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Rising fuel costs burn Zim economy.

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Service station displays new fuel prices

Zimbabwe has effected a sharp increase in the price of fuel in response to global developments following the conflict between Russia and Ukraine amid fears the ripple effects would be felt in the already shaky economy, Business Times can report.

The pump price of diesel rocketed to US$1.68 a litre from US$1.51 a litre.

Petrol is now selling at US$1.67 a litre from US$1.51 a litre, making all transport of goods and people expensive.

The increase yesterday comes barely a week after the Zimbabwe Energy Regulatory Authority hiked the price of fuel by 17% in local currency and about 5% in United States dollar on the back of a surge in international crude oil prices following tensions in Eastern Europe.

Multiple economists and captains of industry told Business Times that the development was not good for Zimbabwe’s already shaky economy.

The spike in prices will also result in a corresponding hike in the prices of other goods as the cost of production and transportation of goods surge.

“We have been grappling with various economic challenges that include power outages, forex challenges, exchange rate volatility and inflation among a plethora of challenges and with the fuel price hikes, our frail economy will be dealt a severe blow which will take time to recover,” Confederation of Zimbabwe Industries president Kurai Matsheza said.

Matsheza said the projected increased capacity utilisation would be severely affected.

Industrialist Sifelani Jabangwe told Business Times that the fuel price hikes could trigger massive inflationary pressures.

“The increases in fuel prices will have an inflationary effect as the cost increases are passed on to consumers as product price increases and that won’t be good for a fragile economy like ours,” Jabangwe said. University of Zimbabwe economics lecturer Moses Chundu said: “For an economy still reeling from the after-effects of hyperinflation, our prices are sticky meaning even when fuel prices recede, we will not experience a corresponding downward adjustment in consumer prices.”

Chundu said it would be advisable for the government to seek to absorb the effects of the rise in global oil prices through appropriate adjustments in taxes given that taxes are a significant portion of the fuel prices.

“Gas is used by the poor and the rapid rise in US$ gas price over the years is not helping with efforts to fight poverty,” he said.

Zimbabweans now fear that the new hikes will have a huge impact on imported food, as prices are pegged based on the new fuel prices.

Prices of basic goods have more than quadrupled since last year, with a foreign-exchange shortage leading to scarcities of everything from fuel to food.

The Confederation of Zimbabwe Retailers president Denford Mutashu said: “The Russia -Ukraine war is set to negatively impact the global economy with ripple effects spilling over to the global south as crude oil and gas prices surge. It has caused supply disruptions against rising demand,” Mutashu said.  “It should be borne in mind that Russia is a powerhouse with the ability to retaliate sanctions to the detriment of supply of goods and services.”

He added: “Prices of basic and non-essential goods will jump as fuel and gas prices shoot against declined supply. Air and sea cargo fees have risen sharply yet the war is only on its 14th day. Therefore, consumers should brace for price escalations, not of our own making but direct and indirect war effects.”

A number of companies have been forced to cut or cease production as the economic crisis takes its toll.

“The country is in danger of bringing what’s left of our productive capacity to a halt unless there are some very dramatic changes that begin to attract the interest of foreign investors,” an economist, who preferred anonymity, said.

Energy and Power Development Minister Zhemu Soda said the fuel price hike was triggered by the Russia-Ukraine conflict which had triggered shortages.

“Russia is the second-largest petroleum products supplier in the world. Now that they are in a war with Ukraine, they are unable to supply to various markets and that has caused constraints to the supply. When the supply is far lagging behind the demand, the prices tend to go up and this is the situation we are faced with,” Soda told Business Times.

Asked whether the government has provided subsidies to cushion employees, Soda said: “The subsidies have already been applied at US$0.04 across the products, otherwise the diesel prices could have been US$1.72 not US$1.68 per litre and petrol at US$1.71 against the US$1.67 per litre.”

He said the rate at which free-on-board prices are increasing in “as much as we can try to put whatever subsidies we are not going to catch up with that increase”.

“It’s something that is beyond our control. In fact, we have tried to contain the prices but we are outstripped in terms of our interventions against the pace at which the prices are increasing,” Soda said.

Besides the perennial problems that the country has, the transport crisis has been reborn in the country amid rising transport costs.

Takesure Chivasve, who takes a commuter omnibus to work, complains that that option has now become unaffordable.

“Where I used to pay ZWL$100 cash, I now pay ZWL$150 to go to Newlands where I work. Also, many commuter omnibuses are not working because of the fuel shortage. Paying higher fares is now very difficult, especially at a time when our salaries remain stagnant,” Chivasve said.

Some workers are now being forced to walk to and from work as the transport crisis hits.

Recently, the economy has witnessed a sharp increase in the price of cooking oil. United Refineries Limited CEO Busisa Moyo said the sharp increase in cooking oil prices was largely influenced by the increase in international crude oil prices which also pushed up bio fuel prices.

“The crude oil prices have gone from US$1750 per MT to US$2090 MT. Soya bean oil is a substitute for fuels and once fuel prices go up, they push up bio fuel prices also and producers of crude oil in South America switch and sell into the biofuels market and starve food sectors. We have also had droughts in some major producing countries. In addition, the Ukraine-Russia war has added uncertainty and markets are jittery,” Moyo said.

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