Despite the easing of truck pile-up at the border which had been blamed for run-away fuel prices hike in Uganda, most pump stations are still selling fuel at or slightly over UGX 5,000. Between June 2021 and January 2022, fuel prices in Uganda have gone up by more than UGX 1,000. This is very high and calls for explanation.
Whereas fuel prices have generally increased worldwide, following the COVID-19 pandemic that resulted into the Organization of the Petroleum Exporting Countries (OPEC) cutting their collective oil production by a record level of 10 million barrels per day in 2020, Uganda has seen a relatively higher rise compared to the neighboring countries, including the landlocked states.
While recognizing that in a liberalized economy like Uganda, prices of goods and services are determined by forces of demand and supply, there is room for collusion and setting of higher prices by firms with a commanding market share. This forces other small companies to follow suit. In the case of Uganda, the fuel retail market is dominated by two big players.
Fuel prices continue to rise in Uganda. Photo: Africa news
In discussing fuel prices, it is also worth examining other cases in Africa. In Nigeria, the country with the lowest cost of petrol at the pump on the African continent (at an equivalent of about UGX 1,400), the government subsidizes the price by about 40% under the Price Control Act, which prohibits selling fuel above the government regulated price.
This Act was introduced in 1977 when there was a worldwide increase in the price of fuel similar to what we are facing. Similarly, in Rwanda, the government introduced subsidies on petrol and diesel in May 2021 as global oil prices began to rise and moved further to set prices of fuel. In addition, in Tanzania, the government intervenes in price negotiation to stabilize fuel pump prices so that it’s affordable to Tanzanians.
In this context, it is evident that market forces of demand and supply are not working well for Uganda. Therefore, the government should intervene in price negotiation with key players in fuel business, to have fuel prices reduced. Further, the government should come up with a regulated price and an act that prohibits selling fuel above the government regulated price, especially during supply shocks.
