In this column called “The Indicator,” we will be taking an economic or financial statistic from East Africa and breaking it down into bite-sized nuggets of knowledge for investors.
This month’s indicator figure is 32,583.
32,538 of what?
32,538 is the average amount of barrels of petroleum, commonly referred to as “oil”, consumed by EAC countries using the most recent statistics from a combination of sources including the World Bank in 2014.
How large are oil barrels?
One barrel is equal to approximately 159 liters, as measured by the global standard set by the American Petroleum Institute. This measurement assumes a standard measurement of temperature and pressure to maintain consistency.
Which EAC country has the highest and which the lowest amount of petroleum consumption?
Kenya had the highest amount of petroleum consumption at 98,000 barrels annually. The next highest is Tanzania at 58,000 barrels, far below Kenya’s consumption level. Behind Tanzania, Uganda maintained a consumption rate of 27,000 barrels. South Sudan and Rwanda follow Uganda at 11,000 barrels and 6,000 barrels respectively. Burundi had the lowest consumption at 1,500 for the entire year.
How does petroleum consumption in the EAC compare to other regions of the world?
East African countries have petroleum consumption in line with broader Sub-Saharan Africa.
In developed countries the most dramatic increases in petroleum production are seen in Japan and Europe. The consumption of the United States dropped but not as dramatically as its counterparts. Among the world’s developing economies, China showed the most dramatic growth.
The long-term global trend shows a clear drop of petroleum consumption in favor of alternatives or less usage. Globally, the percentage of fuel energy consumption from fossil fuels dropped from 95% in 1970 to 80% in 2016 according to BP and the World Bank reflecting a significant progression away from traditional fuel sources.
Is petroleum consumption in the EAC increasing or decreasing?
Generally, emerging economies including the EAC are projected to continue increasing their petroleum consumption. Many promising oil and natural gas sites have been found within the EAC countries. However, today the vast majority of oil and petroleum products are imported into the EAC. As petroleum is an inelastic good, which consumers will still purchase even if the price rises dramatically, the lack of availability and capacity in such a situation would leave most of those consumers without petroleum. The volatility of oil prices that the world has witnessed in the past 40 years should be considered when formulating any economic growth plan, energy policy or infrastructure plan.
What’s behind the increase in the higher consumption of petroleum in the EAC?
Generally, oil prices are low around the world. Consumers are incentivized to consume more petroleum as it is more affordable. Development, infrastructure and otherwise, has made significant progress in the last ten years. As the economies of the EAC continue to grow in all dimensions, more petroleum is needed to facilitate proper functioning of the economy, directly and indirectly.
How does petroleum consumption correlate with economic growth?
Higher petroleum consumption is generally indicative of a growing economy facilitating more activity than previously. Over a long period of time, usually longer than five years, it signifies deeps structural growth in the economy. However, these assumptions can be valid only if the price of oil remains more or less static.
Generally within the EAC we see a strong showing of this pattern, where petroleum consumption steadily rises in line with other macroeconomic indicators including demand.
What are the investment opportunities that may emerge from the short-term and long-term market conditions in the petroleum market in the EAC?
In the short and medium term we can foresee increases in demand for motorbikes, cars, and buses, generators and corresponding businesses serving consumers in those sectors including fuel services, repairs, spare parts, lubricants, and repair services for petroleum consuming equipment. Businesses that serve the Uganda-Tanzania oil pipeline are also anticipated to grow following receipt of relevant contracts for engineering and maintenance services.
With renewable energies advancing at a rapid pace, longer-term petroleum demand may begin to fall as is seen in developed economies. Time will tell on the future of the petroleum industry serving the EAC and its member countries.
How can I learn more?
To learn more about the topics in this article you can visit:
Tanzania Invest: http://www.tanzaniainvest.com/energy
About the authors:
David L. Ross is Managing Director of Statera Capital and US Ambassador to the Open University of Tanzania, Adjunct Professor of “African Venture Funding” at Carnegie Mellon University in Rwanda, and active in growing companies in Eastern and Southern Africa through primary investment, investment advisory, strategic partnerships, and executive education. Connect on LinkedIn at http://tz.linkedin.com/in/davidlross1 or at firstname.lastname@example.org.
Catherine Mandler is a Senior Analyst at Statera Capital. Connect on LinkedIn at http://www.linkedin.com/in/CatherineMandler or at email@example.com.