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Fuel Shortages Make Businesses and Consumers Poorer!

Introduction

Cameroon is once again experiencing fuel shortages. In a service note on10th December 2023, Gaston Eloundou Essomba the Minister of Water, Resources and Energy blamed the shortage of  “Super Diesel” on delays in ship deliveries as bad weather disrupted the loading of fuel supplies in Lome, Togo. However, Société Camerounaise des Dépôts Pétroliers (SCDP) is working to ensure that 81 trucks and wagons are able to distribute the whole country by Tuesday 12 December 2023 (Minee, No. 1 2023).

In a country of 28,647,293 people and 347,000 units of cars were reported in 2022, fuel shortages have direct negative consequences on the economy and the longer they last, the more profound the impact. The major short-run impacts of any of the oil shortage scenarios includes a reduction in GNP, increases in prices and interest rates, and a reduction in petroleum product supply, which drives prices up. If shortages in petrol are prolonged, it could equally impact automobile sales and housing construction.

This article will look at the implications of oil price shortages on the Cameroonian economy, illustrating the impact on the economy, consumers and macroeconomic dynamics. It concludes with policy recommendations to lower the probability of future occurrences and a better government response.

Petrol shortages are considered normal in Cameroon and the government usually responds efficiently. However, it amplifies other infrastructure shortfalls such as irregular electricity supply and slow internet connectivity, hurting businesses and productivity. However, Société Camerounaise des Dépôts Pétroliers (SCDP), has a storage capacity of 241,000m3 including 234,000m3 in liquid hydrocarbons and 7,000m3 in liquefied petroleum gas (LPG). However, in recent years, SCDP has faced major challenges in meeting local demand due to a limited ability to develop its storage facilities. As such, fuel shortages tend to have known and permanent short-run effects on the economy.

Fuel shortages directly impact transporters such as taxi drivers, motor-taxis, inter-city and inter-regional travel amongst others. Shortages in petrol causes transporters to increase their prices, reducing the purchasing power of consumers. While transporters’ income rise momentarily, reduced demand for other goods and services causes a direct hit to the economy. Assuming that a minimum of 1 million people travel every day, a 10% increase in price can reduce demand for other vital products and affect informal sector workers such as road-side restaurants and food sellers directly.

Furthermore, other sectors such as the agriculture and industrial sector may be affected by petrol shortage as they use this as important factors of production. In Cameroon, smallholders with 51% of Cameroon farmland have less than 3 acres of farmland. However, larger producers could see farming activity impacted, reducing their productivity and putting greater pressure on farming yields. The industrial sector that contributes 25% of Gross Domestic Product (GDP) can equally be negatively impacted by fuel shortages as their activities can be more directly impacted in the absence of reserves.

There are second round effects on the agriculture sector and farmer margins. Petrol scarcity causes the prices of transport to rise. In Cameroon, this is accentuated by the poor connectivity between rural producers and consuming urban centers. On average, economic actors consume 7.800 barrels per day (b/d)) though the latest value from 2021 is 11, 870 b/d. This could impact the wiser economy with disruption on fuel supplies inevitably leaving many small businesses, health workers and drivers unable to do their jobs. On top of this, the withdrawal of fuel subsidies equally amplifies the effects of higher transport prices on consumers.

Back in July 2022, Yves Honore Minka from the waste disposal company Hygiene and Sanitation of Cameroon (HYSACAM) in Ebolowa, on the border with Equatorial Guinea and Gabon said that the town of Ebolowa and its surroundings are a mess because his company’s waste and refuse collection vehicles have been halted by a lack of fuel. So fuel shortages have an impact on the whole economy and the delivery of public services.

Figure 1: Average Fuel Consumption per day in Cameroon

Source: Global Economy

The impact of fuel shortages can equally be muted

On average, Cameroon loses XAF 32 billion to illegal oil product handling yearly, according to the director-general of  Cameroon Petroleum Depot Company (SCDP). Oil products smuggling is thriving in those regions (North, Adamawa, and the Far North) because they have few filling stations that supply residents. So, they systematically resort to  “Zoua Zoua”, the usual name for adulterated super or diesel fuel smuggled from Nigeria. This reduces the impact of fuel shortages on consumers, but disrupts the market by causing indiscriminate pricing based on black market demand and supply trends.

