African solutions needed to counter rising fuel prices
Increasing fuel prices will continue hurting African economies. One possible solution would be an agreement between African states producing oil (for refined products) and selling it for a far lower rate to African countries in the spirit of the African Continental Free Trade Agreement (AfCFTA).
According to Gavin Kelly, CEO of the Road Freight Association, other solutions could include the growth of the synthetic fuels industry and the development of electric transportation. “In South Africa, SASOL could, for example, produce far more fuel than what it is currently doing. Was the company’s goal in the 1970s and the 1980s not to make South African independent of foreign oil supply?” he asks.
Kelly’s remarks come in anticipation of one of the greatest fuel price hikes South Africa and many other African countries have ever seen.
“No-one would have thought that we would see such increases in the fuel price as we have experienced over the past six months. As we reel from these increases, the possibility of one of the greatest price increases in South Africa that we have ever seen, is looming,” he says.
Over the last few months oil has risen to the USD114 per barrel mark while the South African Rand is trading in the R16 range. The result is a sky-rocketing price for fuel in South Africa. It has an impact on every single item that is transported to and across South Africa and into the rest of the continent.
Ships also use fuel, and shipping tariffs are also rising. There are still fewer ships plying the seas (thanks to Covid) and there are constraints in the global logistics chains that not only articulate into delays, but into demand, which has an upward price-pressure effect.
Once goods are landed, they then find their way to either consumers or manufacturers via the dependable road transport network, and that is where the next leg of the logistics journey is impacted by fuel (oil) increases.
“We have all felt, and will continue to feel for some time, the effects of more expensive fuel,” says Kelly.
The perfect storm brewing
Kelly says that the “Perfect Storm” is brewing. “With the oil price and Rand value vis-à-vis the Dollar being what they are, there are reports that the fuel price for June will see an increase of between R1.70 to R2.00 – depending on the commodity (product). However, the relief offered by the government to reduce the level of taxation on the price of fuel (by around R1.50 per litre) is due to fall away at the end of May – just in time to join the new price increase,” he says.
This means a price increase of about R3.20 (a rough estimate, given all that is currently in play) by the first week of June. South Africa cannot afford that. Or any other increases. The first signs of despair and retreat will be within the road freight logistics sector.
Several transporters closed their doors over the last two years due to the effects of the Covid pandemic. Financial pressures have remained on the increase, and the unrest that continues to ferment, radically shown by the violent period in July 2021 when the whole logistics chain was attacked (trucks, depots, distribution centres, warehouses and retails stores), continues to wear down companies and cause more closures.
“Operating costs within the road freight and logistics sector have continued to increase exponentially, with many of these increases coming at a time when the road freight industry can least afford, or withstand, these shocks,” says Kelly.
“There are many transport companies that cannot keep facing the continual increase in operating costs and the recent fuel (diesel) price increases have become the final “nail in the coffin” for many of our transporters.”
“Whether we like it or not, transporters cannot absorb the cost of fuel increases. This puts them out of business very quickly, so the fuel increase must be passed on to the client (who pays for goods to be transported), which is then passed on to the consumer. Disposable funds are decreasing, consumers are being very careful about what they buy, with so-called essentials such as food, medication, power, water and accommodation now the focus for most consumers,” adds Kelly.
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