Factors that drive energy use in Africa: panel data evidence from selected Sub‐Sahara African countries

• DOI: http://doi.org/10.1111/opec.12115
• Date: 01 December 2017
• Author: Sola Adesola,Aisha Kolawole,Glauco De Vita
• Published date: 01 December 2017

Factors that drive energy use in Africa: panel

data evidence from selected Sub-Sahara

African countries

Aisha Kolawole*, Sola Adesola* and Glauco De Vita**

*Associate Lecturer and Senior Lecturer, Oxford Brookes Business School, Oxford Brookes University,

Oxford OX3 0BP, UK. Email: akolawole@brookes.ac.uk; Email: sadesola@brookes.ac.uk

**Professor in Business and Management, Centre for Business in Society, Faculty of Business and Law,

Coventry University, CoventryCV1 5FB, UK. Email: ac1377@coventry.ac.uk

Abstract

Sub-Saharan African (SSA) countries need adequate energy to achieve socio-economic growth and

development. According to recent statistics, only 30 per cent of the entire population have access

to power, making the region the highest in the world with people without access to electricity. This

is in sharp contrast with the abundant energy resources available, which could be harnessed to

provide the needed energy. The purpose of this study is to identify and analyse the determinants of

aggregate energy demand in SSA. Reliable secondary macroeconomic and energy data were

collected from publicly available and widely used databases. The study uses a panel cointegration

technique to examine the determinants of energy demand in SSA, over the period from 1980 to

2014, for selected countries in the region. Our results reveal that income is the predominant factor

behind the increase in energy demand in SSA, with the highest elasticity. Furthermore, energy

demand in SSA conforms to a priori expectations of a negative price elasticity. The results are in

line with the theory of demand. Significantly, we also find that urbanisation an important role for

energy demand. Stringent energy conservation policy and other recommendations flow from the

findings.

1. Introduction

The need for a comprehensive and up-to-date energy demand analysis in Sub-Saharan

Africa (SSA) cannot be overemphasised. SSA population is 13 per cent of the World

population but only accounts for 4 per cent of the total global energy consumed (IEA ,

2014). Also, the primary source of energy in the region is solid biomass-like fuelwood

and charcoal which accounts for more than 75 per cent of the total energy consumed in

the region (Lambe et al., 2015). Another issue is the increase in urban population from

22.1 per cent in 1980 to 37 per cent in 2014 (World Bank, 2014). The region has the

highest number of people without access to electricity in the world, estimated at 600

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million (Onjeyi, 2014). The low rate of electrification is in contrast with other

developing regions such as Developing Asia, Latin America and the Middle East with

electricity access rate of 86 per cent, 95 per cent and 92 per cent, respectively (IEA,

2013). However, there are abundant renewable and non-renewable energy resources

which could be used to provide the energy needed. This is in sharp contrast with the

energy poverty.

The main objective of this study, therefore, is to investigate the impact of the driving

forces of aggregate energy demand in SSA, in order to facilitate demand planning and

management. To achieve this goal, the impact of income, price, urbanisation and

economic structure on the demand for energy in SSA is analysed and presented. The

panel dataset covers the period from 1980 to 2014, covering 16 SSA countries, namely:

Benin, Botswana, Cameroon, Congo, Cote D’Ivoire, Democratic Republic of Congo,

Ethiopia, Ghana, Mozambique, Nigeria, Senegal, South Africa, Sudan, Togo, Zambia

and Zimbabwe. The findings can facilitate the development of an appropriate policy

framework for meeting the energy need of consumers in SSA, once the underlying

driving factors are analysed. The paper provides fresh evidence in the energy economics

literature on the determinants of aggregate energy demand in SSA by analysing an up-to-

date dataset for 16 countries in the region.

The remaining part of the paper proceeds as follows. Section 2 provides a brief

review of the empirical literature on energy demand. Section 3 discusses the data and

econometric framework employed in the analysis. Section 4 presents the empirical

results and Section discusses the findings. The final section provides a summary of

findings and offers some policy implications.

2. Review of related literature

Several researchers have used various methods and approaches to model energy demand

and obtained different results, which have either confirmed or contradicted earlier

studies. Some of such studies in the literature include those by Al-faris (1992), Eltony

and Hoque (1996), Mohammed and Eltony (1996), Masih and Masih (1996), Masih and

Masih (1997) Brenton (1997), Diabi (1998), Galli (1998), Pesaran et al. (1998), Sinton

and Fridley (2000), De Vita et al. (2006) and Wolde-R ufael (2006). They are based on

the law of demand and the assumption that the demand for energy mostly behaves as a

normal good, which suggests that the main variables that influence the demand for

energy are price and income (see Appendix 1 for mathematical derivations).

As pointed out by Samuel et al. (2013), the key determining variables for the

demand for energy include per capital real GDP, industrial growth, real price of energy,

population, air temperature, financial development variables, capital stock, foreign direct

investment and efficiency variables. The use of some of these variables, with the price

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