By: Nghiinomenwa Erastus
The fuel price increase has contributed 7,7% to the increase in agri-inputs cost for the first half of the year while increasing Namib Mills’ cost of distribution by 8% by July 2021.
Moreover, the cost of living locally as measured by the Consumer Price Index has also been on the increase due to transport costs and food prices.
For July 2021, the Namibia Statistics Agency has highlighted that transport was the main driver of inflation accounting for 35,8% of the overall inflation change followed by food and non-alcoholic beverages with 27,4%.
Given the international fuel prices dynamics, as an exogenous factor, the ministry of mines and energy has announced that it will increase the pump price for September 2021 by 60 cent per litre for petrol and 30 cents per litre for diesel.
This will mark the fifth increase for the year and four decisions of keeping the pump price constant.
The ministry said it was unfortunate that the National Energy Fund (NEF) cannot keep up on under-recovery for September 2021, as it has covered fully the under-recovery for August 2021.
Under-recovery means the pump price set by the government domestically is lower than the price as dictated by the market forces- as a result, local pump prices need to be adjusted accordingly so that importers of fuel don’t lose.
The government can also spare consumers’ increases by covering the difference in global oil prices and pump prices through the National Energy Fund.
Four times this year, when the ministry did not increase the prices of fuel, the fund had come to the rescue of the consumers.
Since January to date, the ministry has recorded an under-recovery monthly- meaning local prices were always below market prices and they had to be adjusted accordingly.
The Villager analysis shows that the ministry has been exchanging responsibilities on who should carry the monthly increase burdens – some months it is the NEF taking the whole burden or partially while some months the burden was passed on to the consumers.
The ministry of trade early this year indicated that 80% of Namibian goods are imported from South Africa. This makes fuel cost a significant variable on the landing cost of the imported products.
According to Namibia Agricultural Union quarterly for the second quarter of 2021, the agri-inflation which tracks the cost of farming inputs has increased by a significant amount of 7% in the first half of 2021 as compared to the same period in 2020, when it was lower than 5%.
According to NAU, one of the contributors is fuel prices increases that contributed 7,7%.
NAU has also added that, comparing 2021 (Jan-Jun) to 2020 (Jan-Jun), food inflation rose by more than 26,1%, because of significant increases in the oil and cereal prices, as well as meat prices.
From 2020 (Jan-Jun) to 2021 (Jan-Jun), oil prices grew on average by 74,8%.
At the end of July 2021, Namib Mills announced that they will increase the prices of their 11 products and one reason being the cost of fuel as a production.
In their statement released end of July 2021, they said the increase of fuel prices (by 19%) in the last nine months ended in July 2021, pushed up their distribution cost.
“This has resulted in our direct distribution cost increasing by 8%. We have to date not recovered this increase in our selling prices,” the statement read.
The ministry of mines in their March increase also acknowledged that the increase in local fuel prices will continue to put inflationary pressures on goods and services in the economy.
“However, due to the major dynamics of demand and supply for the international oil market at the present time, demand sided oil price regulators will have to continue making these hard and painful decisions,” the ministry wrote during their third increase.
The ministry also early this year updated the public on the Fuel Storage Facility that it will play a significant role in taming international fuel prices volatility.
However, they maintained that “it has assisted to maintain stability of the fuel price in a very volatile market and as a whole, we have been extremely robust in our ability to manage external shocks in terms of market price and price stability”.
The ministry also added as a consolation that our fuel remains one of the cheapest in the sub-Saharan region due to government’s on-going and effective control of fuel prices.