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Economic impact of lower fuel prices: Mike Schüssler – economist, economists.co.za

‘In February we are likely to get another reduction.’

SIKI MGABADELI: Every time I see anything that says under-recovery in the petrol price I am very excited, because I know it means I get to spend less at the petrol pumps.
  
Mike Schüssler, thanks for you time this evening. It’s a nice post-Christmas present – and in January when we generally have very little in our pockets. Is that not so?

MIKE SCHÜSSLER: That’s right, but I think if you look at the high point in May at R14.39, where we all expected it to go close to R15 or even over, the petrol price, it surprised us all and it came down quite radically and we are now saving R3.15.
   And in February we are likely to get another reduction, probability not as big as the R1.20-odd reduction we had now. We are going to probably, Siki, end up with a reduction of about 25c or so, and that will bring us very close to R350 reduction.
   And if you look at it right now, the average motorist is saving about R440 a month. And if you look at the banks of Africa disposable salary data, it makes it very clear that the typical South African or the median disposable salary is still just under R10 000, R9 700 or so that people get out. So for people that’s about 4.5, 5% of their salary or their money that they all of a sudden can spend on something else – whether it’s eating out or buying school clothes.

SIKI MGABADELI: Or paying debt.

MIKE SCHÜSSLER: Ultimately I think that does make a big difference, and I think we are going to be surprised by the retail sales in December. I think already there we started to see people shopping towards the end of December because the money was there for South Africans. And we didn’t have to work harder for it. It’s good news for us, really.

SIKI MGABADELI: So even with the weaker rand we still mange to get this R1.20/litre. Just explain to us how it all kind of works out. Has the drop in the international oil price been that significant?

MIKE SCHÜSSLER: Yes, it’s been over 50% now. The oil price – as I’ve got it right now, I don’t have a live computer screen, I have one of those with a 15-minute delay – is under $54 at the moment. It’s nearly 5% down on yesterday. If you look at the high point in June it was about $115, so it has lost more than 50%. The rand has lost about 17%, if I am correct, against the dollar, so ultimately we still have a 30% drop in the actual basic price of fuel.
   Obviously the taxes and stuff didn’t drop. I think that’s the one thing that we might see – the Minister of Finance might [say] we need extra money to balance our books, so we can increase the petrol price, say, 10 or 15c for the taxman and another 5 or 10c for the Road Accident Fund, and they could say, right, let’s put this to good use and we are going to then let’s say have a 25c increase in the petrol on taxes.
   So we’ll see increases again, but I don’t think we are going back to R14 in the next year or two. And that might give consumers a little bit of relief for quite a while.

SIKI MGABADELI: And then the poor households of course with paraffin of course coming down – we are expecting a significant drop there as well.

MIKE SCHÜSSLER: Yes, I think it’s R1.03 for paraffin. That’s very true, that makes a difference. It also make a difference to farmers, ploughing things, the transport companies who have been under a lot of pressure, and the airlines have been under a lot of pressure. Chemical industries are going to certainly also see better results, and also Eskom because the coal price has also come down. Coal is semi-linked to oil prices; it’s not a big pull-over, but there is still some resemblance.
   And certainly our export prices might be a bit down on the gold and the platinum because people now expect sovereign..funds of Saudi Arabia and the reserves of the Russians to be sold. And we also don’t know how much platinum stock the Russians have and they may end up selling that. So those prices unfortunately for our miners will also be depressed.
   But they say that Asia is going to pick up about 0.25% in growth – China is a big economy there and the Indians and the like – for every 10% drop in the oil price. And if you’ve seen an oil price drop of over 50%, that means it’s more than a 1% growth added to the Chinese and the Indians and Thailand and Korea, and that will eventually play a role in demand for our other mineral products in the next year or two. Not maybe immediately, but it will play a role. And that is also good news for us.

SIKI MGABADELI: Let’s look at the micro level. We’ve obviously got inflation, the interest-rate outlook, but also our import bill.

MIKE SCHÜSSLER: Yes. Our current account or our cheque account for the rest of the world is going to be a lot more positive. But, as I said, there is one problem there – that our two biggest earners normally are platinum and gold, and coal and iron ore – now all of those prices are under pressure but three of them are related to the gold price. Two of them are going to be related because we expect people to sell gold if their budgets don’t balance, and that would be the Russians and the like. That is the thing.
   But I think in the short term we could see a smaller deficit and that certainly would be very, very good news. But the other thing is South Africans like to spend on imported items, so some of the stuff that we don’t buy vis-à-vis the oil price will still be things like cellphones and so on. So we won’t get the full benefit of the oil price 100%, but in the short term we could get quite a big benefit. So it could bring down the import bill by about 7% or so.

SIKI MGABADELI: Thanks to Mike Schüssler. David, this is good news I’m happy to not spend as much as I have been spending on petrol.

DAVID SHAPIRO: This is a global phenomenon. I think in America you are going to see exactly the same thing. I think worldwide it’s going to be a big boost. The only problem is that someone is giving up something, and this is almost a zero-sum game for nations like Nigeria, Angola. And that’s a concern because if you look at Africa I think one of the big drivers there as well has been oil exports. Certainly the Middle East is going to be under pressure, and companies like Venezuela, Ecuador in South America are also going to find that suddenly they are under pressure – and that might certainly lead to political upheavals as well. But consumers are going to benefit.

SIKI MGABADELI: There is that trickle-down effect I suppose towards other commodity prices and we are a big commodity exporter. So the oil price going down has an impact on the prices of other commodities and then ultimately that cheque account we were talking about doesn’t balance…

DAVID SHAPIRO: It’s going to take some time for all the consequences to be felt and for us to see them. But I think that from a consumer point of view there is going to be some uptick there in the world. And of course Chris Gilmour is here and he’s going to tell us whether he believes strongly whether retailers are going to feel it and whether it’s going to perhaps even justify these kind of levels.

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