Fuel crisis looming in South Africa, warns economist

South Africa’s rising petrol costs and an international energy crisis are set to place added pressure on South African consumers in the coming months, warns Dawie Roodt, chief economist at the Efficient Group.

The country’s high fuel prices is one of the most significant reasons for rising prices, with the cost of petrol effectively increasing by 85% and diesel by 69% since 2011, said Neil Roets, chief executive of Debt Rescue.

In rand terms, this means an average 50-litre tank of petrol costs around R916.50, versus R495.95 a decade ago. This, as annual salary increases remain at 6.8%, he said.

“As we enter the last quarter of 2021, consumers will be looking ahead towards their holidays, but they will be in for some steep price increases across the board as the fuel price keeps climbing, pushing inflation up alongside it.

“We must also factor in the likelihood that Treasury will raise interest rates to keep inflation in check, which will add an additional financial burden to consumers who have experienced another year of financial hardship thanks to the continued challenges brought on by Covid-19,” said Roets.

International factors 

Consumers will also have to contend with a looming energy crisis impacting the international economy. Notwithstanding the rising cost of Brent Crude, gas and coal prices are escalating too, which will push the price of power over the line, said Roodt.

Oil has rallied to a seven-year high in recent sessions as the market continues to tighten amid a global energy crunch, Bloomberg reported.

“The tight supply outlook and the extra oil demand coming from countries in Europe and Asia in search of alternative fuels due to the global energy crunch have pumped up prices,” said Kim Kwangrae, senior commodities analyst at Samsung Futures Inc. Oil at $80 will become a psychological burden for some investors, the analyst said.

Bloomberg reported that the world is living through the first major energy crisis of the clean-power transition, adding that it won’t be the last.

It said that while the planet has faced volatile energy markets and supply squeezes for decades, what’s different now is that the richest economies are also undergoing one of the most ambitious overhauls of their power systems since the dawn of the electric age – with no easy way to store the energy generated from renewable sources.

“The pain hitting Europe is an ominous sign of the types of shocks that could strike more of the globe. Even as solar and wind power become increasingly plentiful and cheap, many parts of the world will for decades still depend on natural gas and other fossil fuels as backups. And yet, investor and company interest in producing more of them is waning.”

That’s a good recipe for volatility, Nikos Tsafos with the Center for Strategic and International Studies, wrote in a recent analysis. “You’re definitely moving into a system that’s more vulnerable,” Tsafos said in an interview.

To be clear, the transition itself – imperative for the planet – didn’t cause the squeeze. But any big, complex system can become more fragile when it’s undergoing major change, Bloomberg said.

All this is happening at a time when power consumption is projected to increase 60% by 2050, according to BloombergNEF, as the world phases out fossil fuels and switches to cars, stoves and heating systems that run on electricity.

Continued economic and population growth will also drive consumption higher. And as the world moves even more into all things digital, it will mean that this heightened vulnerability comes at a time when people need reliable power more than ever.

The surge in electricity demand combined with fuel-price volatility means the world could be in a for a rocky few decades. The consequences will likely range from periods of energy-driven inflation, exacerbating income inequalities, to the looming threat of power outages and lost economic growth and production, Bloomberg said.

The planet’s energy systems are interconnected, so the crisis and its spillover are being felt across the world. The crunch has had knock-on effects across industries, obstructing silicon production, disrupting food supplies and snarling supply chains.

For South Africa, rising fuel prices come at a time when electricity prices continue to rise sharply, with Eskom’s most recent action being raising the cost of power to municipalities by 17.8%, which consumers have also had to contend with.

“Internationally energy prices are going up quite steeply at the moment, the oil price is currently over $80, and some analysts are predicting that the oil price will reach $100 soon, but gas and coal prices are also through the roof, electricity prices are going up internationally, and all energy prices are going up quite steeply.

“There are a number of reasons for that. One has to do with the world economy suddenly opening up after the lockdown, and another is the green economy, which favours gas over coal. This is causing a disruption in supply and demand – especially from Russia – and pushing prices up accordingly,” said Roodt.

Double-blow 

For consumers, increases in both fuel and energy will be a double-whammy disaster as goods and service providers will either need to absorb the knock-ons or pass them on to consumers, said Roets.

Food, in particular, will be hit hard as it contends with the increased cost of transport and the energy needed for manufacturing, he said.

“After 18 months of Covid, many consumers have had their financial standings compromised. This is against the backdrop of rising living costs.

“As the holiday season approaches, many will have to forgo vacations and cut down on festivities this year if they are to cope with a new year of school needs such as uniforms, books and school fees. Unfortunately, for vast numbers of South Africans, it is going to get worse before it gets better.”

Roets said that consumers need to stick to their budgets while also factoring in increases in the cost of food, transport, electricity and possibly interest rates.

“Should they find themselves in financial difficulty and battle to make repayments to their creditors, it may be wise to seek counsel in the shape of debt review. But for now, we advise consumers to batten down the hatches and get ready for sharp cost increases across the board.”


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Fuel crisis looming in South Africa, warns economist