The falling price of crude oil spells good favour for importers in Africa. The price of crude has been on a steady drop despite attempts by producers to cut output. As a result, many African countries are taking advantage of the situation and stock piling their reserves.
Take for instance the case of East Africa, crude oil represents more than 20 percent of Tanzania’s annual imports. So a drop in price of crude means the country can afford to buy more and reserve for future use. However no official report has been issued as to the government policy on the matter.
The issue that arises here is the matter of crude versus refined oil. Africa, Tanzania included, imports refined oil which is more costly than crude but with falling prices of crude then follows that even the price of refined oil has taken a dive
As such, the country is able to save because it is now spending less to buy more and technically, the saved money is said to improve the k significant enough for any commercial production
That is the country outlook, when you come to the micro-economics of things, you quickly start to see the multiplier effect swell across the entire economy. Most large enterprises depend on oil to run their daily production.
So when the cost of importing oil drops, then the selling cost to the end user also falls. As a result, the production cost for these businesses also falls and with it the price of their final products also drops.
This is all true, but only on paper, theoretically, we should see the price of goods fall considerably because production and transportation costs have dropped with the drop of oil prices. However that is not the case on the ground, quite the contrary in fact, the exact opposite is true, price of goods is rising, and rising fast.
In Tanzania, the price of sugar almost doubled in under a week. One morning price was just over a dollar and before the week ended the prices shot to almost 3 dollars. So what is tipping the table and affecting the otherwise simple equation?
In this example, hiking sugar prices in Tanzania, the government was forced to intervene and crackdowns are still ongoing. It is alleged that unscrupulous businesses are hoarding the sugar forcing the price hike.
Top story on the news for the last two weeks is crackdown on warehouse, tonnes of sugar been caught and most recently is Uganda accepting to sell its surplus sugar to Tanzania.
Well, lets try what maybe a more direct example, like price of fuel at the pump. Here, we again find ourselves in the face of another discrepancy. Import price of oil is down, significantly, but the drop at the pump is not noticeable. It should have been an obvious drop in price of petrol and diesel but it has not yet happened
Tanzania, which imports refined oil is what referred he to as a net oil importer, and experts say it should follow that, “… cheaper oil will help lower current account arrears through imports.”
Local media quotes in-country experts stating that Tanzania has a bulk procurement system that allows it to make the most of the falling oil prices, that is, to buy cheap oil in bulk and store for use when prices swell again. So is that what is happening here, is the country importing oil at lower prices and storing it hence the little or almost no change in oil price at the pump?
For prices at the pump to change it requires importers to also buy oil at cheaper prices but if the excess oil, so to speak, is reserved then buyers still have to purchase at the current price and in turn sale at the prevailing price, not a very favourable scenario for the consumer at the pump.
Tanzania’s central bank, the Bank of Tanzania (BoT), has reported that the country is in fact buying more oil. According to the BoT, the value of oil imports now represents (21%) almost a quarter of all imported goods.
In fact according to BoT figures, this is a 9.8 % increase and is valued at.1.84 billion US dollars. The BoT explained that the increased import volumes is due to “…the increase in imported volume as prices fell in the world market
And “Tanzania’s value of import of goods and services stood at 10.61billion US dollar at end of February.”
The same is happening across the border in Kenya where the “Central Bank of Kenya report showed that oil imports increased by 11 percent to 1.02billion US dollars in quarter two last year compared to similar period previous year.”
Across another border to Uganda, the story is the same, “the Bank of Uganda said the import bill grew by 11.7 per cent to 6.81billion US dollars in the 12 months to last December, mainly driven by increased imports of non-monetary gold.”