Fuel price hikes batter economy

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South Africans should brace themselves for further fuel price increases at the end of April and this is according to recent unaudited mid-month data released by the Central Energy Fund.Three months into 2019, the country has had to contend with three fuel increases, with the last one implemented in March.According to the fund, the projected basic increase is being billed as 98c for petrol, 70c for diesel and 63c for illuminating paraffin.But wait, there is another imminent increase in fuel taxes which become applicable in April.Over the past three years, the fuel levy has risen by nearly 22%, leaving the already burdened general populace and micro-enterprises to shoulder this added cost as the country continues to buckle under a strained economy.It is understandable this is unavoidable as fuel price adjustments are primarily influenced by economic developments which affect international oil production and supply, including the value of the rand against the US dollar.However, as a country, we do not seem to have effective mechanisms in place to cushion small businesses and the already overburdened poor households against this alarming surge in the cost of living.Commenting on the imminent increases, the Automobile Association said the performance of the rand since the end of March had been impressive as it had appreciated quite strongly against the US dollar.As a result, this saw the daily exchange rate used for fuel price calculations rising from more than R14.60 to the dollar on March 31 to just less than R14 currently.It is perhaps a welcomed development.However, any slight increase in fuel prices presents a myriad challenges for the general populace, especially the poor and micro-enterprises, as they are effectively pushed against the wall and forced to absorb these added costs.For poor households, it has been found that they spend most of their income on food.With increased inflationary costs, their disposable income immediately reduces and their spending power only limits them to servicing their debts.This then corrodes the relationship between consumers and micro-enterprises, meaning there is less money in circulation for the micro-enterprises and any hopes of expanding the business are dimmed.As the Nelson Mandela Bay Business Chamber, we are quite concerned about these projected increases as our observation in terms of rising costs is always viewed within the micro-economic framework.Small enterprises play a critical role in Nelson Mandela Bay’s economic growth.While their capacity for fullon growth has its limitations, it is important to acknowledge their significance in the area of employment creation – something we are grappling with as a city.Their primary existence is anchored on providing goods and services to low-income households and, as such, their growth potential is fully dependent on the spending power of their targeted consumer base.Therefore, if there is any tempering in the spending power of its consumer, the business is almost faced with two scenarios, either to reduce its operational activities or, even worse, close shop.As it is, micro-enterprises in Mandela Bay are faced with varied challenges which contribute to their growth stagnation.This then becomes worrisome for the Business Chamber as any business which is forced to cease operations reverses the gains within an economic development framework.It is for this reason the Foundation for African Business and Consumer Services commissioned the Trade and Industry Strategies to conduct a study on the impact of fuel and food prices on small businesses.One should take into account that this does not take away the impact rising fuel costs have on big businesses, especially the farming sector.The farming sector remains the backbone of the Eastern Cape province in terms of agricultural output as well as job creation.Fuel plays a big role in farming operations such as tilling, harvesting, transportation and machinery – for both smallscale and commercial farmers, including the entire agricultural value chain.And given SA’s currently poor rail network, this forces the transportation of goods to be carried out via the country’s road network.Effectively, this renders small businesses fully dependent on hiring transportation for fetching items from wholesalers and or manufacturers.Consequently, the cost of this service is essentially influenced by hikes in fuel prices and are often sticky – meaning they remain unchanged even when there is a slight reduction in fuel prices.For companies who do not control their own transport logistics, this then translates to reduced competitiveness on their part.They are generally too weak to ride out periods of increased inflationary costs and are not able to pass these costs on to their consumers.Our country’s economy is going through labour pains and the biggest concern is how much longer micro-enterprises will be able to survive this economic storm.

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