Trade may be disrupted due to the fuel shortages

Some of the vehicles in Cameroon are destined for the neighboring Central African Republic, Chad, and Gabon, slowing regional trade and transport. Cameroon is strategically located as a key point in trade with three routes crossing across the national territory. These include Dakar-N’Djamena Highway, connecting just over the Cameroon border with the N’Djamena-Djibouti Highway, the Lagos-Mombasa Highway and the Tripoli-Cape Town Highway.

Cameroon’s unique location allows it to close a gap in central African trade due to inadequate infrastructure. Fuel shortages have a direct impact on cross-border trade, which can amplify the impact of the coup in Gabon, inadequate border procedures and poor condition of roads. The short term disruption could directly impact over 15,000 – 25,000 Cameroonians directly and indirectly. Women traders could equally be negatively impacted as they rely on trading across borders through land border checkpoints, unofficial crossing points, or through border markets. In the sub-region, women account for  30% to 40% of trade and may face even higher prices than men.

Recommendations

  • In 2020, the Cameroon government launched an international call for tenders to import 465,000 tons of petroleum products. In the framework of that mechanism, for the February-May 2020 period, Cameroon selected Nigerian Sahara Energy as the main bidder. Besides the latter, the next three immediate winners were Vitol (a Swiss petroleum products trading company), Addax Energy (Swiss), and Petra Energy SA (Swiss). We recommend a rotating call that can allow new companies and suppliers to better meet local demand and reduce the risk of disruptions.
  • The government should ensure persistent investment in SCDP storage capacity to ensure that Cameroon has at least 6 months of crude oil supply. Furthermore, a clear strategy should be put in place to ensure seamless distribution to smooth over disruption emanating from external factors such as bad weather, wars and sanctions.
  • Finally, at the end of 2019, Cameroon set up a new sustainable market supply mechanism to minimize costs and potential shortfalls that would continue to expose the government’s cash position. While this has been effective, the mechanism should reinforce confidence in supply and suppliers should be attributed points and preferences for distribution on a case-by-case basis.

Conclusion

Fuel shortages have a negative impact on the agriculture and industrial sector. They cause the price of transportation to rise, increasing food prices and reducing consumer disposable incomes. Cameroon should improve its ability to smooth over disruptions by expanding its list of suppliers and providing greater incentives to ensure that suppliers are conducted in a manner that reduces disruption.

Reference List.

  1. (2023). World Population Dashboard – Cameroon. United Nations Population Fund. https://www.unfpa.org/data/world-population/CM
  2. (2023). Cameroon Registered Motor Vehicles 2005 – 2015. International Organization of Motor Vehicles Manufacturers. https://www.ceicdata.com/en/indicator/cameroon/motor-vehicle-registered
  3. Johnson, L. R., Knorr, R. E., Saricks, C. L., & Mendiratta, V. B. (2023). Economic Impacts of Petroleum Shortages and Implications for the Freight Transportation Industry. Transportation Research Record (870). https://onlinepubs.trb.org/Onlinepubs/trr/1982/870/870-008.pdf
  4. Caverton Law Firm. (2023).Prospects for private-sector participation in developing storage facilities for petroleum products in Cameroon. https://cavertonlawfirm.com/prospects-for-private-sector-participation-in-developing-storage-facilities-for-petroleum-products-in-cameroon/
  5. Global Economy. (2023).Cameroon: Gasoline consumption (thousand barrels per day). https://www.theglobaleconomy.com/Cameroon/gasoline_consumption/
  6. Business in Cameroon. (2023). Cameroon loses XAF32 bln yearly to illegal oil product handling, the SCDP claims. https://www.businessincameroon.com/energy/2910-12010-cameroon-loses-xaf32-bln-yearly-to-illegal-oil-product-handling-the-scdp-claims
  7. Chanel Television. (2022). Illegal Crude Oil Market, Anambra Insecurity, Adamawa Communal Clash +More |Eyewitness Report| News Report. https://www.youtube.com/watch?v=HtURrOyPXR4
  8. Kindzeka, M. E. (2020). Nigeria’s Closed Border Boosts Smuggling to Cameroon. https://www.voanews.com/a/africa_nigerias-closed-border-boosts-smuggling-cameroon/6185265.html
  9. Zarrilli, S. (2021). Capacity building in Trade and Gender. UNCTAD. https://www.wto.org/english/tratop_e/womenandtrade_e/16july21/item_3.4.c._unctad.pdf

This article was published in local “Bougna” in French. See link below;

https://bougna.net/2023/12/23/contact/henri-kouam-les-penuries-de-carburant-appauvrissent-les-entreprises-et-les-consommateurs/ 

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