Photo: Neil Baynes

Johannesburg - Good news for South African consumers is that from Wednesday they will pay less for fuel after the Department of Energy announced a decrease in the price of all petroleum products.

The price of petrol (both 93 and 95) will decrease by 69c/litre, diesel (0.05 percent sulphur) will decrease by 54c/litre, and diesel (0.005 percent sulphur) will decrease by 51c/litre.

The price of illuminating paraffin (SMNRP) and illuminating paraffin (wholesale) will decrease 55c/ litre and 74c/litre, respectively. LP Gas will be 115c/kg cheaper.

The decrease in the price of petroleum products is due mainly to the continued drop in crude oil prices during the period under review. The price of Brent crude dropped to about $46.93 a barrel, on average, due chiefly to global oversupply.

The department said the weakening rand had reduced the over-recovery on the basic fuel price by more than 20c/litre. The rand fell to above R13 against the dollar during the current fuel-price review period, as a result of lower prices for resources that account for more than half of exports.

Next week’s drop will mark the second consecutive month that has seen fuel prices drop. Earlier this month the price fell by 51c/l.

News of the petrol price cut comes as South Africa grapples with the three-headed monster of a weak currency, falling commodity prices and a contracting economy.

The effects of this have spilled over onto the JSE, hurting consumer and business confidence.

This week’s data from Statistics SA showed that the economy was only one negative quarter away from being in recession.

Gross domestic product in the second quarter unexpectedly contracted by 1.3 percent, as key sectors – from agriculture and mining to manufacturing – took a knock.

Consumers, grappling with mountains of household debt, are now at the mercy of the SA Reserve Bank, which faces the threat of inflation from the weakening currency, while at the same time needing to keep borrowing costs reasonable to spur demand.

On July 23, the Reserve Bank raised interest rates for the first time in 12 months as it tried to keep a lid on price pressures.

The weakening rand, which earlier this week sunk to a record low of R14.06 against the dollar, has also given businesses a shock as the currency volatility makes it difficult to plan adequately.

A slowing Chinese economy has added to the rand’s woes because investors worry that China will reduce its purchases of South African minerals.

These include coal, iron ore and platinum. The mining sector has already threatened to cut thousands of jobs if the ongoing slide in commodity prices does not abate.

China is South Africa’s largest trading partner, making up over 14 percent of merchandise imports.

But besides external factors, like China, South Africa’s potential to grow the economy and make a dent in high unemployment has been hampered by structural constraints, including labour unrest, and by inadequate electricity supply and weak demand, said Gina Schoeman, an economist at Citigroup.

 

The latest figures cast doubt on the National Treasury’s forecast for GDP growth of 2 percent this year. Analysts say it will be much lower, and warn the slump will worsen unemployment which, by official figures, is running at 25 percent.

“The government has to address domestic policy constrains more actively. The National Development Plan tells us how the economy can grow by 5 percent and we don’t see anything being done to grow the economy in the next three years,” said Schoeman.

“The amount of deterioration in South Africa has been more aggressive compared to its emerging market peers. South Africa used to be the darling of emerging markets.”

To add to the hardship, consumers are expected to struggle as the agricultural industry has warned the price of staples ranging from maize, meat and eggs to diary products could rise due to the drought. Even the petrol price drop is unlikely to ease the burden.

The wealth effect is also under pressure, with the JSE in a correction. The JSE all share index ended the week down more than 10 percent from its most recent record close.

The index lost 15 percent on Monday from a record closing high in April.

The JSE is closely linked to the main international markets, so it reacts in line with them.

More turbulence in the stock market means pension funds will probably take a hit.

The market is also an indicator of how investors expect the economy to perform. Much of the run-up in the market came as a result of cheap liquidity spurred on by low interest rates in the aftermath of the financial crisis of 2008.

“A stock market decline probably mean less investment by some companies, lower expected profits (that’s why the stock prices decline) and often lay-offs of personnel,” said Ben Smit, director at the Bureau for Economic Research.

 

The slide of the rand to 14 to the dollar this week left the Reserve Bank with a tough choice to make regarding how soon interest rates can be hiked, while trying to prevent the economy from tipping over the cliff. Analysts have said the government, working with business, must help instil confidence in the economy to boost investment.

The Sunday Independent