0 Transport Fuel Prices in Sub-Saharan Africa: Explanation, impact and policies World Bank Transport Forum March 30 th, 2011
1 Five parts to the presentation 1. Why look at SSA transport fuel prices now? 2. How do SSA transport fuel prices compare with those in other regions? 3. Variation in transport fuel prices between SSA counties 4. The structure of transport fuel prices in SSA countries 5. What can be done to reduce high prices or their impact?
2 1. Why look at SSA transport fuel prices now? Transport Prices and Costs in Africa provided a groundbreaking review of transport costs in some of Africa s main transport corridors. Strong evidence and compelling analysis showed that road transport prices in Africa were significantly higher than elsewhere. Despite regional variations, four policy options showed the greatest promise for reducing transport prices : 1. Dismantling regulatory constraints as these are the root cause of limited competition, poor service and high prices 2. Reducting in fuel prices 3. Rehabilitating of road infrastructure 4. Reductng in border crossing times and informal en-route payments With crude oil prices again above U$100 per barrel and increasingly likely to stay high now it is now even more urgent to see how high prices and their impact can be addressed.
3 Addressing the policy options In recent decades, most emphasis has been given to improving infrastructure quality Structure of road transport industry now being addressing as without adequate competition, infrastructure improvements might reduce costs but unlikely to reduce tariffs Border crossings and informal payments (especially in West Africa) being addressed through transport corridor and trade facilitation projects Until now fuel prices largely ignored by the transport sector, although more attention has been given by our Energy Sector colleagues. The study presented here is a first stage of looking at this fourth of the main policy options for reducing transport prices in Sub Saharan Africa
4 2. How do SSA transport fuel prices compare with those in other regions? 160 140 143 140 120 100 80 60 115 111 109 120 89 95 84 70 85 73 73 90 68 40 52 20 0 European Union East Europe and Central Asia Asia Sub Sahara Africa Latin America and Caribbean Diesel North America South Asia East Asia Middle East and North Africa Gasoline
5.. But prices themselves do not show the full story. Affordability is also relevant Region Average per capita income Car owners income Gasoline cost as % of car owners US$ 2008 as % of average income Sub Sahara Africa 1,104 200% 44% Latin America and Caribbean 7,448 125% 8% East Asia 2,952 150% 17% European Union 41,654 110% 2% East Europe and Central Asia 8,736 125% 9% South Asia 951 150% 62% Middle East and North Africa 3,303 125% 20% Total 9,042 125% 8%
6 Affordability of diesel is important for truck transport Region Diesel price Consumption Transport tariffs Fuel as % of tariff US cents/liter liters/100km US $/ truck km Sub Sahara Africa 109 45 3.0 17% Latin America and Caribbean 95 35 3.9 9% East Asia 83 35 3.3 9% European Union 141 25 6.6 5% East Europe and Central Asia 115 30 5.4 6% South Asia 79 40 3.6 9% Middle East and North Africa 108 35 4.5 8% Total 100 30 5.4 6%
7 Fuel price impact on trade competitiveness There is some evidence of the contribution of fuel costs to logistics costs and of logistics costs to the final prices of products. So far it appears that high fuel prices can impact on competitiveness for agricultural and mineral exports. The following logistic cost share relate to Europe, the shares for Sub-Saharan Africa are about one third higher: Food Chemical Metal Paper Textile Electrical Automotive AVERAGE 0% 5% 10% 15% 20% 25% 30% 35% Logistics Costs in Relation to Annual Turnover Source: European Logistics Association
8 3. There is a wide variation of fuel prices between SSA countries 200 150 100 50 0 Retail price in US cents per liter250 Diesel Gasoline
9 Fuel prices in land-locked SSA countries are more than 30% higher than in coastal countries Diesel US cents/liter Gasoline US cents/liter Land locked countries 127.2 126.0 Coastal countries 92.8 92.1 All countries 109.0 120.0
10 Three main contributors to higher LLDC prices FOB prices, taxes and transport costs Diesel US cents/liter Source of Cost Land-locked Coastal All FOB 66.1 54.0 59.6 Taxes 21.4 13.3 16.1 Dealers margins 13.4 11.2 12.2 Road and Energy Funds 9.5 8.2 8.9 Transport 10.7 3.6 6.8 CIF-FOB 6.1 2.5 5.4 Total 127.2 92.8 109.0
11 Structure of transport fuel prices in SSA countries 5.2% 5.8% FOB 8.6% Taxes Margins 12.5% 54.3% Road and Fuel Funds CIF-FOB 13.6% Transport and Distribution
12 Large and surprising variation in FOB prices 120.0 FOB prices for diesel and gasoline 100.0 80.0 Price in US cents per liter 60.0 40.0 20.0 0.0 Diesel Gasoline
