17 Jan 2023

The recent price decrease on petrol, diesel and illuminating paraffin announced by Botswana Energy Regulatory Authority brings hope of economic recovery.

Though economists and analysts may argue about the extent to which petroleum retail pump prices affect  the economy and the consumer price index, there is a correlation between consumer confidence, spending habits and petroleum prices.

Volatile fuel prices due to the Russia/Ukraine war have strained consumers as high fuel prices mean less spending on other goods and services.

Higher petroleum prices also have an effect on the broader economy.

Petrol price decreases ease costs on goods as transportation to markets becomes cheaper.

High fuel prices can result in increases in transport costs which can make shared and public transport more appealing.

Independent economist, Mr Louis Sibanda said in an interview that the  public should be cognizant that the economy needed to first adjust in accommodation of  the fuel  price.

“It is not automatic that there will be a reduction in commodity prices immediately at the announcement of a fuel price reduction as commodity prices turn to be sticky and do not respond immediately at the proportionate percentages,” he said.

Mr Sibanda also said high fuel prices had contributed close to 60 per cent of inflationary factors, adding that the recent reduction could result in a reduced inflation rate since markets responded over time.

“The impact of the fuel reduction on the consumer price index will be  a reduced inflation rate which will ultimately lead to a reduction in commodity price  growth,” Mr Sibanda  said.

He noted that reduced fuel prices were a cushion on the inflation rate. He said the sustainability of the fuel price reduction would be a key factor in the determination of commodity prices.

Mr Sibanda also said the public should be mindful of the difference  between the rate of inflation and pricing.

“Lower inflation rate does not translate into reduced pricing, but  rather means that the reduction in the rate of growth in pricing, hence the likelihood of slow price growth,” he  noted.

Furthermore, Mr Sibanda said Batswana should anticipate a positive aggregate growth of the economy due to a reduced appetite for Russian diamonds and an increased demand for Botswana  diamonds.

A recent press release from the Central Statistics Office indicates that the economy advanced by 6.3 per cent year-on-year in the third quarter of 2022, accelerating from an upwardly revised 5.8 per cent  rise in the previous three-month period.

It was the seventh consecutive quarter of economic expansion, mainly driven by diamond traders at 28.5 per cent on higher diamond prices in global markets and utilities at 35.1 per cent as local electricity production went up by 36.3 per cent due to improved coal demand from external markets and uptake by Morupule Power Station.

The press release says all other activities recorded solid increases of more than 1.9 per cent, except agriculture at 0.4 per cent.

On a quarterly basis, the GDP rose by 4 per cent, rebounding sharply from a downward revised 1.4 per cent contraction in the previous quarter. ENDS