Fuel-ing the pinch

More pain for you as petrol price goes up, up, up

Small businesses and poorer households will be hit hardest by Wednesday’s petrol price increase – which is also expected to put a massive strain on the agriculture sector and, in turn, consumers.

That is the view of economists as SA faces skyrocketing fuel increases – bringing the petrol price to the highest in the country’s history.

FNB agribusiness senior economist Paul Makube said higher crude oil prices – which have now breached the US$80a-barrel level – were a double whammy “due to the direct influence on the fuel price and the indirect influence on oil derivatives such as fertiliser, pesticides and herbicides [agrochemicals], all of which are inputs in crop farming”.

“Small business and the poorer households will bear the brunt as their transport costs account for a large portion of household expenditure and the consequence of sustained fuel price increases will further erode disposable income and cause financial stress,” he said.

“This will force a change in spending patterns, with a cut in spending on luxury items and frequency of visits to eateries. We might face a dim festive season if the current pace of fuel price increases is sustained in the two months ahead.

“At producer level, the impact will be cost pressures as we head into the new planting season for summer crops.”

The price of petrol will hit a record high from midnight on Tuesday‚ with the Central Energy Fund (CEF) saying that under-recovery in August will see fuel increases ranging from 99c to R1.79.

The price of unleaded 93 octane petrol will rise by 99c‚ unleaded 95 by R1 and diesel by R1.24.

Illuminating paraffin will go up by R1.04 and liquefied petroleum gas (LPG) by R1.79.

The Automobile Association warned that the increases – a record when not factoring in the months when new taxes took effect – would be catastrophic for motorists.

The department of energy intervened in August’s increase by diverting funds from the state levy‚ but warned it would be unable to do so again.

During the period‚ the rand depreciated against the dollar to an average of R14.7899 compared with the previous month’s R13.9430.

Red Meat Producers Organisation chair Willie Clack said: “This [petrol price rise] spells doom for us as farmers, and the knock-on effect is going to be disastrous, no doubt.

“It will affect all of us. Noone will be spared.

“I think for us as farmers we will need to be more entrepreneurial to mitigate how we’re affected.

“We will have to think differently as price takers.

“At the end of the day, it’s the price makers, our customers, who determine how much consumers pay for the products we produce.”

Agri SA Eastern Cape chair Doug Stern said: “The petrol price hike is a huge increment and who says it’s going to be the last? It’s definitely going to have a devastating effect on agriculture.”

Stern said the increase could lead to job losses. “Look, it’s not the first thing we think about when we’re faced with challenges like these, and the drought, for instance.

“You build a relationship with the people who work for you so we try our very best not to shed jobs, but we may not have a choice, so it’s a possibili- ty,” he said. Nelson Mandela Bay Business Chamber CEO Nomkhita Mona said unemployment was already dire in the metro.

“Local businesses are already experiencing the strain of an economic recession and the impending petrol price increase will place these businesses under more pressure,” she said.

“The rising costs of transport could mean smaller profit margins as businesses would still need to keep their prices competitive.

“This is especially worrying for smaller businesses as they might not be able to sustain the higher costs.

“Consumers also stand to be affected as such a price increase usually has a negative ripple effect, including higher food prices.”

Port Elizabeth and District Taxi Association chair Mlungiseleli Mlanjana said he simply did not know how the industry would survive.

“The constant increases in fuel affect us badly in the taxi industry – we don’t increase taxi prices whenever they decide to increase the petrol price.”

He said the taxi associations usually only increased prices in December.

“It would be unfair on our people to increase prices every

‘We might face a dim festive season if the pace of increases is sustained’

Paul Makube FNB AGRIBUSINESS SENIOR ECONOMIST

time the petrol goes up – these are our people, our mothers and children, so we have no choice but to stomach every increase throughout the year.”

Mlanjana said the taxi associations would decide when to increase fares – but, for now, there had not been a call for fare increases.

“We would also urge our people to support the taxi industry,” he said.

“Please leave your car at home and use our taxis so that, this constant increase in fuel, we won’t feel it that much.”

DA national spokesperson Solly Malatsi said: “South Africans are getting poorer and the government’s answer to this is to increase the cost of living.

“The ANC cannot continue to blame these fuel price increases on ‘international markets’.

“The reality is that roughly one third – or R5.30 – of the cost of petrol per litre goes directly to the government via [the] general fuel levy and the Road Accident Fund (RAF) levy. “The solution is simple. “We must review the burdensome levies on fuel with the aim of reducing them by at least R1 in the short term.”

The petrol price goes up at midnight to its highest level ever, which the Automobile Association says is “catastrophic” for road users. It’s bad news for everyone, however, so let’s look at the process: the Central Energy Fund (CEF) sets the price and the department of energy then approves it or – as was the case in August – steps in to adjust it. The department cushioned the impact that month by not hitting the consumer with the full increase suggested by the CEF and – unfortunately – that decision to subsidise the price increase is now coming back to bite.

It means a steeper increase is now inevitable as oil prices have risen while our rand has continued to weaken.

And if, as may well happen, oil prices continue to rise globally and SA’s exchange rate continues to falter, the picture is gloomy for the months ahead.

South Africans also pay a higher percentage in levies and tax on petrol and diesel than neighbouring countries.

What then is the average consumer to do? Not much, we are afraid, except to tighten that already stretched belt.

Is this in part perhaps due to how Sars has seen its once shiny reputation tarnished over the past 10 years?

Under the Jacob Zuma presidency there were tax scandals galore, including accusations that he himself was a tax delinquent.

It did not take long for new President Cyril Ramaphosa to appoint a panel to investigate Sars and, to his credit, he suspended Sars commissioner Tom Moyane.

However, Sars has missed its collection target 2017/2018 and this year has also brought an increase in value added tax (VAT) for the first time since 1993.

Looking at the various sources of revenue it is clearly easier for the government to tax goods at source through VAT and fuel levies than collect tax money through recovery.

However, is it fair? Fix Sars first and then take a cool, hard look at levies and taxes on fuel. Your citizens may be willing to pay at the pump or in personal income tax, but please do not hit us with a double whammy.