Bitter effects of fuel price hike

  • Public transport profit margins decline
  • Disposable income under pressure
  • NPF scandal troubles caused massive fuel price hike
  • More fuel price increase looming
  • Businesses production costs top rise
  • Inflation to rise

Gazette reporter

The honeymoon is over; Botswana despite having the least expensive fuel in the region, has increased the price of petrol by 65 thebe per litre and already broke Batswana will have to spend more on fuel, reducing households’ disposable income and plunging Batswana deeper in debt. Profit margins for public transport operators will decline while the cost of living and inflation are expected to rise.
On Sunday night, Eric Molale, the Minister for Mineral Resources, Green Technology and Energy Security announced a fuel price hike. The increase is significant when compared to previous increases.
The current increase mandates that retail prices for all petrol grades are to be increased by 65 thebe will now sell at P9.19 per litre. Retail prices for all diesel grades have increased by 73 thebe to sell at P9.12 per litre. While the price for illuminating paraffin will now sell at P7.84 after a 63 thebe increase.
The increase marks a devastating blow to the public transport operators as slim profit margins will be further supressed. Earlier this year, the Ministry of Transport increased public transport fares by about 50 thebe for combis and P1 for taxis. Long distance operators were also granted increases specific to their distances. Those tariff increases have been wiped out following Sunday’s fuel price hike. Operators will spend more money on fuel, money that could otherwise generate profit and drive national development by this key public service sector.
Otlaatla Ntsimane, is a cab driver at Hash Cabs. For every trip that he takes in Gaborone, he charges P40. More than half of that pays for his fuel, and on top of that he has to maintain his Toyota Corrola to make sure that it runs efficiently. “Kana jaanong ke a go berekela lookwane,” he said when interviewed by the Botswana Gazette, meaning that most of what he makes will be subsumed by fuel escalation. He said the increase in fuel means that he will pocket a maximum of P10 for every trip he makes, which is unsustainable, since he has to also finance his living costs. His despair is shared by Onkgopotse Kebaitse, a Tlokweng Route 6 combi driver, who said the increment on transport fare hits hard on public transport operators. Combi’s charge P4, after government increased prices by 50 thebe earlier this year.
Kebaitse said that increment is now useless because it will be wiped by the 73 thebe increase in fuel prices. He worries that the fuel price increase is way higher than the transport price increase, which means that they spend more on fuel and make less money.
Sunday’s increase is the second this year, after petrol prices were increased marginally by 23 thebe, diesel by 43 thebe and paraffin increased by 60 thebe in May, due to supply and demand concerns. Cumulatively, petrol prices this year went up by 88thebe, diesel by P1.16 while paraffin rose by a massive P1.23.
Modiakgotla Gabonowe, a driver at Block 8,Route 4 said the petroleum increase does not make sense because it is a period of less than five months since they were increased, and also in the midst of the National Petroleum Fund (NPF) scandal which has not been resolved, which means that ordinary Batswana and their businesses are paying for money that has been lost to government due to the corruption at the petrol fund.
The NPF was established under the NPF Order, under the Finance Act with the objective of providing funding for the construction and management of fuel storage facilities, procure petroleum products as well as to stabilize fuel pricing. Every time Batswana buy fuel, the NPF Levy takes 13.5 thebe per litre of the fuel sold.
Over P16.6 million is made from Batswana every month to replenish the NPF. The idea was to have the fund accumulate money which would be used to subsidize fuel prices and save Batswana from the negative impact of international fuel price fluctuations due to international crude oil price hikes.
Testimonies before the Parliamentary Accounts Committee (PAC) have revealed that the fund has been depleted due to mismanagement and abuse of resources.
The hearing this year, revealed that investment companies managing NPF funds, without government approval, diverted funds from intended projects to procure spy and military equipment for the DISS on instruction of the former Director General Isaac Kgosi.
Molale’s Sunday fuel price increase is not based on international price increase or decrease, but, a direct result of the depletion of NPF funds. While Batswana pay money into the NPF daily, it is in such a deficit that it can no longer protect Batswana from any price shocks. Batswana have to suffer a double taxation. Pay the NPF Levy, and also pay for an increased fuel price, despite the fact that the NPF Levy was established to buttress Batswana from international fuel price shocks.
Botswana consumes around 120 million litres of fuel every month, and every Motswana, who fuels their private cars will suffer. More money will have to be budgeted towards fuel, which will affect their disposable income according to Garry Juma, Head of Research at Motswedi Securities. If government delves any deeper into the pockets of taxpayers, by hiking fuel prices, Juma reveals, then their share of take-home income will dwindle. Salaries have been stagnant in Botswana for a considerable period of time, since at least the international crash of 2009, while the costs of living, including utility costs levied by government have risen significantly, wiping off disposable income and driving Batswana into debt.
Botswana is amongst the lowest income paying countries in Southern Africa, with average earnings of around P5000, according to Statistics Botswana, 12 percent of which gets eroded by Pay As You Earn (PAYE), the income tax. Statistics Botswana estimates that transport consumes 23.9 percent of total earnings in Botswana. By increasing fuel prices, the 23.9 percent of earnings spent on transport costs will rise significantly.
“When your income is not growing, and your expenditure is growing, you then live from hand to mouth,” Juma argues.
Analysts have observed that household debt-to-GDP remained below 20 percent over-time, with consumption as a percentage of GDP ranging between 48 percent and 52 percent in the past 5 years. Suggesting that Botswana is a consumer-led economy Bank of Botswana (BoB) data indicates that Botswana’s household sector is highly indebted, utilising over half of over P25 billion in outstanding loans from commercial banks. Economic experts show that when household disposable income is under pressure due to high cost of living, middle- and low-income bracket taxpayers resort to debt, in order to finance their costs of living, which in return increases the household debt.
The fuel increase means that businesses’ operational costs will increase because they spend more on transport. Juma said businesses will then put mark ups on final costs of goods and services, which means Batswana will bear the costs, and may lead to a rise in inflation.