The decrease in the fuel prices, expected next week, is good news for desperate consumers.
Over the past few months of record high prices, various proposals to keep the price hikes in check were put forward. Although the price is not entirely within government's control, it does exert a surprising influence over it.
The largest part of the fuel price (at present, approximately R16,90) is the basic price. This is largely based on the value of the rand in relation to the American dollar and the international price of Brent crude oil. This is also the part that fluctuates from month to month.
Levies, storage and transport costs as well as the various retailers' profit margins remain fairly stable over longer periods of time. During the course of 2022, the only change was a 3c increase in transport costs and the temporary fuel levy relief, which Treasury granted.
Wholesalers must ensure that they make a profit of 45,5c per litre and retailers must make R2,28. Between 1,5% to 1,75% of the retail price is collected from retailers by banks when consumers pay with credit cards.
A hike in the fuel price also increases this amount and can effectively lower the profit margin on that transaction to R1,83.
Requests to deregulate the market for petrol have been made, with the understanding that greater competition could result in lower prices. The fact that all transport costs and profits comprise less than R4 of the total fuel price raises the question of how much of a difference would deregulation on this level really make? It could, however, lead to a greater concentration in the industry and compel rural retailers to increase their prices, which will make job losses inevitable.
Deregulation is a good option in a relatively free market. In South Africa, there are very few businesses with the ability to import and store fuel, and there is only one refinery. These businesses are in a dominant position in relation to wholesalers and retailers, which means that deregulation will make the already vulnerable part of the value chain even more vulnerable.
In addition, the estimated sixty thousand petrol attendants in the country may be forced to find other jobs as a result of it.
The FF Plus has already clearly voiced its opinion on the fuel levy and the Road Accident Fund levy. Government can exert the greatest influence on a completely different level, though: the value of the country's currency.
The lower the value of the rand, the more South Africans pay for fuel. Lower crude oil prices will only benefit South Africa if it is not accompanied by a drop in the value of the rand. If one takes into account that the value of a country's currency can be used as a barometer for international confidence in its economy, the big difference that government can make becomes clear.
Economic policy that instils confidence, labour legislation that leads to job creation, stability that gets the country out of junk status, and putting an end to transformation-driven interference in the economy could restore the rand's value.
And then all South Africans can benefit from lower fuel prices, without some having to sacrifice their jobs and others their businesses.