The demand for Kerosene and per capita income in Ethiopia

Abstract

The demand for kerosene is growing at the rate 5.6% per annum. Per capita income and population growth are determining factor that can directly affect the demand for household kerosene fuel in Ethiopia. Kerosene consumption is a log log (double logarithm) non linear function of per capita income through time. It is an ideal demand function. The demand for total kerosene consumption is income elastic and the elasticity coefficient is 8.9 in Ethiopia. This indicates that as income increase kerosene consumption increases, a 1% increase in per capita income will result in 8.9% increase in total kerosene consumption, i.e. more than a proportionate increase in demand for kerosene. Urban population is a limiting factor for kerosene consumption in Ethiopia. Urban population is growing rapidly. It is estimated that urban population growth at the rate of 4.1% per annum during the last 15 years.
The study tries to forecast demand for kerosene in 2005–2020. Between 1991– 2004, household kerosene demand has been growing at the rate of 5.9% per annum. Forecasting of the demand for kerosene was based on econometric model. The total urban kerosene demand will be 275,470 m³ in 2006, 346,900 m³ in 2010, 457,190 m³ in 2015 and 594,166 m³ in 2020. The Addis Ababa kerosene demand will be 111,420 m³ in 2006, 134,930 m³ in 2010, 168,400 m³ in 2015 and 204,030 m³ in 2020. This study attempts to overview the demand and supply of household fuels in Ethiopia, in general, and commercial fuels, in particular. We will also compare and contrast nominal prices and the amount of energy per unit cost for important fuels. Even though fuel wood has the lowest quality, it is the cheapest energy source among household fuels and that is why poor households preferred to consume it. Kerosene becomes the most expensive fuel than wood as well as charcoal. We look at the demand elasticity of price and income and analyse the effect of change in price and income on consumption of different household fuels.

Keywords: Kerosene demand; per capita income; income elastic; population growth; kerosene demand projection;

Ethiopian Journal of Economics Vol. 13 (2) 2004: pp. 35-60