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In today's blog we take a look at South Africa's fuel price history since January 2008, and what it has been a pretty volatile ride, South African consumers will soon pay record levels for a litre of fuel, largely due to excessive taxes being levied on fuel prices (due to government mismanagement of tax funds), weakening exchange rate and increasing crude oil prices.
Sadly this will filter through into South Africa's inflation numbers and dashes hopes of future interest rate cuts from the South African Reserve Bank. |
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Ah how we wish it was 2009 again
The line graph below shows the monthly price of 95 Octane fuel for at the Reef as well as coastal prices. Now readers might be wondering why those staying at the coast are paying less for fuel than those staying inland. Well most of SA's crude oil and petroleum refining capacity is at the coast, close to where crude oil is delivered. Think the massive refining capacity in Durban, which is also the port where most of SA's crude oil is delivered too.
Now to get the refined fuel to the reef (or inland areas) it is piped up to storage facilities and depots from where fuel trucks then deliver it to fueling stations. This all costs money. Thus the difference between the coastal price and the reef price is due to increased transportation costs in getting the fuel to consumers.
Now to get the refined fuel to the reef (or inland areas) it is piped up to storage facilities and depots from where fuel trucks then deliver it to fueling stations. This all costs money. Thus the difference between the coastal price and the reef price is due to increased transportation costs in getting the fuel to consumers.
As the line graph above shows South Africans sure had a good time of it towards the end of 2008 and most of 2009. This was due to the financial crisis that hit the US and spread across the world like a wild fire, causing oil prices to plummet and the result was massively reduced fuel prices in South Africa. While all of this was happening the South African government has kept increasing taxes on fuel, as a easy way to get more into state coffers to fund governments spending.
But due to governments mismanagement of funds and corruption and wasteful expenditure, the state spending bill keeps increasing and the only way yo fund this is to keep raising taxes, and this is what were are seeing currently. Eventually just milking the fuel taxes (and the "sin taxes" such as taxes on tobacco and cigarettes and alcohol) wasn't enough. Government had to increase VAT from 14% to 15% to to try and boost their state coffers. All of this while failing state owned entities (SOE) receive billions in bail outs (Think SAA).
The point we are trying to make with the above is that South African fuel prices would have been substantially lower if there was less corruption and more efficient spending by the state, which in turn would have meant more money in consumer pockets to spend, greater spending leading to greater economic growth (and funny enough this is what the state needs to increase their tax base and tax revenues).
According to well respected economist Mike Schussler, South Africans are some of the highest taxed individuals in the world. See this relatively old , yet relevant article for more: Click Here for article
The bar chart below shows the average price paid per litre of fuel per year in South Africa from 2008.
But due to governments mismanagement of funds and corruption and wasteful expenditure, the state spending bill keeps increasing and the only way yo fund this is to keep raising taxes, and this is what were are seeing currently. Eventually just milking the fuel taxes (and the "sin taxes" such as taxes on tobacco and cigarettes and alcohol) wasn't enough. Government had to increase VAT from 14% to 15% to to try and boost their state coffers. All of this while failing state owned entities (SOE) receive billions in bail outs (Think SAA).
The point we are trying to make with the above is that South African fuel prices would have been substantially lower if there was less corruption and more efficient spending by the state, which in turn would have meant more money in consumer pockets to spend, greater spending leading to greater economic growth (and funny enough this is what the state needs to increase their tax base and tax revenues).
According to well respected economist Mike Schussler, South Africans are some of the highest taxed individuals in the world. See this relatively old , yet relevant article for more: Click Here for article
The bar chart below shows the average price paid per litre of fuel per year in South Africa from 2008.
The bar chart above clearly shows that in 2018, we are paying record prices for 95 Octane fuel for both coastal regions and at the reef. The previous record prices paid for a litre of fuel in a year was in 2013 when the average price per litre was sitting at R13.96 a litre at the reef, while the current average price paid per litre of 95 Octane fuel at the reef in 2018 is sitting at R14.35 a litre.
It doesn't just beat the old record, it smashes it. On average we are paying 2.8% more per litre of fuel in 2018 than what we did in 2013, which was the last time we saw record high fuel prices. Bad for consumer spending, bad for inflation, bad for interest rates in South Africa and just plain bad for South Africa's economy and its growth (or lack thereof).
It doesn't just beat the old record, it smashes it. On average we are paying 2.8% more per litre of fuel in 2018 than what we did in 2013, which was the last time we saw record high fuel prices. Bad for consumer spending, bad for inflation, bad for interest rates in South Africa and just plain bad for South Africa's economy and its growth (or lack thereof).
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