Poor Timing For Planned Fuel Increases – Economists
Harare, May 15, 2014 – Economists have warned that the imminent hike in the price of fuel will trigger the rise in prices of basic commodities, transport and a catastrophic increase in the cost of living.
The inflationary pressures on the already battered Zimbabwean economy resulting from a possible increase in the price of fuel will worsen anger, anguish and the suffering among the people.
This comes as government last week gazetted new pricing regulations under Statutory Instrument 80 of 2014, crafted by the Energy ministry in consultation with the Zimbabwe Energy Regulatory Authority (Zera).
The regulations state that the selling price of any petroleum product shall not exceed seven per centum of the oil company’s purchase price.
Currently, fuel retailers are buying petrol at $1,44 from suppliers. Although they are supposed to sell petrol at $1,49, they are retailing it at $1,50.
Diesel is being procured at $1,33 but service stations are selling it at $1,38, giving them a profit margin of 4 percent.
Based on the new regulations, fuel dealers now have a legal leeway to increase the price by 3 percent.
Renowned economist Eric Bloch said the pricing regulations were in view of government’s critical need to improve its inadequate revenues, but said the counter-balancing negative is that they are likely to cause inflationary consequences.
“It will inevitably cause a rise in passenger transport costs and, on the other hand, it will result in increased costs of input procurement for industry, and of delivery of finished products to distributive outlets, with consequential increase in prices of goods sold to consumers,” Bloch told the Daily News.
“This is the wrong time for government to do it and in trying to raise cash, they may actually create more problems than solutions resulting in pulling the economy back, instead of pushing it forward.”
He said the best way forward for government was to realise increased revenue to fund various expenditures.
Economic analyst Kipson Gundani noted that government’s intervention was not in the best interest of the economy and that market forces must be allowed to set the price equilibrium.
“Government intervention is not good for the economy as it creates market distortions. Any form of regulation in the fuel price will have an economic ripple effect downstream,” Gundani warned.
Independent economist John Robertson said it was not clear whether the change in calculating the profit margins by suppliers and retailers would have a major impact.
“At this stage it is very unclear,” Robertson said.
“If there is going to be an increase, it will be by a very few cents and this will result in a modest change in pricing structures.
“A major impact is likely to be felt if, for instance Ukraine goes to war and triggers global politics, this will affect global oil prices which in turn negatively impact on our local fuel prices and will be felt by every country.”
Motorists also expressed disappointment at the move, saying government has given fuel dealers the leeway to hike prices.
Solomon Ngwena, a Harare-based motorist, told the Daily News: “The economy is already struggling and we cannot afford to foot government expenditure. Government should protect us. As a motorist, I feel disappointed that government approved such a regime. It is just unacceptable.”
Taxi drivers complained that prevailing economic conditions do not allow them to operate profitably and the imminent hike will collapse their businesses.
“Nhasi zuva rese ndashanda $3, kana government ikasiya nyika ichifumuka kudai tinenge takutoita community serviceka? (The whole day I worked for $3, and if we leave government to let prices continue going up, then we will be doing community service). This cab is my own, but still the economy has not been merciful.”
Robert Chivese, another Harare-based cab driver.said: “If this fuel hike goes on, it will show that government does not care for its already suffering people.”
Innocent Zikhali, another motorist, told the Daily News that government needs to come up with an initiative to cushion motorists.
“Government needs to subsidise this hike; everyone knows that times are tough. Companies have shut down, people have been retrenched; what is next?” asked Zikhali.
Arnold Chimbambo, a motorist, expressed fears of fuel hoarding and shortages.
“Mukuona my sister, matonyora madhiri ekuti ichakwira, ma servas vachatanga kushiridha fuel (You see my sister, you have already written about this hike, service stations will horde fuel in anticipation of the hike). Just give them two days. They will start withholding fuel wanting to sell at the new price,” Chimbambo said.
The Government Gazette further explains that the maximum wholesale and retail pump price of petroleum at a wholesale depot shall be determined in accordance with the seven per centum regime.
The Daily News heard that there were representations made to government yesterday against the hike, warning that the increase could provide tinder to crystallise anger against government what with the backdrop of increasing hardships.