How Kenya’s petrol deal with gulf states backfired

Jul 28, 2023|Noelle Okwedy

Key questions this article answers:

Like Nigeria, the Kenyan government has removed the petrol subsidy. How have prices changed, and how has this impacted the value of the shilling?
The Kenyan government entered into an agreement with the Saudi Arabian and United Arab Emirates governments for fuel supply. What’s the impact on the Kenyan economy?

On the 15th of September 2022, a day after Kenya’s President Ruto's speech on the unsustainability of the petrol subsidy and two days after his swearing-in ceremony, Kenyans woke up to higher petrol prices.

Petrol prices per litre in Nairobi, went from 159.12 Kenyan shillings (KES) to 179.3 KES. But since then, thanks to the government’s Finance Act, VAT on petrol has gone from 8% to 16%, and currently, Nairobi residents pay 194.68 KES (₦1,084 or $1.37) per litre of petrol.

As shown in the table above, the second highest component after the landing cost is taxes, making up 39.6% of the value of a litre of petrol. Excluding taxes and levies, the cost of a litre of petrol in Nairobi would be 117.41 KES ($0.83 or ₦654.51), much closer to Nigeria’s current recent ₦617/litre average price set by the NNPC.

But while Kenyans struggle with higher petrol prices, the Kenyan government struggles with dollar scarcity issues, making it difficult for oil marketers to source dollars for petrol imports.

There are quite a few similarities between Kenya and Nigeria. First, both countries have left citizens reeling from abrupt petrol price hikes. But second, both are dealing with FX supply issues that weigh on the values of their local currencies while making it difficult for importers to source FX.

In Kenya’s situation, the government has entered into a petrol purchase agreement with Saudi