Reforming Prices and Subsidies in the Interest of the Poor

Ultimately, if Africa’s poor are to have an effective access to infrastructure services, it will be driven by prices and more precisely by the tariff structure that allocates the recovery of recurrent and capital expenditures not only across users but also between users and taxpayers. Indeed, in many instances, taxpayers will be called on simply because subsidies are unavoidable in many of the countries and for many of the services. Average tariffs need to ensure that all costs are recovered by the provider and when they do not, subsidies will have to close the gap between average costs and average tariffs. The main issue then becomes how to make sure that the subsidies are well targeted and do not send the wrong economic signal, that is, do not lead to over- or underconsumption of a service. These concerns are at the center of this chapter, which looks at both the extent to which the current tariff designs are consistent with the services affordability for the poor as well as the need for cost recovery for the operators. We then look at how subsidies and in particular their design could achieve much more than they do.