When the war in Ukraine broke out and led to a massive surge in fuel prices, the Zimbabwean government didn’t take it seriously enough. They especially let the country down by not quickly addressive the ensuing massive surge in fuel prices. We warned the whiplash would be catastrophic for the economy and needed urgent addressing. To their credit, the government has realised its mistake and has been desperately trying to put a lead on fuel prices which are a key inflation drive. The latest strategy seems centred around the use of blending in order to keep and or bring the price of fuel down.
Strategies to standardise Zimbabwe’s fuel procurement system;
Cabinet has adopted the following strategies;
-resumption of petrol blending at E10 from 25 April 2022, which has reduced the pump price of petrol by US$0.04 per litre;
-the blending will go up to E20 by end of May 2022, which will lead to a higher reduction in the price of petrol by US$0.07 per litre ;
andGovernment of Zimbabwe on Twitter.
-reverting to monthly pricing once there is stability in the price of fuel on the international market.Gvt intends to set up a Fuel Price Stabilization Fund to cushion consumers from sharp increases in fuel prices. Discussions are ongoing on the modalities and timing of the fund. Gvt will come up with measures to stabilise & ensure a consistent supply of fuel.
As already said fuel prices are a key inflation driver and any changes to fuel prices ought to always be taken seriously as soon as they happen or are anticipated. The government failed to understand this for some reason. There were immediate, albeit less shocking results as soon as the war broke out and the disruptions to global fuel supply chains were noted. However, the government probably thought the worst was over and relaxed leading us to the economic vortex we are now going through with prices of just about everything going up.
Thankfully the government seems now very much aware that the country has a potential fuel problem and it seems like they are genuinely working hard to address it. They proved this by exempting fuel payments from third country payment restrictions and now have brought back blending which will hopefully mitigate the effects of price increases on the global market through the use of locally produced ethanol. That does not solve our diesel problem but half a loaf is always better than nothing. Already diesel is now more expensive than petrol.
Why had the government stopped mandatory blending? COVID-19. The pandemic brought an increased demand for sanitisers which are mostly alcohol-based. Most suppliers were getting more profits by selling to this sector rather than the petroleum industry which is limited in what it can pay thanks to capped fuel prices. The government simply didn’t have enough ethanol to blend all the petrol being sold so they simply gave up. Things are different now with COVID-19 at an all-time low and reduced demand ethanol producers are now looking back to selling to petroleum companies. This makes this a perfect opportunity for all involved:
- The government wants to keep inflation under control and taming wild fuel prices goes a long way when it comes to ensuring that.
- Ethanol producers get to sell their ethanol
- Consumers pay less for fuel
It is a win win win that is commendable. The only concerning thing is the talk about reverting back to monthly pricing regimes. That is not in itself a problem. However, if at any point ZERA starts to set up prices that are lower than market prices, or prices that are overtaken by events as we have seen in the event of ZESA, you can expect the fuel black market to resurrect and shortages on the formal market.
While we have scoffed at the mention of economic hitmen by the president he was not entirely wrong. There seems to be a new breed of businesspeople in Zimbabwe who will instantly seize on any loophole in the economy. These people thrive on chaos and will happily establish a fuel black-market the rest of us peasants be damned.