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Proposed fuel price hike could have strained sectors of Tanzania’s economy destructivel

Proposed fuel price hike could have strained sectors of Tanzania’s economy destructivel

ACTION taken by government to stop wished-for hiked fuel price tag by the Energy and Water Utilities Regulatory Authority (EWURA), pushing retail fuel prices high in September 2021 in my view could have huge implication on Tanzanian economy.

A year of economic disruption caused by the Covid-19 pandemic and record high fuel prices could have brought the emerging Tanzania economy to its knees with further implications to dried up economy that is slowly recovering from disruptions caused by the pandemic.

While applauding government led by President Samia Suluhu Hassan stand up on halting suggested new price rates, what many don’t realise is that such price increase could have led to ripple-effects on an array of already stressed sectors such as transportation, agriculture and micro, small and medium enterprises that are currently grappling to get off the ground.

In fact, high fuel prices could have led to higher retail and food inflation at a time when the covid epidemic has weathered Tanzania’s household savings amidst newly introduced charges on mobile transactions that in my assessment have indirectly pushed or will push millions of households into debt and poverty.

Without going into details, price rise could have the subsequent general consequences.

High fuel prices could have pushed inflation up in Tanzania, and this could have led to a detrimental effect on Tanzania’s financially nervous households to the extent that could force them to cut back expenditures on essentials such as health and foodstuffs to pay for fuel induced costs.

In my assessment, it would have been like an indirect tax on a commodity consumed by both the rich and the poor since the relative burden on the poor would have been more because the tax is not calculated based on the income of the buyer.

Price hike could have led to an inflationary impact by feeding to the cost of everything from food to building material, steel, cement, and fertilisers through increased cost of logistics for transportation.

In my assessment, prices of petrol and diesel are marketdetermined, meaning that public sector oil marketing companies licensed to operate in Tanzania determine retail prices of petrol and diesel based on international prices of crude oil (from which petrol and diesel are manufactured) and other related products, currency exchange rates, tax structures, inland freight costs, etc., the international prices are thus the determinants of prices of petroleum products in Tanzania.

While I am conscious of methods and charges that are not less than 23 different charges, from total cost (CIF to Dar Port per litre to service level payable to local government authorities (retails) done to arrive at price tag Tanzanians pay for their litre of petrol or diesel, when this transparently done reflecting global crude oil prices, Tanzanians could have a different price tag for fuel they pay in addition, taking into account government taxes.

I am of the opinion based on my long assessment of the sector that fuel prices in Tanzania remain relatively high despite fluctuations in global crude prices, nor do they shift along with exchange rates.

Last year, when global crude prices registered a fall considering reduced global demand owing to the pandemic and international lockdowns, relief registered was minimal compared to other neighbouring nations.

For example, while I could compute and make it clear on every litre of petrol or diesel or kerosene etc. purchased at a Tanzanian oil business pump, what percentages of the payment goes where, it is enough to argue, proposed fuel prices could have affected already pandemic-stressed sectors in the economy, such as transportation and logistics, not counting on people’s livelihoods.

In my view, fuel price hike is low hanging fruit or easy money for the government but what many don’t realise is that it poisons business and any future expansion prospects. Think of it in this way, in any transportation business, diesel constitutes about estimated according to transporters I have contacted 60-70 per cent of operational costs in the form of variable cost.

On one hand, my argument is that for any economy, for any country, transporters form the backbone of the economy. But from my examination, the transport sector provides direct and indirect employment to many million Tanzanians respectively. High fuel prices in my opinion would not only have a devastating impact on the transportation sector but could have strain sectors such as SMEs and agriculture by way of higher input and operating costs.

Even as the formal sector profits could have grown, employment and overall job losses could have been the case This suggests that Tanzania’s small businesses, which employ over 80 per cent of Tanzania’s workforce could have been under significant distress.

Based on my personal calculation high fuel prices would have led to a 30 per cent increase in SMEs’ operation costs and as we know SMEs operate at very thin margins. So, to absorb these costs SMEs would have been forced to be at a very big pressure to survive.

And given the current state of the economy, in my view these business owners have very few resources to face up such challenge. What I am trying to state is that high fuel prices would have driven up the freight costs by up to 10-20 per cent and that could have led to negative consequences to our economy.

There is nothing wrong with the authority fuel raising prices, but the fact it was proposed, and then put on hold, suggest that somewhere within the corridors of providing right advice to make decision makers be firm on what should be done something is wrong.

The authority responsible either might have not done their work properly or have failed to provide convincing clarity on why the fuel price hike. So, there is a need for explanation on what led to proposed hike price for. My sincere suggestion to policy makers as well as politicians is that increasing business taxes is too politically sensitive since if these charges are raised, it will instantly lead to a criticism and reactions.

Petrol and diesel are inelastic to prices and carry low political consequences because you can blame it on anybody.

So, it is effortless to tax it. But key questions that we all need to consider is how does reliance on indirect taxes through charges like increasing price of fuel impact the competitiveness of our industries?

How does it reduce our employment scenario projection? I am certain, no one might be interested to discuss these issues because these are complex long-term problems and without being careful could destruct us from building our nation.

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Author: DR HILDEBRAND SHAYO

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