SA fuel hikes to affect Zimbabwe

Zimbabwean import costs from South Africa (SA) - its biggest trading partner - are expected to sharply increase, as a result of incessant fuel price hikes in that country, economic analysts say.

Eric Bloch, a Bulawayo-based economist, said although the bulk of Zimbabwe's fuel is not sourced from neighbouring SA - except for petroleum products from Sasol and Engen - the foreseen increases will have an impact on the country's commodity prices.

"However, the South African fuel price increases will inevitably impact significantly on the prices of South African sourced goods, for the price increases will be highly inflationary, and hence most Zimbabwean imports of consumer and other products will become more costly, having an adverse impact upon Zimbabwean inflation," said Bloch.

He added that "this, in part, will be counter-balanced by the US dollar/Rand exchange rate beneficiating Zimbabweans when purchasing products sourced from South Africa, which has already contributed to the decline in Zimbabwe's inflation rate."

The country remains a net importer of South African products with a trade deficit for the four months to April widening to $1,6 billion after Zimbabwe imported goods worth $2,62 billion against exports of $1,02 billion.

South Africa's price of all grades of petrol increased by 84 cents a litre on Tuesday this week and this took 95 octane petrol to a new all-time high of R13,23 while the price along coastal cities was pegged at  R12,86.

The cost of filling a 50-litre tank with 95 octane petrol has now shot up by R120,50 more than it was a year ago as the weak exchange rate takes its toll on one of sub-Sahara's biggest economy.

The weakening of the rand against the greenback prevailing mostly in June, hit a record high of R10,50 and this comes as Zimbabwe's fuel prices have gone down by an average of $0,08 after surging at least $0,10 following the hike of excise duty on the commodity.

Petrol price, which had increased to as much as $1,60 per litre, has declined to an average of $1,48 while diesel has eased to $1,34 per litre from $1,42.

Independent economist Chris Mugaga noted that the rand depreciation by implication means cost push inflation from a South African perspective hence the general increase in prices of goods and services in SA.

"This will negatively impact on our import bill or envelope thus sustaining a current account deficit already existing between Zimbabwe and South Africa.

South African companies will also be impacted negatively, leaving most Zimbabweans at the mercy of South Africans' frustrations," said Mugaga.

"Fuel prices will remain on the average price in the medium to long-term and will only be affected by global external shocks. The market experienced short-term shocks on the pricing mechanism which have now been smothered by a stable multi-currency regime," he said.

Developments in the neighbouring country come as the burgeoning trade gap has severely affected the recapitalisation of the manufacturing sector, whose capacity utilisation, according to the Confederation of Zimbabwe Industries has declined to 44 percent and requires an estimated $2 billion to operate at full capacity.