Yesterday the government through the Zimbabwe Regulatory Authority (ZERA) pulled a stunner when it announced another fuel increase less than a week after announcing another steep price hike. Officially fuel is supposed to be selling at US$1.68 per litre for Diesel and US$1.67 per litre for Petrol. In our recent survey, we noted that most service stations were now matching these prices. We however noted that several service stations were selling fuel at over US$1.70 per litre well above the gazetted prices.
This used to happen a lot in 2018 and 2018 during the acute fuel shortages when motorists used to line up for hours and sometimes sleep in queues but this was now something rare in recent years. The only other time this happened was late last year when there were logistical issues in Mozambique resulting in modest shortages that were nothing like yesteryear’s qeueues. In our analysis, we outlined some of the issues resulting in the price hikes we are seeing but basically it’s all down to the United States’ reaction to the war in Ukraine. If things hold we can expect to see even steeper increases in fuel and commodity (physical goods) prices as these often need to be transported to the market. Whatever inflation we expected to see this year has just increased.
The Zimbabwean government seems unfazed by these developments on the international market. From what the Minister of Energy is saying it doesn’t even seem like the government is interested in shielding businesses from the coming tsunami. That is probably all due to a lack of foresight. Most ministers have shown a lack of foresight when it comes to issues that are likely to have a profound effect on the Zimbabwean economy with the biggest example being the energy Ministry which failed to anticipate acute power shortages of 2018-2019 brought on by drought. Their counterparts in the Agricultural Ministry were equally clueless until disastrous food shortages hit most parts of the country.
Instead of the government moving to scrap its extravagant fuel levies the Ministry instead shrugged off developments and told the public to use ZUPCO buses instead of driving to work. ZUPCO has been a miserable failure during the two years it has had the city public transport monopoly which it was granted under murky circumstances and the pretext that the government was fighting COVID. It has failed to meet normal demand and a surge in demand will just not help matters. Just recently the company was also hit by fuel shortages. When it comes to fuel logistics the government, in years before, has demonstrated unparalleled incompetence, and expect ZUPCO to be hit by the same incompetence resulting in acute transport issues in urban areas.
Under Finance Minister Mthuli Ncube the government has prioritised revenue collection at the expense of everything else including essential government spending. The Finance Minister likes to boast of surpluses even when social spending on essential sectors such as health and infrastructure are being ignored. The Minister and his colleagues will do anything to protect the piggie bank and its revenue streams including that precious fuel levy. The thing is given what we are facing the government will have to relent at some point and scrap or at the very least reduce that levy. They just don’t yet appreciate the magnitude of the problem the country is facing. The year before elections those fuel prices are going to wreak havoc and when public pressure increases they will make a u-turn as they often do in such matters. Let us just hope that when they finally do this it will not be too late.
More increases on the horizon
Energy Minister Zhemu had this to say:
The war situation in Ukraine is constraining production and international movement of the commodity. It is a precarious situation; beyond our control.
Zimbabwe imports almost all of its fuel requirements. Any increase in the price of oil on the international market therefore translates into an increase in fuel prices in the country.
Occasioned by the conflict between Russia and Ukraine, supply of the petroleum products has been constrained, resulting in an increase in the FOB prices.
The truth though is that a good part of fuel prices is made up of a fuel levy that goes to the government. It is within the government’s means to cushion the everyday consumer from such shocks but they are just choosing not to. Another thing to note is that things are likely to get worse in the short run and don’t be surprised if at this rate we start paying as much as US$2.50 for fuel. This is because the big consumers always get preference at selling points and as everyone moves to adjust to the U.S ban and the EU promising to shun Russian oil Zimbabwe will be one of the last in line to be served.
I am inclined to believe that the government’s ministers do not fully appreciate what the latest price shocks will mean for the economy of Zimbabwe hence the carefree attitude they are showing right now. Over the coming days and weeks, there will be chaos in the retail sector. Expect massive price increases in the coming days in response to rising operational costs. The thing about Zimbabwean prices is if they go up, which they often do, they rarely come down again even when those operational costs go down. Greedy proprietors, including fuel companies, are often content to pocket the profit rather than pass it back to the consumer the same way they are quick to pass costs.