Petrol prices could have fallen by R1.25 per liter this month

John Johnson

Global Courant

The government’s political missteps over the past month have crushed the edge in global markets, cutting prices for motorists nearly in half as of Wednesday (June 7).

The Ministry of Mineral Resources and Energy announced Monday (June 5) that gasoline prices will fall this week by 71 cents per liter and diesel prices by 80 to 85 cents per liter.

According to Annabel Bishop, Investec’s chief economist, the price drop could have been significantly higher – about R1.25 per liter for petrol and R1.38 for diesel – if the country had maintained a stronger currency position.

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The blame can be placed on the government and its close relationship with Russia, which came to the fore in recent weeks and damaged international sentiment towards South Africa.

“The past month has revealed the strong relationship the South African government reportedly has with Russia on many fronts, including reportedly close military ties, at a time when the Western world has imposed sanctions on Russia over its war on Ukraine,” Bishop said.

South Africa’s ongoing relationship with Russia, including through the BRICS grouping, has the country scrambling to resolve the Russian president’s impending visit later this year as SA hosts the BRICS summit.”

Following news that South Africa granted diplomatic immunity to BRICS summit participants while hesitant about what it will do if and when Putin visits, the rand hit a record low last week, in view of the harrowing R20 against the dollar.

South Africa is a party to the International Criminal Court (ICC), which has issued an arrest warrant against Putin for alleged war crimes.

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If he attends the BRICS summit in person, South Africa will have no choice but to arrest him. However, the government has not taken an official stance on the issue, looking for loopholes to get out of the predicament.

The rand retreated towards R19.40/USD on Monday, which Bishop attributed to discussions that the BRICS meeting could be held in another country to avoid the problem of the ICC ordering Putin’s arrest.

However, this slight relief did not come in time for the market changes to feed into the gasoline price adjustment in June.

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“Had the rand not weakened in May, prices would have been set at a drop of R1.25/litre for petrol and R1.34/litre for diesel this month,” Bishop said.

“The inflationary effect of rim weakness cannot be underestimated, negatively impacting the cost of living, particularly the lives of the poor, whose largest expenditures are typically travel and food, both affected by the severe depreciation of the rand against the US dollar.”

Investors are pouring out

Bishop said South Africa’s geopolitical choices — and in particular the revealed strength of its relationship with China — have led to the collapse of the rand and substantial foreign sales of the country’s financial assets, while Western players in South Africa’s financial market Punishing Africa for its worsened risk environment – including its alleged deep loyalty to Russia.

The economist noted that foreign investors have dumped more than R20.3 billion worth of bonds in South Africa so far this year – more than the R19.6 billion sold throughout 2022.

Bishop said this is in stark contrast to the roughly R0.1 billion worth of local bonds sold in 2021 after purchasing R76.7 billion in 2019.

“High levels of power cuts have decimated economic growth prospects for this year, weakening the country’s tax-collecting potential, which has also negatively impacted bond market sentiment,” she said.

This was signaled last week by the South African Reserve Bank in its financial stability assessment, where it added Pretoria’s position on Russia as a new risk in its assessment – warning of possible secondary sanctions and the impact it would have. on the local economy – as well as resulting in greater capital outflows.

“South Africa’s non-aligned stance in the Russia-Ukraine war is increasingly questioned, which could pose a future threat to the participation of South African financial institutions in the global financial system and increase the likelihood of secondary sanctions are imposed on South Africa. said the SARB.

Bishop noted that given South Africa’s financial markets, economic activity and investor sentiment, the South African government is increasingly “playing with fire” in its still close relations with Russia, while the Western world has taken a strong stance against Russia taken because of the war in Ukraine.

Negative sentiment in international financial markets towards South Africa is on the rise as it demonstrates continued alliances with Russia by allowing Russian ships to dock in SA ports, conducting naval exercises with Russian and send Chinese fleets and delegations of South African government officials to Russia,” she said.

The rand is the third worst-performing emerging market currency against the US dollar out of a basket of twenty-two monitored by Bloomberg, weaker at -20.8% year-over-year, behind the Turkish lira and the Argentine peso.

Read: Here is the official petrol price for June

Petrol prices could have fallen by R1.25 per liter this month

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