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What the fuel price hike means for South Africans

The price rise is a serious blow to SA’s economy, says Automobile Association spokesperson Layton Beard.

NOMPU SIZIBA: Come Wednesday morning the price of 95 octane unleaded petrol will have pierced through R17/litre. To be precise, it will cost a motorist R17.08/litre. Diesel may not have pierced through R17, but diesel drivers will have to shell out an extra R1.24 next month for a litre of that fuel, which, depending on the specification, will cost either R15.65 or R15.69/litre.

A well-known economist earlier tweeted that from now on business partners should expect to have meetings with Skype, in order to avoid schlepping around town to have a face-to-face. The fuel price is at a level where people may very well have to think about doing things differently, just in order to save a coin or two.

Well, to discuss the latest development and its possible impacts, I’m joined on the line by Layton Beard, who is the spokesperson at the Automobile Association. Thanks very much for joining us, Layton. Your organisation wasn’t far off in its estimation, so basically fuel is up between R1 and R1.24.

What is the immediate impact on things like taxi fares? Can we expect those prices to rise? And of course we know that many of the clientele using such transport use a huge proportion of their income on the same.

LAYTON BEARD: Certainly I think in the medium to long term it’s definitely going to have an impact on all public-transport fares, depending obviously on when they put those fares up. But I think more importantly it’s going to affect not only motorists, but all road users. What do I mean by that? I mean that all people who drive or use public transport are going to be affected.

But road users, who make up all consumers in the country, are going to be affected because when you look at, for instance, the price of diesel, it is used mainly for instance in the agriculture sector. So when farmers have to absorb these costs that are increasing their input costs, they have to recover them somehow, and they do that by increasing their own prices.

So it is, in our opinion, a catastrophic increase. It really is incredibly massive, and it’s going to push fuel prices to record highs in our country. And I think all consumers – for all road users, for everybody in this country – this is absolutely dire news.

NOMPU SIZIBA: In the lead-up to our officially getting word from the Department of Energy today, it was said that you had blamed the government with its uncertain policies for the higher fuel price. I thought the fuel price was dictated by international fuel prices, and the rand exchange rate, vis-à-vis the dollar. Just elaborate on what you meant.

LAYTON BEARD: I think that that may have been interpreted incorrectly. Our point is that when you look – and Gary [AA spokesperson Gary Ronald] made the point – at some of the factors that are going to be necessary for our economy to grow, you are looking at things such as investor-friendly environments and policy certainty. And certainly it’s not going to be easy to grow an economy, even with a stimulus package as announced by the president, in an environment in which your floor costs are rising as badly as they are in South Africa. I think that’s the point that we wanted to make – that fuel is only one component of a bigger picture, and that bigger picture is the economy. And unless the economy is pulled together, fuel prices like this I’m afraid are going to be something that we talk about on a monthly basis.

NOMPU SIZIBA: Layton, do you think the government played politics with the fuel price early in September when the energy department allegedly unilaterally decided to cut South Africans some slack and subsidise the fuel price on a once-off basis?

Read: How the fuel price has been politicised

LAYTON BEARD: I think that’s a very good question. I’m not sure that I necessarily have the answer. What I think we would like to know a little more about is the mechanism that was used to absorb that increase, and where the money for that increase is going to come from, and who is going, at the end of the day, to fund it. Certainly I think when the announcement for the official price wasn’t announced on Friday as was scheduled, in some people’s minds there was this theory that another intervention was on the cards. But I think that this increase is just too big [for government] to intervene in any way because, no matter which way you would intervene, you would still be left with a huge amount of money that would be passed on to consumers through the increase. It’s difficult to say that there was politics at play. I think what we would like to see certainly is a little more elaboration on the mechanism that was used to do that, and exactly where that money is going to come from.

NOMPU SIZIBA: The country is looking to get out of its lacklustre growth cycle. Initiatives are being drawn up to make this happen. But how important is the nation’s transport network and its reasonable pricing in facilitating growth, and do you have any views about how this matter can be addressed, even if it’s not an overnight solution?