13 Structure of transport fuel prices in US and Europe Prices in the EU are the highest in the world, while those in the US are amongst the lowest. In the EU diesel and gasoline prices are similar. In the US diesel is about 25% higher priced than gasoline Most (but not all) of the difference between the global average and US and EU prices is attributable to taxation, being just over 50% of the final retail price in the EU(about US70 cents per liter) and only about 13% (about US10 cents per liter) in the US. US dealers margins are about the same % as EU. Transport costs are about the same absolute amount in EU and US (so a lower % in US) All the price components contribute to the differences between SSA and the US and EU
14 Comparison of SSA, EU and US transport diesel fuel prices (2008) Diesel US cents/liter Source of cost SSA EU US Ex refinery/cif 65.0 54.5 58.5 Transport 6.8 4.2 3.9 Dealers margins 12.2 8.5 3.9 Road and Energy Fund 8.9 0.0 6.2 Tax 16.1 75.7 5.5 Total 109.0 143.0 78.0
15 Other important findings Big variations in FOB prices between all SSA countries could indicate opportunities for reducing retail prices In many SSA countries, diesel is taxed more than gasoline, contrary to experience in other regions. This impacts negatively on commercial road transport and on retail prices of foods and low unit value basic products Protection of small and inefficient refineries can result in high retail prices Wholesale and retail margins not significant contributors to high prices Fuel taxes in land-locked countries are significantly higher than in coastal countries, making already high prices even higher
16 5. What can be done to reduce high prices and their impact? Some contextual considerations: Trucks in SSA are old and fuel inefficient. High import duties discourage the import of newer more fuel efficient vehicles in favor of older, less expensive but less fuel efficient ones Trucks in SSA have low utilization, making the purchase of more fuel efficient trucks too expensive. Higher utilization could require restructuring the trucking industries High fuel costs are compensated by overloading. Stricter overloading regulation will increase fuel consumption Trucking industry in most SSA countries is highly fragmented, making transport fuel price policy implementation more difficult than it would be in countries with a more formally structured industry
17 Policy constraints the low price elasticity of transport fuel prices (in developed countries estimated at about 0.2 in the long term), appearing to provide a relatively efficient source of general taxation revenue. policies to reduce the externalities of transport fuel consumption invariably include an increase in prices policies to reduce truck overloading and protect investment in road infrastructure will increase fuel consumption and, at least in the short term, increase tariffs
18 Policy Options to reduce fuel prices and their impact A combination of macro-economic. fiscal, energy and transport policies Finding alternative low price elasticity sources of general taxation that have a lower social impacts Finding more efficient procurement procedures to reduce FOB prices and the add-on for cost, insurance and freight Changing the taxation balance between gasoline and more fuel efficient diesel Reducing fuel transportation costs, particularly for land-locked countries Compensating for the import duty disincentive on newer, fuel efficient vehicles without increasing the average import cost of a vehicle Reducing transport fuel consumption by making the trucking industry more efficient (e.g. larger trucks, higher legal payloads)
19 Four issues and questions to be answered Are fuel prices in SSA so high that action is needed to address them? Would it be reasonable to use incentives (not subsidies) to encourage the use of more fuel efficient vehicles and/or to encourage the more fuel efficient use of existing vehicles? Should such action be restricted to the cost and price of transport fuels, or should they extend to the efficiency of the transport sector (such as that of the trucking industry, the system of distributing agricultural produce or the operation of urban public transport? How can reduction of the impact of high fuel prices be made compatible with other transport sector objectives, such as reduction of overloading and reduction of GHGs?
20 Help! We need as much input from colleagues in the transport sector as possible Please send any comments on the study, presentation, and in particular in relation to the four issues Supee Teravaninthorn or Robin Carruthers Thanks for your attention and in advance for your comments