Economy
Middle class keeping their cars at home as fuel price escalates
Tuesday April 04 2023
Heavy traffic jam along University way in Nairobi on April 22, 2022. FILE PHOTO | EVANS HABIL | NMG
Fuel consumption in Kenya, excluding the pandemic year, has fallen for the first time since 2017, pointing to a softening economy amid record-high prices and reduced vehicle sales by formal dealers.
The uptake of diesel— largely tapped for powering commercial vehicles as well as agricultural and industrial machinery— dropped to 2.27 million tonnes from 2.29 million tonnes, according to provisional official data.
Consumption of Super petrol, chiefly used by personal car owners, slid at a faster pace to 1.508 million tonnes from 1.544 million tonnes the year before, pointing to reduced use of personal cars, the Kenya National Bureau of Statistics data suggest.
The fuel use dropped in a year the retail cost for a litre of diesel jumped 32.18 percent to Sh144.38 on average in Nairobi while that for Super petrol bumped 23.90 percent to Sh154.77.
Given the growing number of motor vehicles on Kenyan roads, fuel consumption has always trended upward year on year, save for the Covid-19 period where consumption dipped and then started rising with the reopening of the economy.
Read: State increases petrol price, diesel remains unchanged
The record retail prices for fuel were a result of volatile global oil markets largely due to Russia’s war in Ukraine that exacerbated disruptions in global supply chains that were yet to stabilise from the pandemic shocks of 2020.
The bottlenecks in supply chains saw Kenya’s cost of importing fuel jump 72.13 percent to Sh656.62 billion last year, according to the KNBS.
The higher cost of the essential commodity, the main driver of activities in key sectors such as farming and transportation, prompted the previous administration to spend Sh81 billion in the financial year ended June 2022 to cushion consumers.
President William Ruto’s regime, however, dropped the cushion on Super petrol from last September immediately after taking power, citing the high cost of the fuel subsidy that the cash-strapped government could not sustain.
The reduced uptake of fuel reflects a slowdown in economic activity last year because of a prolonged severe drought, elevated inflationary pressure and higher interest rates that hurt spending and investment by Kenya’s families and businesses.
Kenya’s gross domestic product (GDP) — economic output adjusted to inflation — averaged 5.6 percent in the first three quarters of last year, softer than 7.7 percent in similar period the year before.
The economic activity is estimated to have decelerated further in the fourth quarter as the Ruto administration dropped short-term consumption subsidies in favour of long-term interventions, largely on farming inputs.
Road transport accounts for more than half of total fuel consumed because of the low manufacturing base and low levels of mechanised agriculture, the Petroleum Institute of East Africa said in a previous note.
Kenya’s transport sector tends to slow down slightly in an election year as traders in land-locked Uganda and Rwanda — which largely rely on the Port of Mombasa for imports and exports — withdraw some of their trucks due to the tension tied to the polls.
Data from Kenya Motor Vehicle Industry Association (KMI) show that new vehicle sales in the formal market dropped 6.30 percent to 13,352 vehicles in 2022 compared with 14,250 units the year before.
Read: Caps on wholesale fuel prices to make a comeback
Isuzu East Africa accounted for 44.70 percent of last year’s sales, followed by Toyota with 21.30 percent and Simba Corporation (Mitsubishi) with 8.90 percent.
