The political economy of energy subsidies in Egypt and Tunisia: the untold story

Energy subsidies have been described as socially inequitable and fiscally draining for economies in the Middle East and North Africa (MENA). This is particularly true for resource-scarce, labour-abundant economies such as Tunisia and Egypt who cannot rely on ample resource rents to finance energy subsidies. Despite these shortcomings, governments have struggled to reform subsidies and attempted reforms have frequently been characterised by ‘backsliding’, that is, a partial or complete rollback of previous reforms. While the dominant political economy explanation underlines governments’ fear of popular unrest as the main factor in decelerating or reversing reform, this paper shifts the focus toward another key constituency lobbying against reform: politically connected businessmen (PCBs). Comparing the role of PCBs in the context of energy subsidies in Tunisia and Egypt, this comment, accompanied by the full paper, provides preliminary evidence that PCBs in Egypt benefit more from energy subsidies and hence attribute greater importance to their maintenance compared to their Tunisian counterparts. This comment highlights the importance of taking into account the political economy of energy intensive industries and not just households when analysing subsidy reforms and that resulting industrialist lobbying activity can seriously disrupt, decelerate, or even derail reform.

Full paper

 

By: Ferdinand Eibl

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