Availability of cheap gas in Africa is shaping the consumption patterns of imported cars in the continent. This is the case more especially with countries undertaking oil production. The fact that the price of gas in the local pumps is low is by far a great incentive for most car consumers in making purchase decisions. Assuming every car consumer is rational, none of them can buy a car if they have prior knowledge of their inability to fuel the.
A dazzling array of imported cars
Image source: www.thetruthaboutcars.com
Past and recent trends show that African countries, whose economies benefit largely from the oil sector, also have high car importation records. Perhaps, Libya is a good case study. Sitting around 1,760,000 square kilometers, the country is well endowed with petroleum and other natural resources. Precisely, the oil sector contributes about 95% of the country’s government revenues and about 25% of its gross GDP. Going by past stats, Libya’s el-Sharara oil wells could yield up to 350,000 barrels of crude everyday! With such huge productions and great success experienced in the oil sector, the average retail price of gas in the local pumps cannot compare with those in international markets. In other words, fuel is readily available in the local front and therefore cannot be a challenge to fuel cars when there is need.
Why import cars?
A good understanding of international economics and international trade could help explain why most oil producing African countries import vehicles. Perhaps a good explanation to a layman is that countries will produce and import the goods for which they have high endowment of resources. In return, the will import the goods for which they have low resource endowment. This makes perfect economic sense. For instance, Libya will export petroleum products to other countries for export gains. In return, they will import cars and other products they are not producing in large scale at the local level.
With the country’s export earnings, it has the purchasing power to import cars from other countries like Japan. The fact that retail fuel prices at local pumps are readily affordable; it forms a great incentive to increase her car importation to serve and quench local consumer appetites.
How discovery of large oil deposits in East Africa will encourage car importation
Fluctuations in the average retail pump prices have affected the consumption of fuel and use of vehicles in several parts of the world. A spike witnessed in the international market will eventually spill over to the local markets. This, in turn will affect the consumption behavior or vehicle owners.
Oil Exploration has hit hifh speed in Africa where discoveries like Ngamia in Kenya run into billions of barrels
Image source: ceo.ca
On a positive note, the discovery of large oil deposits in East Africa may encourage car importation to the region. The explanation can be inferred from the case study of Libya as discussed above. This means that fuel will be readily available for use by the locals and for export as well. In other words, they will experience less pain as far as hikes in pump prices are concerned. With the expected huge export earnings, these countries will have the purchasing power to make importation of cars for local consumption. In this regards, special focus is drawn to oil discoveries in Kenya and Uganda. We should expect increasing demand for imported cars in these countries soon.
