Business Edge | SA Fuel Subsidy Ends, Zimbabwe Price Control Struggles

South Africa Increases Fuel Price as Subsidy Ends

In August, South Africa will bring an end to the temporary petrol levy relief, leading to an 11% increase in the price of fuel and further tightening the cost of the essential commodity. South Africa’s Department of Mineral Resources and Energy said that the R1.50 reduction in the general fuel levy that went into effect in April would be reduced to 75 cents starting on July 6 and eliminated starting on August 3.  The country’s economic centre, Gauteng province, will see the retail price of 95-octane petrol rise to R26.74 due to the reduced concession for July and the impact of increasing international fuel costs. Local fuel prices are determined by international oil prices and the dollar-rand value, as South Africa buys oil in dollars. While the rand strengthened from R15.95/$ to R15.76 over the past month, the average Brent crude oil price increased from $115 a barrel to $115.77. This was due in part to increased fuel demand in China, after lockdown measures were dropped, as well as a move by the European Union to partially ban oil imports from Russia by the end of the year. The invasion of Ukraine in February triggered an oil price shock. Russia is the world’s third-largest producer of crude oil, and it has been locked out of Western markets, pushing oil prices higher.  Joining Tolulope Adeleru-Balogun from Pretoria, South Africa is Professor Jannie Rossouw, economist and Professor at Wits Business School.

The tight economic situation is similar in Zimbabwe where a price control mechanism introduced by the government has not worked this far. producers and retailers have stopped selling essentials like mealie-meal, cooking oil, and sugar, leading to shortages as the government’s price controls start to backfire. The Presidential Powers Act was utilised by President Emmerson Mnangagwa last week to enact a ban on shops selling items at exchange rates that are more than 10% higher than the current interbank rate. Violators of the restriction face fines of up to $20 million. At the interbank rate, the local currency has been trading at 366 versus the US dollar, whereas it has been at 750 on the black market. Despite the government’s actions, the cost of staple foods has been rising sharply; on Sunday, the price of a loaf of bread rose from Z$640 to Z$690. Prosper Chitambara, Development Economist and Policy Advisor talks with Lekan Onabanjo from Harare, Zimbabwe.

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