Rising fuel prices eroding business competitiveness

12 October 2018
The Namibia Chamber of Commerce and Industry (NCCI) say rising fuel prices are eroding the competitiveness of local businesses as they are adding to the cost of doing business in an already depressed economy.
According to the chamber, the transport industry has been the worst hit by fuel price increases.
This comes after the Ministry of Mines and Energy (MME) announced a fuel price increase of 50 cents per litre with effect from Wednesday last week, the third time it has done so this year. 
The ministry attributed the increase to the depreciation of the Namibia dollar against the US dollar and rising global oil prices.
NCCI Acting CEO, Charity Mwiya, said in an interview that the fuel price hikes will be catastrophic as the slowdown in the local economy has already eroded consumers’ spending power.
“Companies that are focused on delivery and transportation are often heavily impacted by the fuel price increases,” Mwiya said. 
“If they wish to save on fuel costs, they often must trim their geographic target service regions or find other ways to reduce costs in their existing service areas, by altering routes or driving practices.”
Mwiya said the NCCI was worried that rising fuel costs will have a negative impact on SMEs since most micro enterprises are dependent on hired transport to fetch items from wholesalers and manufacturers.
“They must make a series of decisions to sustain their business models as fuel costs impact their supply and overhead expenses.
“This reduces the competitiveness of the smaller businesses,” she said, adding that rising business costs will likely lead to further retrenchments.
“This is a worrying factor considering that the economy has already experienced a number of workforce retrenchments in various sectors over the past months, adding to the already high levels of unemployment.
“I have a case of a plumber who informed me that many potential customers refused to pay an increased service call charge of N$130, up from N$100, after his fuel costs rose by 20 percent over the past two years. Businesses must balance the need to meet the rising fuel costs with the risk of losing revenue,” she said.       
Investment firm, IJG, recently said that the transport sector has been under pressure following consecutive months of fuel price hikes, with hikes this month being the latest.
Currency weakness observed in August coupled with the increase in the price of Brent Crude oil drove the increase in fuel prices, the firm observed.
“As long as these pressures and under-recoveries remain, we expect that the Ministry of Mines and Energy will continue hiking fuel pump prices,” IJG said.
Christo Viljoen, Head of Agri and Tourism at FNB Namibia, said small businesses and poorer households will bear the brunt as their transport costs account for a large portion of household expenditure.
He said sustained fuel price increases will further erode disposable income and cause financial stress.
“We might face a dim festive season if the current pace of fuel price increases is sustained in the two months ahead.”
The increase is also likely to affect the new planting season for summer crops.
“The higher crude oil price, which has now breached the US$80/barrel level, is a double whammy due to the direct influence on the fuel price and the indirect influence on oil derivatives such as fertilizer, pesticides and agrochemicals all of which are inputs in crop farming.”



The Windhoek Observer is an English-language weekly newspaper, published in Namibia by Paragon Investment Holding. It is the country's oldest and largest circulating weekly.

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