Fuel crisis: counting the costs (Zimbabwe - supply lines breaking down)

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Fuel crisis: counting the costs

Financial Gazette February 10, 2000 By Staff Reporter

Harare - The fuel crisis has now entered its third month with government promises to end the crisis failing to produce any tangible results. In fact, fuel shortages are likely to continue for sometime as current fuel imports are not enough to meet the daily requirement of 4,5 million litres a day.

All the fuel that is coming in is going into consumption: none is going into the building of stocks. We are actually living from shipload to shipload as it were. Because credit lines to the National Oil Company of Zimbabwe (NOCZIM) have been cut, the oil company is having to buy fuel on a cash basis.

NOCZIM requires about US$7 million a week for the importation of fuel. The fuel crisis has obviously come at a bad time for the government. The referendum on the new draft constitution is scheduled for this weekend while legislative elections are due early April. The government's image has obviously taken a knock from the crisis. All sectors of the economy - agriculture, mining, manufacturing, construction, tourism, et cetera - are being adversely affected by the fuel shortages, putting at risk thousands of jobs.

Sixty-five percent of the fuel consumed in the country is used for commercial purposes while the remainder is for private consumption. In the agricultural sector, land preparation for this year's tobacco crop has been disrupted, a development which could reduce the harvest of the crop. Meanwhile, tobacco farmers have said because of high production costs they would need an exchange rate of $44 to the US dollar in order to break even.

The government, on the other hand, maintains that the Zimbabwe dollar will not be devalued. The current severe shortage of fuel has however swung the balance of power in favour of tobacco farmers because hard currency is badly needed to fund fuel and electricity imports. Exports of horticultural products, a major foreign exchange earner, are being hampered by the inability of producers to timeously transport produce to the airport for shipment to international markets. In the dairy industry, some farmers are failing to deliver milk to depots resulting in huge losses.

Dairibord Zimbabwe, a milk processing company, has changed its delivery system in order to conserve fuel. Deliveries to retailers are now on every alternate day. In the tourism sector, which rakes in over $6 billion in earnings per year, normal operations have also been disrupted by fuel shortages. The Hospitality Association of Zimbabwe has reported a decline in tourist arrivals as visitors from abroad and in the region worry about transportation problems. This has resulted in the cancellation of bookings.

Fuel shortages have also affected the delivery of food and beverages to hotels and lodges around the country. In the resort town of Kariba, houseboat owners have been hit by cancellations of bookings while diesel for the houseboats is in short supply. In the freight industry most trucks have been grounded, raising the spectre of retrenchment if the fuel crisis persists.

This has affected the movement of exports at a time when export revenue is badly needed to improve liquidity on the foreign exchange market. Drivers are reported to be spending more time queuing for diesel than transporting products. Stoppages and delays in operations are now the order of the day at most mines dependent on diesel for most of their operations. The situation is more serious at open cast mines such as Eureka, a gold mine in Guruve.

Eureka uses about 15 000 litres of diesel a day. Open cast mines depend heavily on diesel-powered heavy-duty equipment such as front-end loaders, dumpers and heavy-duty trucks. At Wankie Colliery, the operation of the diesel-powered dragline has also been affected. A great deal of time at mines is now being spent looking for diesel instead of on mining operations. As a result, the planning of operations is becoming difficult.

At the Zimbabwe Steel Company (Ziscosteel), blast furnace capacity has now been reduced due to the fact that part of the fleet of heavy- duty trucks and locomotives has been grounded. This will obviously impact negatively on sectors which rely on steel products from Ziscosteel. The man in the street has not been spared. Paraffin for domestic use in short supply, causing problems for urban households in areas such as Epworth which have no electricity.

Furthermore, fuel shortages have disrupted the urban transportation system with some workers reportedly having to walk to their workplaces. Long-distance bus operators have been forced to scale down operations, making it difficult for people to travel to rural areas. If the fuel crisis persists, consumers will soon have to contend with shortages of consumer products such as bread, milk and meat.

While it is difficult to quantify the damage caused by the fuel crisis to the economy, the costs obviously run into billions of dollars. A five percent reduction in overall business activity in one week, for instance, costs the economy about $1,25 billion. For a long lasting solution of the fuel crisis and the wider problem of foreign currency shortages, the following need to be done:

NOCZIM should be liquidated and a consortium of private sector companies allowed to import fuel; ?Heads should roll in the Ministry of Transport and Energy for failing to prevent rampant corruption at NOCZIM;

Troops should be withdrawn from the war-torn Democratic Republic of the Congo to improve local fuel supplies;

Because the underlying cause of the fuel crisis is a shortage of foreign currency, the government should re-start serious negotiations with the International Monetary Fund (IMF) in order to open up channels for the much-needed external financial assistance;

Comprehensive export incentives should be introduced in consultation with the private sector; and

Fiscal policy needs to be tightened in order to improve the overall macro-economic environment. In the meantime, efforts should be made to ensure that fuel reaches the critical sectors of the economy such as the Zimbabwe Electricity Supply Authority, farmers and exporters.

In a related development, prices of diesel and petrol went up by about 17,3 percent on average yesterday, the second increase in less than two months. The last fuel increase was on January 1 2000. More fuel price increases should be expected given rising international oil prices and the expected devaluation of the Zimbabwe dollar. By the end of the year, Zimbabweans are likely to be paying more than twice as much for fuel as they are paying now.

This, of course, does not augur well for a sustained reduction in inflation. The decline in inflation seen in the past few months is therefore likely to be temporary, particularly taking into account other factors such as high government spending, wage and salary hikes and electricity tariff increases which are expected to feed into inflation. The prospect of bringing annual inflation down to a single digit remains a mirage.

-- Homer Beanfang (Bats@inbellfry.com), February 10, 2000

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