As we sit down to right this piece, Botswana government owes fuel companies over P1.2 billion.
The amount has been growing because for a long time now government has been unable to settle this amount.
There are no easy solutions.
With time the situation will become untenable.
Fuel companies need this money for their operations because they buy fuel cash from the refineries.
It is not an exaggeration to say government is incrementally losing control of events around this matter.
The P1.2 billion is actually the true cost of subsidizing fuel in Botswana.
And the subsidy bill cannot go on and on forever.
The best time to remove fuel subsidy is way past behind us.
That was a time when Botswana government was able to use safety net in lieu of subsidies..
We are now plodding through a dangerous phase that will only worsen with time in so far as the subsidy bill is concerned.
It is only a matter of time before things totally get out of government control.
It is thus advisable for government to make decisions when it still has some control and leverage.
The challenge of course would be to remove subsidies without triggering political backlashes that can degenerate into public unrest.
The frequency and scale of more recent fuel hikes have provided a hint that there is unlikely to be any soft landing down the line.
The rise in fuel price is a result of a combustible mix over which Botswana government has no control.
The war in Ukraine is part of that, as is the global inflation that started way ahead of that war.
As a result right now Botswana is experiencing a rise in prices – not only as a result of inflation, but also in absolute terms.
The fact that Botswana government is now struggling to keep up with paying for the subsidy is perhaps the most glaring example of just how far the country’s economic fundamentals have shifted.
There used to be a time when this government was awash with cash.
Not anymore.
All of a sudden money has become a big issue for Botswana government.
Now money has to be diverted from more important projects as government purse gets more and more strained.
The subsidy is a real and continuing fiscal burden.
It is a misnomer to believe that the fuel subsidy is pro-poor.
Or that in some obscure way the subsidy is a form of income support for the poor people.
It is not.
Only an implicit fear for public unrest on the part of government justifies the continued fuel subsidy.
Of course there is a real danger that removing the subsidy will mean much of the money unlocked will now be directed to corruption.
The fuel subsidy is by itself problematic because it supports the rich people and the rich companies much more than it benefits the poor people who deserve it and on whose name it is justified.
The subsidy distorts the market at multiple levels.
Not all of the subsidized fuel, or should we say not even the majority of it goes to the people who need it – the cash strapped citizens.
The bulk of subsidized fuel actually goes to such companies like Debswana, Botswana Power Corporation and other mining houses.
Industry insiders estimate that Debswana alone consumes 12 million liters of the subsidized diesel a month. This is unpardonable.
What it means is that the valuable revenue from an overstretched government is being used to prop up a multi-billion-dollar commercial operation that is De Beers controlled.
Does Debswana really need to be subsidized with fuel by a cash-strapped government?
This factor alone might be sufficient proof that the subsidy is itself not some innocent form of economic inefficiency against which government is powerless.
Rather the subsidy is used to bankroll the already rich and empowered.
It is imperative that the money currently tied down in fuel subsidy is released and be directed towards directly helping the poor people.
Thankfully that should be easy because for Botswana government, because scrapping away a fuel subsidy does not involve entering into protracted negotiations with any interest groups.
Rather it is a straight forward decision.
Fuel companies will happily welcome the lifting of subsidies because that will mean they no longer have to wait long and uncertain periods for money that remains locked up somewhere along the government payment lines.
Keeping the subsidy is like kicking the can down the road.
It solves no problem.
Letting go of the subsidy will cause some pain – no doubt about that, because people have gotten to the addiction of the cushion it provides.
There is also no denying that such a move entails political risks.
But an even bigger risk is maintaining a subsidy until such time that the government is forced by circumstances, with neither choice nor room to maneuver.
The current path is totally unsustainable and carries even bigger risks if maintained.
