13 Jan 2015

International fuel prices declined drastically during 2014 and as the trend is expected to continue this year, economists say oil importing countries such as Botswana stand to benefit. 


Fuel prices declined from as high as US$100 in July to about $50 per barrel driven mainly by oversupply as the United States has joined production while the Organisation of Petroleum Exporting Countries (OPEC) have maintained their production levels.


Messrs Rabah Arezki and Olivier Blanchard of the International Monetary Fund (IMF) said low prices could affect oil importers in three ways. They said the first could be an increase in real income on consumption. 
The other is the decrease in the cost of production of final goods and in turn on profit and investment.


Mr Thabelo Nemaorani, an economist with Econsult, said the falling of global fuel prices would benefit Botswana by inspiring a ‘healthy’ trade balance.He noted that fuel was one of Botswana’s major imports accounting for about 20 per cent. He said the country would not spend huge amounts of money on imports resulting in a better trade balance.

 
In December, the government reduced prices for both petrol and diesel and Mr Nemaorani said this should have a bearing on price levels as fuel has a large weighting in the Consumer Price Index (CPI) basket. 
 “As such, we expect inflation to fall to about 3.3 per cent for the month of December 2014,” he said.


However, he said due to the increase of alcohol levy late in December, he anticipated inflation to increase slightly this month. 
He said should fuel prices continue to decline, there would be more downward adjustment of pump fuel prices. 


Another sector that stands to benefit is the mining industry. 
There are currently numerous mines operating throughout the country and they are each estimated to consume 2 000 to 5 000 litres of fuel every day. 
Some of the companies purchase their fuel in bulk and have not yet realised cost savings.

However, BCL Mine communications manager, Mr Chris Molosankwe said they welcome the low prices as they reduce input costs, adding that he looked forward to more declines.


The copper/nickel mining company runs three underground shafts in Selebi Phikwe on a 24 hour basis hence using a lot of fuel in their operations. 
Diamond mining giants Debswana also stands to benefit as they operate mines in Orapa, Letlhakane and Jwaneng. 


Debswana corporate affairs manager, Ms Naledi Dikgomo-Goulden said with the current prices they expected at least P1 on average which gives them a saving of 10 to 15 per cent on their operational costs. 
The other sector that stands to benefit is the transport sector and public operators had a profitable festive season.


In 2009, the government reduced transport fairs amid low prices and members of the public say they are anxiously waiting to see if there would be another reduction. 


Food production is also to benefit especially Integrated Support Programme for Arable Agricultural Development (ISPAAD) as the reduction happened during the ploughing season. ENDS