Category Economy
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Pressure from all angles

08 June 2018 Tsitsi Hatendi-Matika, Absa
Tsitsi Hatendi-Matika is Head of Retail Investment Specialist at Absa’s Wealth and Investment Management unit.

Tsitsi Hatendi-Matika is Head of Retail Investment Specialist at Absa’s Wealth and Investment Management unit.

The petrol pump price being at highest historical levels brings many questions to mind.

How is petrol price calculated in South Africa?

According to the South African Petroleum Industry Association, the Government regulates price and these are recalibrated on the first Wednesday of every month. The Central Energy Fund (CEF) does the calculation on behalf of the Department of Energy (DOE). There are several factors at play:

• International factors and external factors
The Basic Fuel Price (BFP) is the cost to an importer to buy petrol from a refinery and get it to South Africa (SA). The dollar/rand exchange rate introduces volatility into this number
• Local factors and internal factors

The local factors are things like cost of shipping and other related costs such as transportation, service costs, taxes, and levies, wholesale and retail margins.

Source: South African Petroleum Industry Association

Diesel prices are not regulated, which is one of the reasons why diesel ends up being cheaper as petrol importers try to keep the margins on the two products similar. The total dollar basic price is converted using the dollar/rand exchange rate at 11 am South African time. The rand has weakened by nearly 1.5% YTD and oil has increased by just under 13% YTD. That combination spells trouble for consumers.

How much do fuel levies contribute to the overall picture?

In the 2018/19 National budget, National treasury pencilled in R77.5bn in revenues from fuel levies alone. The fuel levy contributes close to 6% to the gross tax revenues of the country. The 52 c/litre increase this year, which was a combination of the 22 c/litre increase in the general fuel levy and 30 c/litre in the Road Accident Fund levy took the total fuel tax from R4.82 to R5.34. While this was 38.4% of the total pump price at the time of the budget, it is worth noting that as at June 2018 fuel taxes are now around 34%. The reduced percentage is attributable to the higher price without taxes, driven by the weaker rand and higher oil prices as mentioned. Without the taxes, one would pay R10.20 versus the current R15.54.

Source: National Treasury, ABSA WIMI

What does this all mean?

May Naamsa vehicle sales show that Toyota sold 10 688 of the 42 984 total vehicles sold in the month, putting them in the lead at just under 25% of the total market. Given that the demand for Toyota in SA is currently high, the example below uses Toyota’s to estimate the impact on consumers. At R15.54 per/ litre, a person driving a Yaris would have gone from paying R487.80 in February 2017 to R559.44 in February this year, meaning they would require an extra R72 per tank. A person driving a car with a much bigger tank, such as the Fortuner, would need an extra R179 to fill up their tank. The change is 22% since 2016 and 15% since February 2017.

Source: National Treasury, ABSA WIMI

When all is said and done, these increases are not only putting pressure on the consumer, but they will also feed into the inflation numbers, adding risks to the upside. The South African Reserve Bank (SARB) Monetary Policy Committee (MPC) will take all this into consideration when deciding the path of interest rates going forward.

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