Fuel hike just the start, warn analysts

While the country is reeling from the shock of devastating downgrades by two of the world’s three leading credit rating agencies, the effects of the junk status are beginning to bite the nation.

South African motorists will dig deeper into their pockets to fill up their fuel tanks from next month as petrol is expected to increase by 42c a litre and diesel by 39c a litre.

Economists say the fuel increase is just the beginning of tough times for consumers.

The pundits attribute the pending fuel increase to the junk status downgrades of the country by both S&P Global and Fitch and the weakened local currency against the US dollar.

The agencies took the decision as a direct result of the controversial Cabinet reshuffle by President Jacob Zuma and unceremonious firing of Pravin Gordhan as finance minister.

Azar Jammine, chief economist at Econometric, said this reversed the fall in fuel prices last month.

“This is due to drop in the value of the rand, which fell immediately when Zuma recalled Gordhan from his overseas trip. That decision and the cabinet reshuffle had a negative effect on our economy,” Jammine said.

He said there would be a ripple effect in other areas.

This was echoed by Neil Roets, CEO of debt counselling firm Debt Rescue, who said the fuel hike would have an immediate impact on the prices of virtually all other goods and services. This was caused by the fact that the South African economy was largely powered by diesel and all goods transported by road would reflect this increase.

“For Malusi Gigaba and other members of President Zuma’s inner circle who played down the downgrade, the harsh reality of life is beginning to kick in. The fuel increase is just the first of the dominos to fall. Growing unemployment and a slowdown in our already abysmal growth rate of 1.2% will soon follow,” said Roets.