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Wednesday, August 10, 2022

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Fuel price hikes headache for under pressure small businesses

Fuel increases have major repercussions for these companies’ overheads and, ultimately, bottom lines. Picture, Karen Sandison, ANA.

Fuel increases have major repercussions for these companies’ overheads and, ultimately, bottom lines. Picture, Karen Sandison, ANA.

Published Jun 6, 2022


Fuel price increases that have been instituted this week have a telling effect on small businesses, which have to navigate a tightrope between higher expenses and affordable offerings to consumers, who too are cutting back on their purchases and lifestyles.

The petrol hikes this week come as business are trying to claw back losses from the Covid-19 pandemic lockdown.

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Orders started lifting up in the first three months of the year until ripple effects of the Ukraine-Russia war led to a bottleneck of essential supplies, including agriculture, such as wheat, along with fuel.

This is as the country has seen the biggest increase yet this week with (93 and 95 unleaded petrol) rising by R2.43 a litre and R2.33 a litre, respectively, and all grades of diesel increasing by between R1.07 and R1.10 a litre.

This has prompted fears of the price of a basic food basket rocketing to R4,609, an increase of R462 in the past six months, which will have an impact on the food and beverage industry.

Economists said this week that oil prices were more than 50 percent higher than a year ago, while petrol prices were up more than 80 percent year on year with no end in sight to the Russia-Ukraine war.

Investec chief economist Annabel Bishop said that agricultural commodity prices were in the main still higher on the year, with the wheat price up 42 percent year on year and corn up 27 percent as the deglobalisation, caused by the break in supply chains, increased local protectionism in many countries and sanctions on Russia, boosted costs.

"For South Africa, a crucial case is going ahead as the state seeks to gain the right for the country to explore and utilise oil and gas finds off South Africa’s coast, aimed at reducing both fuel costs and solving the country’s electricity crisis, along with bolstering economic growth," Bishop said.

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The fishing industry is also not immune from the woes.

The DA sounded the alarm that while larger fishing companies made use of diesel for their boats and if they were VAT registered they were eligible for a diesel rebate, however, smaller boat owners, who made use of petrol had no such cover and stood to be severely impacted by the massive petrol price increases.

It called on the state to urgently make provision for small scale fishers who stood to be devastated by the increasing cost of petrol.

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Small businesses’s finances are vulnerable in the face of petrol price volatility.

Zane van Rooyen, a product marketing manager at field sales management CRM and mobile ordering app, Skynamo, said small businesses operating  in the manufacturing, wholesale or distribution sector faced the reality that all supply chain goods needed to be transported from source to destination.

“The (fuel) increases can have major repercussions for these companies’ overheads and ultimately bottom lines. The impact on consumer spending will also have a knock-on effect on many other small businesses in the country,” he said, adding that with collaborations a truck leaving Limpopo, for example, with a third of space available could carry goods for another SME in Durban.

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One remedy for small and medium enterprises in the face of the fuel price increases is the automation of their supply chains to enable them to share facilities, including transport and warehousing, he has said.

He has said observations are that invoices for goods and services are getting smaller as consumers and businesses opt to limit spending due to not only the higher demands on funds, but the uncertainty of how much more the increases will continue.

"There are solutions that still need to be sought. There is one customer who said their day now was like a crossword puzzle: there are new issues to deal with everyday that were not there before," Van Rooyen said.

It is vital that the government does everything possible to protect  local small businesses as these are the growth engines of our economy.

“The produce for the sustainability of life simply has to continue, so businesses in this industry will have to adjust their prices accordingly in order to fulfil the need. As such, the demand for non-essentials will most definitely be placed under strain as the cost of fuel begins to bite and household budgets downsize as a consequence,” he said.


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