The relentless rise in fuel prices threatens to erode the standard of living of many ordinary people in Botswana. We already saw that our public transport operators were up in arms last week because the latest fuel price hike threatens their already narrow operating margins. You really do not have to be an industry insider to see that local taxi and combi operators’ margins are thin. From a distance you can see that there is very little capital investment in the sector as the fleet especially the 16 seater version is pretty old. So persistent fuel increases are – without intending any pun- just adding fuel to the fire in a sector which is not allowed to charge market related prices.
As the public transport system is thrown into chaos, it is then that you realise its impact on other sectors of the economy. As an example, my helper struggled to get to work this past week because of the disruptions in public transport. She had to make alternative arrangements and joined hands with other stranded people to hire private transport to commute to work.
Such a move is however not as simple as it sounds. Firstly it is setting her up on a collision course with the men and women of law enforcement because whoever is offering this new service might be charged for operating without a licence. Secondly she will find it financially untenable to sustain this mode of transport if the public transport system does not resume soon.
We may be talking about my helper but the problem extends to other sectors because the economy is an ecosystem, if you like. Once the transport sector hits turbulence then inevitably, other sectors such as construction and retail will be adversely affected as employees struggle to report for work.
I think we are now at a point where policy makers no longer have the luxury of just kicking the can down the road in as far as fuel pricing is concerned. For many years the government decided to regulate fuel prices because they calculated that failure to do so would create unfavorable welfare effects. So a system whereby government paid the difference between the market price oil that companies would have paid for fuel and the government’s preferred pump price, was instituted.
Over time however, it is evident that the government is not able to keep up and now owes oil companies a lot of money as a result of the difference between market prices that the latter paid and the regulated pump price. Of course, the government collects a levy from motorists but apparently even that is not sufficient to settle its arrears with oil companies.
It was easy during the diamond bonanza days, for the government to settle arrears with oil companies. Now we are at crossroads because the government finances are not in a good shape. The rationalisation initiative is an attempt by government to sew the coat according to its cloth.
The government can either raise the fuel levy or allow the pump price to begin to reflect the market price. Given that we have always prided ourselves most on charging less for fuel than our neighbours including South Africa, the latter could therefore be implemented gradually to avoid an obvious political fallout.
At the international level, it would be good for Botswana to adopt a stance that appreciates the important role of oil and other fossil fuels. Part of the reason for soaring oil prices is the incessant and infantile demonisation of fossils by Joe Biden and Europe. America for example was busy pumping oil to meet its needs before Biden came on the scene and the extent to which the man is beholden to the radical environmental groups is staggering. He can blame Russia all he likes but the truth of the matter is that there is no legitimate alternative to fossil fuels. Those with deposits of fossil fuels such as America should pump even more oil out of the ground to help the world.
