An Econometric Analysis of Fuel Demand in Zambia

Abstract

Fuel is essential to the smooth running of any industry. Without fuel, many processes would stop and be difficult to restart. Fuel can come in many forms; it can be liquid or gaseous and be a fossil fuel or renewable source. A country’s reliance on fuel imports is usually because it lacks sufficient resources to produce fuel domestically. In this study, fuel refers to gasoline and diesel. There are periods in Zambia when there are shortages of fuel in the domestic markets. Indeni oil refinery was put on care and maintenance as it has become obsolete and the country now imports final finished fuel products. The implication of all this is that fuel will now get delivered by road as opposed to delivery by pipeline to Indeni which was refined into various products. Additionally, this decision removes government bureaucrats from making procurement decisions of crude oil and puts procurement decisions of final fuel products in the hands of individual oil marketing companies which sell the products to the final consumers. These developments inadvertently will have a big impact on the price of petroleum products.  The result of estimating a VAR model indicates that fuel demand in Zambia is negatively related to price changes in fuel. Past values of fuel consumption are found to be important determinants of the present demand for fuel. GDP surprisingly doesn’t determine fuel demand. This may be an indicator that GDP growth is not filtering through to the ordinary citizen. There is a need to design inclusive economic policies so that benefits from growth filter through to the ordinary citizens.

Keywords: Fuel Demand, VAR model, Hubbert Peak Theory, Error Correction Model (ECM), Autoregressive Distributed Lag Model (ARDL); Fuel Subsidy Reforms.

DOI: 10.7176/JESD/13-20-12

Publication date:October 31^st 2022