Temporary fuel levy decrease brings no impact on economic growth
The reduction of fuel pump prices is a manifestation of government and stakeholders’ rendezvous to concerted efforts to revamp the economy through austerity measures as enshrined in NDP’s and HPP’s.
We applaud the Government for this positive development, as the reduction has been made possible due to the good economic policies pursued by the Namibian government. The fuel pump prices had an effect on the cost of living as fuel drives the prosperity of the economy for any nation, and should therefore be readily available, and at affordable prices. With the RussiaUkraine conflict continuing to impact the price of crude oil globally, this has had a direct impact on fuel prices in Namibia. Even if government takes petrol prices down, the economy can’t just rise because of reduced petrol prices. Only two to three months, then petrol prices will rise for more than they have been reduced.
The temporary reduction of levies imposed on fuel on all products is an opportunity cost to stakeholders who are benefiting. Using estimates of the opportunity cost of oil can improve the assessment of costs and benefits associated with alternative and development strategies, which helps to leverage the future welfare of its citizens. Moreover, setting an appropriate opportunity cost for oil levies enables a costbenefit analysis and allows the country to decentralise its decision-making, a necessary component for encouraging investment and thus promoting economic growth and development. As a business and economic analyst, the contrary is true if revenue is decreasing as a business is then at risk of not breaking even, or having very low margins of safety and levels of profit. The only scenario where a decrease in revenue is not damaging to a business is when costs are also decreasing. If costs are also decreasing, the business may be in the same overall financial position. Therefore, I am not convinced that Road Fund Administration, National Petroleum Corporation and the Motor-Vehicle Accident Fund will have sufficient financial resources to carry on their mandates. It is important to note that levies and taxes imposed on petroleum products are serving funds which are equally important such as for the maintenance of roads, the national budget and providing financial assistance to road accident victims. Economics can be unpredictable, and no one can say what the future will bring in an ever-changing world. The industry looks like it is having a tough time.
Furthermore, I expected the government to do an intervention on prices of basic needs and transportation. This momentum can be used by making a regulation jointly with transport operators to fix a rate. Market interventions can be taken by the government in terms of basic needs. The decrease will be meaningful if the government makes interventions related to transportation or market operations. Without these, the fuel price decrease will be meaningless. The market for oil is global, and the removal of Russia from the global supply chain has and will continue to push the price of oil up. With no end in sight for the war in Ukraine, the price rises will continue. Geopolitical tensions and supply shortages will support high crude prices. The reason why the government said “temporary relief” means that we are unpredictable because we are reacting to a world that is unpredictable. The government will carefully watch the situation and take monetary measures.
As we come to accept that our world has changed, probably permanently, we’re forced to face the fact that we can no longer count on the future looking like what we expect it to. In fact, we have no idea what the near future is going to look like. Of course, we must do what we can to figure out how to navigate the known changes. Living in an uncertain world is going to take a certain amount of letting go. Living in the present, knowing you’ve done everything you can to adapt and prepare, will help you feel more confident in the knowledge that no matter what happens, you will find your way through it. Therefore, if government was serious in reducing fuel prices, they should have restored the prices to the initial amounts that were there before the increments. That would have had a real positive impact on the economy. Otherwise, this is purely windowdressing and won’t help matters. But we must be thankful because it helps us to be at peace. Philippians 4:6 tells us: “Be anxious for nothing, but in everything by prayer and supplication”. We should never fail to celebrate and acknowledge the efforts made by our government for the people and for the betterment of our nation and its pride.
The aim is to reduce pump fuel prices in a bid to reduce the cost of living. The monetary value of the levies and charges is amounting to significant dollars annually.
The government has the duty to protect its stakeholders, including consumers and businesses. The measure may arguably become a stimulus to the economy through price reduction and increased consumption multiplier effects. The reduction will have different impacts and implications for various groups. A reduced pump price is good news for final consumers. For consumers of fuel, there will be a reduced pump price. It implies that one can afford buying and using more fuel, or having more disposable income after fuel purchases. In all of the above, the ceteris paribus condition has to hold. Institutions that have been getting income from fuel levies and charges will see reduced incomes. They will have to either reduce expenditure, look for other sources of income, or do both.
To this end, I don’t see the removal of the Price Stabilisation and Recovery Levies resulting in a reduction in food prices because there are many factors that affect transportation. It’s not only about fuel prices, it includes spare parts, amongst other things. Even if you reduce fuel prices, it’s only one component of the cost.
The other components are still intact, and they are still going up. So, the reduction in fuel price alone will not be enough to compensate for the other costs. That’s why I am saying food prices will not come down, transportation costs will not come down, and the overall effect is that food prices will go up. The poor and vulnerable will bear the brutal brunt of these incessantly.