28 February 2013

South Africa: Gordhan Explains Fuel Hike

Photo: GCIS
South Africa's Finance Minister Pravin Gordhan (left) ahead of the 2013 budget speech.

Johannesburg — The weaker rand and the high price of oil played a role in the increasing of fuel prices, Finance Minister Pravin Gordhan said on Thursday.

"Oil is extraordinarily high," he said at a televised New Age breakfast briefing.

"And for various reasons the rand has been settling at R8.50 to R9 for the past few years."

The weaker rand resulted in imports becoming more expensive.

Gordhan announced on Wednesday that there would be a hike in fuel costs on April 3.

This included an increase in the general fuel levy of 15 cents a litre and eight cents a litre for the Road Accident Fund (RAF).

The general fuel levy was expected to contribute about R3.2 billion in revenue for the 2013/14 fiscus.

A third of the fuel levy went to the RAF, said Gordhan.

"The RAF is a huge burden. It has a deficit of R30 to R40 billion."

A review was set to take place to restructure the fund.

Economist Lulu Krugel of KPMG said consumers may be in for a hard time as the petrol price was expected to rise by up to 80 cents a litre next month.

Krugel said the international oil price had been rising and the rand weakening, and the fuel hike was inevitable.

"If we look at the under-recovery where we are now on 87 cents for petrol, that means we'll probably see around 87 cents increase in petrol if things stay the way that they are for the rest of the month."

"Diesel will be around 60 to 65 cents. It is not looking good at all."

On February 6, the retail price of all grades of petrol increased by 41 cents a litre.

Diesel with 0.05 percent sulphur rose by 17.8 cents a litre wholesale, and diesel with 0.005 percent sulphur also by 17.8 cents a litre.

Another contributing factor, Krugel said, was the political instability in oil-producing countries, most notably the Syria conflict.

Krugel said the good signs of economic recovery in the next months could further increase the oil price, as global demand picked up.

On the economy, Gordhan said government played a "key role" in the business cycle to ensure economic growth.

"Guidelines are used to inform the government when the business cycle is down and then government steps in to help... to keep the economy going," he said.

When the business sector is doing well "government must retreat".

He said it was crucial that both government and business prepare not only for the upside but also the downside.

The briefing heard that investing in innovation would help South Africa grow faster.

"Invest in the real economy... and innovation as opposed to investing in speculative activity," said Gordhan.

"In the South African context, we need more of the money that is in circulation or in savings...that will enable us to grow much faster."

In his Budget speech, Gordhan said that in recent times the world had become a more uncertain place for businesses, causing some to build cash reserves rather than invest in new or expanding operations.

He encouraged businesses to keep investing in the economy, and seize the opportunities around them.

Growing the economy meant expanding business activity. What mattered was creating opportunities and jobs.

Gordhan described the decision not to increase taxes this year as a "generous gesture of government".

He explained that South Africa could get onto the right track if everyone played their role.

"Each of us has a role to play... Human beings most of the time point the finger at someone else... If we all don't pull together we won't meet the challenges."

The briefing heard that retirement reforms were aimed at encouraging South Africans to save when they leave employment.

The current system did not serve citizens well, a member of Gordhan's panel told the briefing.

Gordhan believed South Africans were happy with his budget and he was happy that government had taken many of the right decisions.

The economic period was a tough one but: "We are now trying to recover.

The challenge for us is how to do much better and grow".

Gordhan said R16 billion was lost in revenue in the past financial year and this was not good.

"We ask everyone who owes us taxes to pay us."

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