Tariff hikes to hit on businesses growth
MBABANE – The latest electricity tariff hikes in Eswatini and South Africa are set to negatively affect the local businesses’ expansion.
Yesterday, the Eswatini Electricity Company (EEC) effected an average tariff increase of 8.02 per cent and Eskom’s 12 per cent also kicked in for the 2024/25 financial year. These tariff hikes in both countries are set to have negative effects on local businesses and consumers, which were already grappling with other economic shocks like high interest rates.
Economists have lamented about these increases as they projected that this would further force producers and consumers to continue living in the high cost-of-living environment for longer.
Expansion
Economist Sanele Sibiya said businesses would now find it hard to apply for more credits for their expansion as projected. Sibiya stated that a lot of commodities related to electricity and fuel were set to increase as well and that might push inflation higher.
The economist said the consumers’ point of view, disposable income would further be affected and operational budgets for businesses would have to be squeezed as well. Sibiya highlighted that it was noted from the Central Bank of Eswatini (CBE) Governor Dr Phil Mnisi’s monetary policy statement released last week that the banking sector’s non-performing loans (NPL) rose by 2.6 per cent to reach E1.1 billion at the end of January 2024. Consequently, the ratio of NPLs to gross loans grew by 0.1 percentage point month-on-month to 7.0 per cent at the end of January 2024. He said this was showing that consumers were still struggling to keep up with their loans.
Forced
He added that in order to cover the increased operational cost, businesses would be forced to increase prices for their products sold to consumers.
On the other hand, fuel is set to increase as reported that South African motorists will not get any relief tomorrow when April’s fuel prices will rise for the third consecutive month. On April 3, fuel prices will increase as follows: Petrol 93: 65 cents (c) per litre. Petrol 95: 67c per litre.
In reaction to the fuel hikes, Sibiya said this was a global issue as crude oil prices were on the increase for the past weeks, hovering at around US$82 per barrel. He said when this was coupled with the high interest rates; there were likely more chances for hikes in the fuel prices.
Economist Thembinkosi Dube shared the same sentiments with Sibiya, highlighting that these tariff hikes were going to cripple business growth and further reduce disposable income for consumers.
Changed
Dube commended the CBE for keeping the interest rate unchanged as expected. Dube said the increased tariffs would set the inflation rate up and that lead to increased costs of goods and services. “We are likely to see a hike inflation rate,” said the economist. Meanwhile, the Energy Intensive Users Group South Africa (EIUG), whose members account for over 40 per cent of electricity consumption in South Africa, expressed concern that SA’s electricity prices are increasingly out of line with competitor countries, and that high annual increases, such as these, will leave local industries uncompetitive.
While ‘disappointed’ with Nersa’s decisions, the group acknowledged it was a difficult decision to make. As reported by News 24 last month, the organisation said, “Nersa did not have much room to move considering Eskom’s challenging financial and operational position. To this extent, the EIUG hopes, for certainty and price stability, that the decision is legally compliant and final and will stand.”
Announced
The Minerals Council of South Africa, whose members consume about 30 per cent of Eskom’s output, says that the tariff increases which have been announced will increase the mining industry’s electricity costs by R13.5 billion by the end of 2024.
“Since 2008, the price of electricity for the mining industry has increased eightfold while consumer prices, as measured using the consumer price index (CPI), have only doubled,” the council said.
The tariff hikes, ‘fundamentally shift the intermediary cost structures in mining’ said the council’s Chief Economist, Henk Langenhoven.