The Chronicle
Nqobile Bhebhe, Senior Business Reporter
THE continued reduction in fuel price by the Government is positive move that is expected to slow down the rate of increase in pricing of goods and services, which will give significant relief to consumers relief, economic analysts have said.
Last Wednesday the Zimbabwe Energy Regulatory Authority (Zera) reduced the maximum price of fuel for the second time this month from US$1,70 a litre to US$1,61 a litre, as the blend ratio was restored to 20 percent ethanol, while diesel prices fell from US$1,80 to US$1,76 a litre.
Fuel is a major cost driver and its price has been going up sharply across the globe due to the disruption of supply chains linked to the ongoing Russia-Ukraine war, which has put a strain across the productive sector with ordinary people bearing the brunt of loss of purchasing power.
Global oil prices have remained at high levels as the war persisted, which also pushed up the prices of raw materials and farm products, in particular. However, prices are easing lately.
In a bid to cushion businesses and consumers the Government has completely removed the levy on diesel as it sought to ease the burden on the market and ensure stable supplies.
An economist with the National University of Science and Technology (NUST) Department of Banking and Investment Promotion, Mr Stevenson Dlamini, said the drop in fuel price would have significant bearing on the rate of price increases and inflation levels.
“While we might not witness an immediate drop in prices of goods and services, the fuel reduction will slow down the rate of price increases, which is a significant development for consumers,” he said.
“That would also in turn reduce the rate of inflation.”
Industrialist, Mr Busisa Moyo concurred: “Fuel prices affect the economy in many ways, for instance, transport costs for workers will decrease, hence their disposable income will increase.
“Cost of production decreases in the agricultural sector and tends to increase output to affordable products that include vegetables.”
Mr Moyo said the drop in fuel could also lead to improved service delivery for organisations that consume huge amounts of fuel. He cited road construction and refuse collection as major fuel users whose operations have huge bearing on communities.
Already the Government is spending billions of dollars on capital intensive infrastructure development including roads and dams that consume huge amounts of fuel.
National Consumer Rights Association spokesperson, Mr Effie Ncube, said with rampant speculative behavior in the market, it is unlikely that prices of goods would also drop in tandem.
“It’s unlikely that consumers of goods and services will benefit from the reduction. In a normal set up, when fuel prices go down, we would expect prices of bread, mealie meal, transport and other services to also respond by reducing,” he said.
“But due to speculative behavior in the production value chain, there would be little benefit to consumers.”
Prices of basic commodities have been skyrocketing lately, amid concerns that this is influenced by parallel market exchange rates and profiteering.
Bulawayo based economic commentator, Mr Morris Mpala, also applauded the reduction in fuel price saying energy was a huge component in the production cycle, hence it is a positive move for business as that would aid in boosting production levels.
“But the downside is on the players in the fuel industry as their profit margins are very thin. The Government should reduce taxes on the fuel sector,” said Mpala.
The latest slash in the price of petrol and diesel buttresses the Government’s efforts to contain the price of the commodity from breaching the US$2 mark per litre.
Regulator Zera sets maximum prices using a formula that starts with the actual landed cost of fuel, then adjusted in recent weeks by the falling taxes the Government is charging as it tries to stabilise prices.
Article Source: The Chronicle