How Do the Key Stakeholders Perceive Subsidy Reforms?

Since the Egyptian revolution in early 2011, various ministers and prime ministers in different governments have discussed the issue of energy pricing and the need for subsidy reform, and they have put forward a number of tentative policy plans. Before the July 2014 announcement of subsidy reform, numerous statements were made emphasizing that current subsidy arrangements are wasteful and a “bad deal” for the poor. These statements have, in turn, started a public discussion on the issue of subsidy reform in traditional media and online.

Comprehensive stakeholder analysis was undertaken as part of the advisory services component on communications strategy to understand the knowledge, attitudes, and concerns of Egyptians regarding energy subsidies and the process of subsidy reform, as well as the self-perceived impacts of this process on key stakeholders. Tools employed for this analysis include a large-scale household survey of more than 2000 households to examine their energy use, knowledge of energy subsidies, attitude toward reform, perceived impacts of reform, and level of information on consumption patterns. The researchers broke down the results by income, age, education, and region. They analyzed focus group discussions on attitudes to and impacts of energy subsidy reform with small transport operators, small agricultural producers, the “youth,” and a variety of small- and medium-size enterprises (SMEs), including energy-intensive SMEs. The researchers also conducted structured interviews with policy makers, business leaders, and industry representatives to assess the attitude to and appetite for energy subsidy reform in key sectors and among sectoral leaders. Stakeholder mapping assessed the importance of various stakeholders in Egyptian public life to the debate on energy subsidy reform according to likely power, interest, and influence in this process.

Two-thirds of Egyptians believe energy prices are high (Fig. 6.7). In people disaggregated by age and income, this perception is apparent in about 75% of

Household perception on energy prices and subsidies (% of sample). a Perception of energy prices. b Perception of existence of subsidies. Source World Bank (2014)

Fig. 6.7 Household perception on energy prices and subsidies (% of sample). a Perception of energy prices. b Perception of existence of subsidies. Source World Bank (2014)

people under age 30, and in about 75% of lowest-income group people (earning less than LE 500 per month). Sixty-eight percent of households did not know the extent of subsidy expenditure by the government when presented with options as to the relative size of current subsidies. Only around 20% of respondents estimated correctly or overestimated. Knowledge of the size of subsidy expenditure was correlated with education and income: only 29% of households in the richest income bracket said they did not know the scale of subsidies, compared to 81% of the poorest households. The survey did not disaggregate by age or region on this question.

When respondents were informed of the size of energy subsidy expenditure, however, close to 75% said that subsidies were not a good use of public money, with richer, older, and more educated households especially concerned about this use of public funds. This result suggests that it will be more difficult to convince poorer and less-educated households of the wastefulness of energy subsidies, although this task could be easier given the general feeling of the profligacy of subsidy spending. When asked why they thought subsidy expenditure was not a good use of public money, the most popular response among households was that subsidy benefits “go to the wrong people,” suggesting a good knowledge of the limitations of subsidy targeting and that the distributional issues with current subsidy policy should be stressed in communications seeking to build support for reform.

When asked how potential subsidy savings should be spent, 55% of households listed health as an area in which expenditure should be increased following reform, and 43% of households listed education as another. Only 17% of respondents listed targeted income support to the poor as a better alternative to energy subsidies. In fact, only 24% of the very poorest households said savings from reform should be transferred to targeted income support for the poor. This finding reflects a general lack of support for a redistributive spending policy, which that was also evident in the results of other survey questions.

Clear evidence of resistance to reform also emerged in the household survey. Households are suffering under current economic conditions, and they are concerned that they will not be able to cope with significantly higher energy prices. Close to 80% of households said that they could afford a maximum 5% increase in energy prices. And, despite poor energy service provision, only about half of households were willing to pay higher energy prices for greater reliability of energy supply, and most of these were wealthier households. This theme emerged repeatedly in the focus group discussions. Small businesses are also under severe economic hardship, making energy subsidy reform difficult to manage or support.

A preliminary political economy analysis and stakeholder mapping exercise point to the interest and influence of various Egyptian social interest groups on energy subsidy reform. This research will identify key groups and potential sources of opposition and support for reform that will need to be strategically managed through communications. Different social interest groups are divided according to whether they are political entities, businesses, or consumers/civil society and then are subdivided based on the categories most frequently found in the secondary literature. These categories may sometimes overlap, but are still useful for analytical purposes. In creating the matrix, for each social interest group:

Interest is scored based on how much the stakeholder is likely to welcome the prospect of fuel subsidy reform, owing to both material and ideological factors, ranging from 1 (strongly opposed) to 5 (largely neutral) and on to 10 (strongly in favor). Some actors may react based less on the issue itself than on the potential it offers to mobilize in pursuit of other goals, which are noted in Fig. 6.8.

An influence-interest matrix vis-a-vis subsidy reform for key Egyptian stakeholders

Fig. 6.8 An influence-interest matrix vis-a-vis subsidy reform for key Egyptian stakeholders. Source World Bank (2014). Note The scoring methods used for the indicative matrix are intuitive rather than systematic. MB Muslim Brotherhood; SMEs small- and medium-size enterprises

Influence is a multidimensional concept, including political influence at the elite level, access to means of mass communication, financial resources, perceived legitimacy, propensity to engage in violence, and raw numbers. These various factors are combined into a rough measure, ranging from 1 (largely sidelined) to 10 (highly influential) (Fig. 6.8).

The key social interest groups are those in the “low interest” section of the matrix, especially those with both low interest and high influence, who have the potential to become influential opponents of reform, and a few in the low-influence category who may need special protection and guidance. Because the latter group could easily be manipulated by the former, both categories should be a particular target for communications work. These key groups include:

  • Average-income and low-income households are proportionally the hardest hit by subsidy cuts, and those most able to express their displeasure. It will be vitally important to explain the rationale and the mitigating measures in terms they understand.
  • Small businesses and farmers are also disproportionately vulnerable. They may need to be advised on how more reliable energy supplies and higher growth will benefit them, as well as what interim support (e.g., microcredit, assistance with a revised business model) is available. Some sectors (e.g., agriculture, microbuses) may be more vulnerable than others, and these could be identified for a tailored approach.
  • Youth and the unemployed combine to form a nexus of dissatisfied and dis- empowered people who are the most likely to engage in street protests. Innovative means of communication are likely to be needed to reach them.
  • Unions and leftists/Nasserists are ideologically predisposed to oppose subsidy reform, in the absence of effective mitigation measures, because of its effect on the poor. That said, the benefits of energy subsidies accrue disproportionally to richer households. A compelling case can be made to leftist advocates and unionists that energy subsidy reform can be a pro-poor policy that seeks to undermine the “rich welfare,” which is based on a flawed and untargeted welfare mechanism.

The emphasis on all these groups, which is suggested by stakeholder mapping, tends to be supported by analysis from the household survey. For example, the youth tend to have much lower confidence in government than older groups. Low- and average-income households tend to have less awareness of the extent of government subsidisation of energy consumption and tend to consider energy prices already too high.

The potentially difficult groups will require management and engagement through communications to undermine their opposition to reform, but other groups are natural allies in the process of subsidy reform. Within the influence-interest matrix (Fig. 6.8), these groups have a high interest in subsidy reform. The business elite, wealthy consumers, the energy sector, and certain parts of the higher levels of the Egyptian government bureaucracy have both high interest and high influence in this process. These social interest groups should be engaged early in the process of subsidy reform to leverage and utilize their energies in building support for reform. Building partnerships with prominent, respected, and influential natural allies will be crucial in communicating the government’s key messages supporting reform in the current context of low government credibility.

 
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