East Africa: an emerging LPG market

East Africa has become an attractive market for LPG exports due to its 20% yearly growth in demand.
The development has been underway for five years, with the UAE and Saudi Arabia serving as significant LPG suppliers to the area during that time.
Other essential factors in studying the market of this region include the fastest economic growth rate (in comparison to the rest of the African continent), relative proximity and longstanding commercial links with Iran.

East Africa has become an attractive market for LPG exports due to its 20% yearly growth in demand.
The development has been underway for five years, with the UAE and Saudi Arabia serving as significant LPG suppliers to the area during that time.
Other essential factors in studying the market of this region include the fastest economic growth rate (in comparison to the rest of the African continent), relative proximity and longstanding commercial links with Iran.

In terms of legal and technological infrastructure, Kenya is East Africa’s largest economy and the region’s leading and largest LPG market (import wharves and distribution chains). Tanzania, Uganda, and Rwanda are East Africa’s next-largest LPG markets. Kenya’s geographic location, combined with these considerations, has turn edit into a hub for LPG imports for its neighbors, who have no other option.
According to projections, the growing demand for this product in Kenya will continue for the next ten years.

Kenyans consume annually 3 kg of LPG (which is still less than the African average of3.5 kilograms). In urban regions, this consumption is consumed by 52% of households,while in rural areas, it is consumed by 8% of households. The LPG penetration rate inhouseholds (average of urban and rural) is expected to rise from 24 percent in 2019 to32 percent andto 40 percent in 2030.
Imports meet Kenya’s total annual demand for LPG, and there is a non-mandatory pricing system that is based on import prices (CP Aramco Index).

LPG is mostly used in Kenya’s domestic sector (96 percent) for cooking and isavailable in form of cylinders with capacities of 6, 13, and 45 kg.
Liquefied natural gas enters the country through two import terminals in Mombasa, then is transported by tanker and train to Nairobi and the neighboring cities. After “import”, the greatest profit margin in the Kenyan LPG market belongs to “brands” such as Kenolkobil, S.E.A Gas, or TOTAL, according to the cost breakdown in the chart below.

The growth of the LPG market in Kenya during the last five years is attributed to 3reasons that have formed with government support:
Non-mandatory and competitive pricing
Elimination of VAT and customs duties assisting in the distribution of gas-powered cookers to low-income families
However, the tax exemption, which was one of the most important of these factors, hasbeen abolished from July 2021 in order to relieve fiscal pressure on the government afflicted by the COVID-19 outbreak.
Despite its application to other goods (such as gasoline and diesel), VAT was repealed in LPG in 2016, providing a distinct advantage for this product over its competitor, kerosene. Since that time extensive campaigns have been launched to replace LPG with coal or kerosene among Kenyan households.
Since last months, the 8% value-added tax on products has doubled, now encompassing LPG. Although this policy deprives it of the particular LPG privilege and may impede its expansion in Kenya, LPG still provides households with a comparative advantage over kerosene and coal.