LAYTON BEARD: It’s absolutely vital. I think we are a road-freight-reliant society. We certainly are a transport-reliant society. I think, when you look at the roads in the mornings and the afternoons, you will realise very quickly that very many, many thousands, millions, of people rely on one form of transport or another to get to and from work. So transport in South Africa is a very, very key driver of economic growth; and when that key driver is under peril in terms of the rising fuel cost that we are seeing at the moment, it is going to have a massive impact on the economy in general. So transport is absolutely key.

In terms of going forward, I think there needs to be a debate around what is happening with the fuel price and whether there is a need for deregulation in this environment. Now, I think this debate around regulation and deregulation is quite important, and we would think that government would have this debate sooner rather than later.

NOMPU SIZIBA: When you are talking about deregulation, what impact would that then have on things like the fuel levy?

LAYTON BEARD: The fuel levies I think at the moment would stay. I know that there have been a lot of calls for the fuel levies to be scrapped, but in our opinion that’s a little shortsighted. If you scrap those fuel levies, which comprise around R5.30 of every litre of petrol, or around 35% of every litre of petrol, and you make those calls and say, okay, let’s take those levies away, the question then remains: where does government fund that money coming from those levies in future? Does it then put Vat up to 25%, does it increase personal income tax, does it do a number of different things that can then alleviate the fuel pressure but are going to add pressure on other sectors? So it’s not a simple question of let’s just take the fuel levies away. I think in terms of the fuel levies, what we would certainly like to see is that when they are increased they are increased in line with inflation, which is something that we haven’t seen for a long time.

NOMPU SIZIBA: And then, Layton, some practical advice – what do you advise motorists to do in this very high-priced fuel environment in terms of how they use their cars, the utilisation thereof, to make it more efficient to spend less, and so on?

LAYTON BEARD: It’s a very difficult question to answer, because I don’t think there is a one-solution-fits-all type of answer. Certainly we would advise people to make sure their vehicles are in good condition and running optimally and using the right type of fuel. Well-maintained, well-serviced vehicle use is certainly the first thing.

Perhaps people will need to re-look at their budgets and re-jig them in the sense of looking at what they can afford to do without, at the expense of fuel. Then, as you say, drive your car in a reasonably smooth manner. There are other interventions. Do you use your car all the time, or are there distances that you can walk or use a bicycle for? Can you carpool to and from work? Can you leave for work earlier or later in the morning and avoid that stop-start traffic? These are things that will definitely affect fuel consumption.

So there are some interventions, but it’s certainly individual interventions that everybody must look at. I just know that at this stage people will have to be creative in how they deal with it. We can make certain suggestions, but they are not going to be suitable for everybody. Perhaps what that economist tweeted earlier about, Skyping, is not a bad idea. Instead of driving to meetings, Skype from your home. That may save you some fuel.

NOMPU SIZIBA: Absolutely. What you have just said was also helpful, thank you.

And then lastly, the international oil price remains stubbornly high, with debates now raging as to whether $100 a barrel is going to be a new reality. Meanwhile, because South Africa is an emerging market, there is always that danger that the currency gets sold off with others when investors get nervous, which means rand depreciation. So what are your analysts and forecasters predicting about fuel prices for the balance of the year, even into 2019?

LAYTON BEARD: Well, it’s a very difficult question to answer, and I’ll tell you why. When you look at, for instance, the petroleum prices at the beginning of September, they were relatively stable. And then they even went up quite steeply. So it’s a difficult question to answer in terms of what the future holds. We prefer to have a look at it on a bi-weekly base or a bi-monthly base. So, come the middle of October, I think we’ll have a clearer picture of what’s going to happen in November. Anything further than that is I think speculation because of the volatility in the rand and the way it fluctuates, as it does almost on a daily basis.

NOMPU SIZIBA: That’s fair enough, Layton. Thank you very much for your time and your insights.

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What they all need is Financial Fitness. People are being hurt badly as most “pay all the bills and live on what’s left.” Most people need a financial make over and refuse to sit with common cents. Yes a money reference. It’s business as usual. But when S.A. goes to junk and interest rates raise quickly THEN they will be wondering what happened??

End of comments.

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