Petrol and power price jump could push SA into recession: economist

 ·30 Mar 2015
Debt drowning

Fuel and electricity price increases may drive country into recession, according to economist, Dawie Roodt.

The R1.62 a litre increase in the price of 95 octane fuel together with the 14.25% increase in electricity tariffs for municipal users could drive South Africa into a full-blown recession.

Roodt said this was the largest fuel increase in history and was going to hit consumers like a ton of bricks.

“If Eskom loses any more generating capacity, economic growth could slow to less than half a percent or even become negative plunging the country into recession.

“Bad governance and confusing policy is adding to the South Africa’s economic woes significantly because foreign investors don’t know the extent to which their investments will be protected.”

“If government keeps pushing forward with restrictions on land ownership rights for foreigners and increasing BEE targets, what little foreign direct investment is still coming into the country will disappear completely. We may even see existing investors packing their bags and leaving the country which could lead to massive job losses,” Roodt said.

The Central Energy Fund said the fuel levy now amounted to R2.55/l and R2.40/l for petrol and diesel, respectively. The Road Accident Fund levy would be R1.54c/l from April 1, it said.

Debt expert Neil Roets, CEO of Debt Rescue, one of the largest debt management companies in South Africa, said the present combination of economic factors was going to severely impact on consumers, many of whom were already deeply indebted.

“We know that municipalities are going to add three or four percent to Eskom’s 14.25% increase and that Eskom is trying to push through further increases this year to compensate for the losses they incurred through preventable inefficiencies.

“The overall debt that consumers have stacked up during the past several years effectively means that they owe 75% of their net earnings to creditors already,” Roets said.

“Once they have serviced their mostly overdue debt, very little money is left for essentials like food, clothing, transport and school fees.”

Roets said the fuel price hike would mean that there would be significant increases in the prices of all commodities but especially food which would hit the poorest of the poor the hardest.”

“Almost all goods are transported by road and the wholesale diesel price increase of between R1.22/l and R1.24/l will have a significant impact on the prices of virtually everything consumers use on a daily basis.”

Roets said Debt Rescue had been experiencing unprecedented growth largely because of the flood of consumers who are on the verge of losing their possessions to debt collectors and resorted to debt review to help them repay their debt in a manageable way.

According to the National Credit Regulator’s Consumer Credit Market Report (CCMR), the total outstanding gross debtor’s book is sitting at R1.47 trillion. This represents money owed by consumers in the form of mortgages, vehicle finance, credit cards, store cards, personal loans, short term loans, pension and insurance-backed loans.

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