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Morris Mpala, MoB Capital
THE biggest challenge the economy is facing is the high cost of fuel.

And given that it touches all the tentacles of the economy, this has affected production costs at all levels across the entire economy.

We cannot even envisage an economy without fuel especially given now it is used in the generation of energy at household levels to national levels.

Energy gives us economic options.

The recent reduction in fuel prices in as much is the right direction is still a drop in the ocean to what we want to achieve as an economic seeking relevance, competence, comparative advantage and yearning to create new jobs for a stable socio-economic environment.

The breakdown of fuel costs in US$/ litre
Diesel         Petrol
Selling Price     1.25             1.35
Levies                50.1 c          63.2 c
Mozambique    0.93            1.02
Zambia              1.27             1.10
RSA                    1.17             1.19
Namibia.           0.98           1.06
Bostwana          0.83           1.06

Paraffin price is $1.17 per litre

Fuel Global trends

The world over whenever the price of a barrel of crude oil goes up, fuel goes up and vice versa.

Or whenever there is huge demand the price of fuel goes up.

Normally, it follows empirical evidence on the ground and the pricing is correlated to what will be happening on the ground.

It is kind of predictable and business can make informed strategic decisions based on projects of demand, production levels of the respective crude oil with reserves in mind to give a correct price of it by products.

Transportation by road
Most of the fuel is moved into Zimbabwe by road from whichever source augmented by rail. Road erodes the economies of scale that can come with pipeline use.

Smuggling
A lot of smuggling through abuse of “goods in transit” to the detriment of the much-needed taxes to treasury and other players that benefit from the official declaration of imported fuel into the country.

The pure smuggling of fuel as an arbitrage to undercurrent the high prices in Zimbabwe is rampant and at times it is done to the detriment of the illegal traders.

Blending
Ethanol blending is meant to reduce over reliance on imports of fuel.

It saves on currency, creates jobs.

The downside is at times ethanol in large quantities is affecting other vehicles models and requires extra cost for the car to be compliant.

Contaminated Fuel/Paraffin economy
The fuel in use is a bit contaminated as mostly is paraffin infested and damages most cars on the road.

With this scenario, fuel utility is not enjoyed to the maximum due to increased service/ maintenance and less than perfect fuel.

Pricing matrix model
In Zimbabwe, the fuel price is not tracking the world trends at all.

It goes up instantaneously and is lackadaisical in coming down.

In other regions, they have enjoyed reduction in prices.

The pricing model in its current format is a headache for the economy and it needs revisiting to accommodate fluctuations in price that track global supply and demand and give price adjustments an intimate religious approach.

Business is realtime why can’t fuel prices be as well?

Feruka pipeline

The ultimate in fuel transportation is still being sidelined for whatever reason.

We need this strategic pipeline back on track to reduce costs to fuel.

It is environmentally friendly and quite efficient and effective in transportation in the previous fuel.

The infrastructure is there, what is needed is maximum utilisation through the will of economic actors to utilise it fully.

If this fuel matrix is not nipped in the bud, it will erode all efforts being made to stabilise and grow the economy steadily.

At the current levels, the high fuel price is eroding all the economic gains made by economic actors and making Zimbabwe an expensive production arena without including other extortionate factors such as utilities, funding costs, salaries, and perception, among others.

Morris Mpala is the managing director of MoB Capital Limited, a micro-finance institution with footprint across the country.