged on the fuel subsidy issue.
3- Launch public dialogue and deliberation campaign. Building on the lessons learned from the Deliberative Polling process, the taskforce would design a public dialogue and deliberation campaign to engage the public at the grassroots level. The taskforce would partner with civil society organizations to design and implement this campaign across Yemen. The campaign would include a media component to educate and inform the public on the fuel subsidy issue, the proposed Fuel Subsidy Reform Plan, and the alternatives the Government has proposed to reduce the impact of lifting the subsidy. Given that over 70% of the population live in rural areas and that the only available and accessible media is local government-operated television and radio, these two outlets should be used to disseminate this information, although other media channels such as newspapers, online news websites, and social media should not be ignored.
In addition to the media campaign, local dialogue and deliberation sessions should be held across the country. Local civil society organizations and elected local councils should coordinate and implement these sessions with training and guidance from the taskforce. The sessions would start with a presentation on fuel subsidies in Yemen, its advantages and disadvantages, and the different approaches to dealing with this issue including the preferred approach highlighted by the Government’s Fuel Subsidy Reform Plan. Led by trained moderators, participants would then “work through the issue by considering each approach; examining what appeals to them or concerns them, and also [] the costs, consequences, and trade-offs that would be incurred in following that approach.” This process is modeled after the National Issues Forums methodology. The output of these sessions would then be collected and transmitted to the taskforce to finalize the design of the Fuel Subsidy Reform Plan before implementation.
4- Establish a public board. The taskforce should establish a public board that would be named the “Fuel Subsidy Reform Public Board”. The board’s membership would consist of one member from each of the elected local councils across the country. The mission of the board would be to advocate for the subsidy reform plan, address any concerns from citizens, and follow the implementation of the Subsidy Reform Plan on the ground. For example, should the plan include direct transfers to the poorest of the poor, the board would receive, investigate and work with the concerned authorities to rectify any complaints from poor families who were not included in the direct transfer program. The board and its members would also serve as a channel to continue ferrying information and updates between the Government and the public after the initial dialogue and deliberation sessions are completed.
Conclusion
The fuel subsidy is one of many challenges that the new Yemeni Government will need to address in order to create a prosperous economy. The main threat in addressing this challenge is the public uproar expected in response to increasing prices. The recommendations presented in this paper focus on addressing this threat by proposing a deliberative and participatory approach that will include the public in the design and implementation of the Fuel Subsidy Reform Plan and engage them in understanding the importance of these reforms for future growth. Although some of the techniques recommended in this paper (such as Deliberative Polling and National Issues Forums) are new to Yemen, their use would signal change in the Government’s approach to public policy and demonstrate a commitment to transparency and inclusion, all of which will surely be welcomed by the Yemeni people.
*Rafat Al-Akhali is a youth activist and Executive Director of “Resonate! Yemen”, a youth-based foundation that aims to bring the voices and ideas of young Yemenis to Yemen’s public policy discourse.
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