Measures to Reduce the Economic and Social Impact of High Fuel Prices

High volatility in the world prices of petroleum has been a characteristic feature of the global economy in the last decade. World petroleum prices increased four-fold between 2004 and 2008 and, and following a drop in prices in the second half of 2008, petroleum prices have been rising again, and they are several times higher than they were two decades ago. Since high and volatility of prices is likely to be a permanent feature of the global economy for the foreseeable future, they merit a reconsideration of the national transport and taxation policies that were put in place when fuel prices were not such a significant component of trade-related transactions costs in Sub-Saharan Africa (SSA) countries. Transport practices that were based on the assumption of low price of fuel are not sustainable, and policies neglect fuel efficiency considerations through lowering the fuel consumption of vehicles measures are no longer sustainable. Efficient and low transport cost is essential to achieve regional economic integration and strengthen Africa's competitiveness in external markets. Higher diesel prices also impact on the prices of all other goods which use diesel as an intermediate input. The most significant among them with implications for the poor in low-income developing countries is food, on which the poor spend a disproportionately high share of their total household expenditures. This report is in three parts in the first part, transport fuel prices in the countries of SSA are compared with those of other regions of the world. The comparison is not only in terms of the actual retail prices but also, but taking account of per capita incomes and truck revenues, also in terms of affordability. This Part also provides evidence of the make-up of transport fuel prices in SSA countries, as a first step in assessing how they can be dealt with. The second part provides new evidence of the impact of these high fuel prices on the export competiveness of a sample of six SSA countries. It also provides a shorter description of the results of a study of the impact of fuel prices on logistics costs in Central America, since so far there have not been any studies of the impact of high transport fuel prices on logistics and food costs in SSA countries. The third part deals with the ways in which the impact of high transport fuel prices can be addressed. Two main areas of action are described, those that would reduce the retail price of transport fuel and those that would increase fuel efficiency, so they impact of high prices would be reduced. This section focuses on diesel fuel, as this is by far the most used by the trucks that transport export products and are involved in domestic logistics. This section concludes with some ideas on what could be done next to make progress on implementing the most promising ideas for reducing the impact of high transport fuel prices.