Run on numbers: Stars are aligning for well-deserved consumer relief

The developing nations (Africa in particular) did not cause global warming, yet here we are assisting the world to rectify the damage. The language surrounding climate change is changing, right alongside the climate itself. It all began with global warming, as NASA scientist James Hansen testified before Congress. The scientific community could “ascribe with a high degree of confidence a cause-and-effect relationship” between greenhouse gases and global warming.

Later, Al Gore released the book (and film) titled An Inconvenient Truth, which explained the concept of global warming. Innovative terms have become popular, such as “just transition”, “sustainable”, “renewable”, “save the planet”, “climate crises”, “climate emergency”, “climate disaster” and “clean energy”. We have eventually arrived at a point where people are too exhausted to argue about the matter, they just accept what comes their way.

1. It is not an easy lecture for an economics teacher, or even professor, to explain to students how divergent price directions can occur at the same time in a specific sector. (In the longer term, this trend will not be sustainable, and the two prices will converge.) The energy sector is currently in this position. Fuel prices are easing, while electricity prices shoot upwards and continue to kill the consumer and the economy at large.

2. The main driver of the over-recovery of local fuel prices is the lower global oil price, which is contributing the bulk (98-117 cents a litre) to the benefit of motorists. The strength of the local currency relative to the US dollar is also contributing to a large degree to force fuel prices down.

3. The drop in international oil prices

Chinese data released over the weekend showed industrial output in the longest losing streak since 2021, and investment falling more than expected. The worsening situation in the number-one crude importer – along with an increase in global supply – has pushed Brent down by around 17% this quarter, to near the lowest since late 2021.

4. Local petrol price.

The petrol price peak in 2014 managed to reach a high of R14.40, which seems a lifetime away from the 2024 peak of R25.50. Consumers will, however, welcome the drop as expected data from the CEF shows that petrol prices are slated for a cut of around R1.24 a litre, while diesel prices are on track for a cut of around R1.10 a litre.

Should market conditions persist until the end of the month, this would be the fifth month of fuel price cuts.

These are the expected changes:

Source: Department of Mineral Resources and Energy (DMRE).

5. Where the unaffordable prices hurt the most.

According to the company Transaction Capital, there are about 250 000 taxis on South Africa’s roads, with the majority – 170 000 – unencumbered and aged, while the balance, about 80 000, are financed and insured. To give some perspective of the implications that the current economic conditions have on a large component of our economy, the example below is provided by the company.

“A typical new credit agreement for a taxi in South Africa could look like the table below. Taxis are used by about 69% of households, compared to 59% fifteen years ago. The taxi service industry is estimated to be worth R100 billion, transporting more than 15 million commuters daily.” The industry generates an estimated R50 billion in fares annually, according to a recent report by the store Research and Markets.

On top of the monthly instalment, however, taxi operators have been slammed by higher fuel prices in South Africa, impacting operating costs. This is a risky business just from a financial perspective, add to that the taxi violence that often reoccurs as well as the ultimate disaster, the Covid-19 outbreak. One can only hope that the taxi industry will pass on some of the operational cost savings to the commuters. That is the end of the good news. The latest proposed electricity tariffs will hurt consumers and may overshadow the positive effect of lower fuel prices. In the case of (my wife) who travels 52km each way every day, the savings amount to as much as R713 a month.

What this all comes down to is that from its peak this year to the expected price in October, a minibus taxi (MBT) operator can expect to save close to R100 a day in fuel cost. If he were to pass the savings through to his customers, each customer could save up to R130 per month on his travelling expenses. This could be a very substantial saving for people that use MBTs and fall in the lower living standard groupings.

6. What is in store in future?

A research study done by Rudi Kriel and Mariska Burger (published on July 19 last year) titled “Electrifying South Africa’s Minibus Taxi (MBT) Industry: A Data-Driven Approach” found that, typically, MBTs consume up to twenty litres of fuel a day, and each e-MBT has the potential to save 760 000 kg of CO2 emissions annually.

The study consisted of two main initiatives: Installing onboard diagnostic devices for 50 MBTs for a period of 14 days to collect crucial insights on operational aspects – such as range, dwell times, trip duration and frequency – and utilising GoMetro’s mobile phone application, GoMetro Pro, to collect additional trip data, including passenger counts and demographics. Specifically, they found that 86% of tracked MBTs could complete their daily operations on a single charge of an e-MBT.

The consumers may find some relief from petrol prices, but they need substantial and sustained interest rate cuts. Rate cuts are on the cards as economic indicators are aligned for the start of the down cycle. Bond repayments, vehicle finance and other interest-bearing debt can bring more relief for consumers in the coming months. The only major thorn in our flesh remains the electricity price increases, which does not exclude operational inefficiencies and corruption at Eskom from the “cost reflective” price.

* Kruger is an independent analyst.

** The views expressed herein are not necessarily those of Personal Finance or Independent Newspapers.

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