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Petroleum Product Markets in Sub-Saharan Africa : Comparative Efficiency Analysis of 12 CountriesPetroleum products are used across the
 entire economy in every country. Gasoline and diesel are the
 primary fuels used in road transport. Oil is used in power
 generation, accounting for eleven percent of total
 electricity generated in Africa in 2007. Adequate and
 reliable supply of transport services and electricity in
 turn are essential for economic development. Households use
 a variety of petroleum products: kerosene is used for
 lighting, cooking, and heating; liquefied petroleum gas for
 cooking and heating; and gasoline and diesel for private
 vehicles as well as captive power generation. Prices users
 pay for these petroleum products have macroeconomic and
 microeconomic consequences. At the macroeconomic level, oil
 price levels can affect the balance of payments, gross
 domestic product (GDP), and, where fuel prices are
 subsidized, government budgets, contingent liabilities, or
 both. At the microeconomic level, higher oil prices lower
 effective household income in three ways. First, households
 pay more for petroleum products they consume directly.
 Seventy percent of Sub-Saharan Africans are not yet
 connected to electricity; most without access rely on
 kerosene for lighting. Second, higher oil prices increase
 the prices of all other goods that have oil as an
 intermediate input. The most significant among them for the
 poor in low-income countries is food, on which the poor
 spend a disproportionately high share of total household
 expenditures. Food prices increase because of higher
 transport costs and higher prices of such inputs to
 agriculture as fertilizers and diesel used for operating
 tractors and irrigation pumps. For the urban poor that use
 public transport, higher transport costs also decrease their
 effective income. Third, to the extent that higher oil
 prices lower GDP growth, household income is reduced.
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Reforming Fuel Pricing in an Age of $100 OilIncreases in world oil prices since 2004 have challenged consumers and oil-importing countries across the world. Oil prices temporarily fell sharply in 2009, only to triple three years later. The oil import share of gross domestic product rose by nearly half among net oil importers in just two years between 2009 and 2011. Governments that control oil product prices have come under pressure to intervene by keeping domestic prices low and effectively subsidizing consumers. This study focuses on the evolving role of oil in national economies, particularly those of developing countries, and proposes a menu of options for drawing a roadmap for pricing policy reform for oil products. In light of events since 2009, it examines how recent price movements have affected countries' vulnerability to world oil price increases, how governments have adjusted domestic fuel prices in response, the consequences of the policy responses, other coping mechanisms to deal with high oil prices and price volatility, the roadblocks to reforming pricing policy, and how to deal with them. This report suggests a menu of options for moving away from sectoral subsidies to market-based pricing, accompanied by an integrated social protection program and complementary policies to reduce consumption through efficiency improvement and fuel diversification. Sending the right price signals and reducing consumption can bring many benefits, ranging from greater supply security to less congestion and pollution from road transport. This report can help policy makers conduct more informed national dialogues on managing fuel pricing and the political economy around it.
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Drawing a Roadmap for Oil Pricing ReformIn 2011, the median oil imports rose to 5 percent of gross domestic product for net importers. In the past several years, many governments have not passed through the world oil price increases to consumers fully. As a sign of divergent pricing policies, the retail prices of gasoline, diesel, and cooking gas in January 2013 varied by a factor of 190, 250, and 70, respectively, across developing countries. Policies to keep oil product prices low to benefit the economy and protect the poor have had a number of unintended negative consequences, including flourishing corruption in the oil sector and entrenchment of monopoly operators or inefficient firms through which subsidies are channeled, stifling competition and raising costs. The path to market-based pricing depends on the starting conditions: the gap between current and market-based price levels, the level of public awareness about the extent of departure from market prices, the degree of market concentration and competition in downstream oil, the subsidy delivery mechanism where subsidies are provided, the robustness of social service delivery, and the perceived credibility of the government. The evidence presented in this paper suggests that pricing reform often does not have a clear end and should instead be viewed as a continuous process of adjustment and search for mechanisms that take into account the country's institutions and political system, and the oil sector's market structure, infrastructure, and history.