Is it time for Fuel Price Reforms in Namibia?

Namibia has a relatively low population in comparison to its immediate southern African neighbours such as like Angola, South Africa,

Zambia, etc. This is a disadvantage and in fact, is well known by economists, that a larger population increases the economies of scale when it comes to doing business, leading to easier ways of rent seeking actions.

Namibia however, with its low and dispersed population struggles in this area, and consequently continuously faces increased growth of unregistered businesses in its informal settlements to fill the service void and be burdened with its commensurate costs. After covid created challenges for the country, businesses begun facing major losses due to the reduced and even restricted activities.

The transport sector wasn’t spared, and this impact was felt both for local and tourist patrons alike. With continued covid restriction in public transport capacity, along with the 2021 constant increase in fuel prices, the Namibia Bus and Taxi Association (NABTA), on behalf of its members, approached the Ministry of Works and Transport requesting for an approval to increase the taxi fare, as a means of compensation for the loss incurred during the year, and possibly to enable its members to remain in business going forward.

After doing certain evaluations, NABTA received an increase of public transport fees by 9.2% which became effective 1 December. The increase comes after the government rejected NABTA's request to increase bus and taxi fares to “Covid-19 prices”, which would constitute a 15% increase, and instead approved an increase form N$12.00 to N$13.00 per single trip from one taxi rank to another within Windhoek, and double price from a taxi rank to non-taxi ranks or up to residentials point of drop off.

So, who was right?

Analysing a fuel price graph of 2021, we can see that that on average, there was about 33% increase in the unit price of 95 Octane Unleaded Petrol price and about 31% increase in the unit price of Diesel 50ppm over the period. These increases in such a short period of time are quite significant and the impact on the public is unsustainable in the long run. The world’s petroleum price indexes also indicate that since the beginning of the year, there have been continuous increase in fuel prices globally.

Looking “next door” at South Africa, its seems that this may not only be a ‘Namibian problem’ after its Finance Minister Enoch Godongwana raised concerns about increase in fuel costs during a recent parliament session in Cape Town. When addressing the matter, Minister Godongwana called for changes to the way the fuel price is calculated, after the cost of gasoline rose to a record in December 2021 – just like in Namibia, and he indicates that if the prices continue to increase, the country has to play a role, to do whatever it can, to support the reform of the fuel pricing model.

Fuel prices are regulated in Namibia and South Africa, with pricing including a number of components such as an Accident Fund levy and other taxes, which in the case of South Africa increased 40% this year. In fact, it is expected that with the continued increase in fuel prices, both countries should also expect an increase in inflation very soon, which will affect the cost of food.

In finding a way out of this, South Africa’s Energy Minister Gwede Mantashe suggested to lawmakers that separating the fuel levy from prices would be “helpful.” He said that “at this point in time a big part of the price increases is the levy. Therefore, a way of countering price increases is an urgent matter for review and that is on the table.” What the Minister did not say was, When we move to electric mobility or other alternate fuels, will the formula be relevant”? So, looking at Namibia, is it also time for Fuel Price Reforms?

When we move to electric mobility or other alternate fuels, will the formula be relevant”?