Evaluating the impact of global oil prices on SADC and the potential for increased trade in biofuels and natural gas within the region

Abstract

This paper investigates whether Southern African Development Community (SADC) countries that are vulnerable to changes in oil prices could instead substitute oil and petroleum products with biofuels and gas from within the region. A pooled mean group estimator was used to determine the impact of oil prices on the gross domestic product (GDP) of 15 SADC countries. Results indicate that Mauritius, Mozambique, Tanzania and Zambia would be negatively affected by oil price changes. Next, two gravity models capturing bilateral trade between South Africa and Zambia and those countries identified as being vulnerable were estimated using pseudo poisson maximum likelihood. The main finding, based on the GDPs of the exporter and importer countries, is that potential for trade is higher with South Africa than Zambia. This implies that these countries are more likely to import gas and biofuels from there. Transport costs are the main impediments to importing from Zambia.