Petrol price double-blow for South Africa

South African motorists and businesses are going to be hit with petrol price increases in March – while fuel tax hikes in April, the rising cost of electricity courtesy of Eskom, and low business confidence will going to keep the pressure on the country’s already battered economy.

Small and medium-sized businesses (SMEs) face a particularly prolonged Covid-19 recovery as they deal with increasing fuel prices in the coming months, say economists at FNB.

The hikes come at a crucial time, as SMEs are still trying to recover from the financial impact of Covid-19, coupled with lower economic growth, said Palesa Mabasa, FNB segment head for Gauteng South West.

“As a result, the expected increase in the prices of diesel and petrol by about 66 and 57 cents per litre respectively (in March), will have a negative impact on SMEs,” she said.

“This will be further exacerbated by the expected price increases in the general fuel levy and Road Accident Fund levy, coming into effect in April.”

The Department of Energy is expected to publish official changes to fuel prices some time on Tuesday (2 March), coming into effect on Wednesday (3 March).

Given the coming increases, Mabasa said it is essential for SMEs to make key decisions to sustain their business models as fuel costs impact their distribution costs, supply, overhead expenses, pricing of their products and services.

“Given that consumers are also having difficulty making ends meet, these costs may need to be absorbed as they can’t be passed onto to their clients.

“Businesses need to view these increases alongside the importance of cash flow management, actively manage how they can contain costs and seek opportunities to be resilient in response to the tough economic conditions.”

Tight budgets

Given the average car has a tank of between 45 and 60 litres, the increases mean that motorists will pay an additional R10 every time they fill up at the pumps.

While this may seem relatively low, it adds up over the course of a month, and will hit those on an extremely tight budget, said says Neil Roets, chief executive of Debt Rescue.

“We saw between the first and second wave how consumers returned to ‘normal’, increasing their spending as evidenced by the rebound in economic activity in Q3 of 2020.

“But we are not out of the woods yet and consumers cannot let their guard down just because we are in lockdown level 1. There is more pain to come if the threatened third wave hits,” said Roets.

He said that the increased fuel prices will have a knock-on effect on the entire supply chain of agriculture, manufacturing, distribution and the price of goods.

“And while the rand is performing relatively well against the dollar, which has softened the financial blow to some degree, the international price of Brent crude oil has increased and is having a knock-on effect on local fuel costs – especially now that the international vaccine programme is underway.”

Other price increases and shortages

Mark Dommisse, chairperson of the National Automobile Dealers’ Association (NADA), said that the sluggish local economy have had a negative effect on consumer and business confidence.

“Unfortunately, consumers have been hit with a double whammy in the past week with the announcement of an upcoming electricity hike of 15.6% in April and another big increase in the price of fuel from Wednesday.

“These are expected to have a negative effect on the market going forward. Some new vehicle dealers are also experiencing a tough time with stock shortages on certain models,” said Dommisse.

The current situation with supply is due to a global shortage of semiconductors, commonly known as computer chips, which are used in increasingly greater numbers in modern vehicles.

“Chips are not only used extensively in the automotive industry but in smartphones and gaming consoles as well. Orders for chips were reduced due to the pandemic and now the chip manufacturers are unable to catch up on the backlog, as demand far outstrips supply,” said Dommisse.

“Some forecasters see the global automotive industry losing up to a million vehicles and huge amounts of money this year as production is reduced. We expect this situation to last as long as four months,” said Dommisse.

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