Brace for fuel price hikes: BMI

The hike in fuel prices is anticipated to have a ripple effect on the economy and could lead to price jumps in essential consumer goods, denting Zimbabwe’s economic growth prospects.

MOTORISTS should brace for more fuel price hikes as oil prices continue to move northwards while government insists on controlling the fuel industry and maintaining a myriad of taxes on the sector, a risk analyst has said.
Fuel prices have been rising in the past few months as petrol prices peaked at $1,47 per litre last month from an average of $1,41 per litre, while diesel has breached the $1,30 per litre mark.
The hike in fuel prices is anticipated to have a ripple effect on the economy and could lead to price jumps in essential consumer goods, denting Zimbabwe’s economic growth prospects.
Chiedza Madzima, a senior operational risk analyst at BMI International, told The Financial Gazette that government should liberalise the fuel sector and scrap some taxes in an effort to offset the rising oil prices.
“Where oil prices are going, we are forecasting an average of $73/barrel for this year and $80/ barrel by 2020 so this is not good news for countries like Zimbabwe who are landlocked and don’t have refineries…
“The FOB/ landing cost of fuel in Zimbabwe is about $0,98 but the additional taxes leave it where it is currently standing. This means the fuel prices are only going to go up.
“To help with this, government could maybe dial back on the taxes, Botswana has done this successfully. Further, they also need to liberalise the sector, it is too state controlled,” Madzima said on the side-lines of the recently-ended Zimbabwe National Chamber of Commerce congress.
Price rises at the pump follow a huge jump in the oil prices over the past year, after Brent Crude broke through the $80 a barrel mark in May for the first time in nearly four years prompting industry apprehension for price increases.
Oil peaked at around $120 a barrel in 2014 but soon after dropped to as low as $40, with local diesel prices presently at an average of $1,32 up from $1,21 a week ago.
Madzima pointed out that if government failed to back down to liberalise the sector and reduce the taxes, ordinary Zimbabweans were going to bear the brunt.
“It would really help to dial back on the taxes… they need to remove taxes or consumers will bear the brunt.
“Liberalisation is the way to go as there are only a few players and Government then plays sole distributor which means there is very little competition in the sector,” the risk expert said.
Economic commentator Francis Mukora recently said the increase in fuel prices will have a ripple effect on everything, including food and transport.
“An absolute devastating effect because of everything increases. The moment that petrol price increases, every other commodity increases. Food is transported byways of either train, air or by big trucks; you can imagine they have to use patrol, so it’s got an effect,” he said.
He further indicated that the knock-on effect on consumers will be felt hard, especially when it comes to food prices.
Reserve Bank of Zimbabwe governor, John Mangudya has already warned that foreign currency shortages coupled with the country’s shrinking export bill and galloping fuel prices on the global market will continue to push up the prices of fuel in the country.
Bloomberg recently reported that the US government had asked Saudi Arabia and other Opec producers to increase oil production by around 1 million barrels per day, following the rise of US gasoline prices to their highest level in three years.
That could help to stabilise prices at the pump, or even bring them down.
However, economist John Robertson was quick to point out that this will not bring relief to Zimbabweans.
“It takes Zimbabwe an awfully long time to feel international price changes in any case, government increased taxes when international oil prices went down.
“Zimbabweans are in for a price increase period which will consequently lead to higher import figures as locals turn to cheaper imports,” Robertson said, adding Zimbabwean fuel prices remain high compared to regional counterparts.
He said this was going to affect Zimbabwe’s four percent economic growth projections.
In South Africa, a litre of petrol now costs 82 cents more while diesel went up 85 cents.
The country has already witnessed price increases of most essential consumer goods as foreign currency shortages persist amid high cost of packaging in the past two months.
According to Mangudya, the country spends 40 percent of its foreign currency earnings on fuel imports, with diesel taking a lion’s share of $851,7 million, while $384 million is spent on petrol imports, giving a total of $1,2 billion per year.
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