Resource information
Petroleum 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.
