Zimbabwe’s fuel prices are high and going up – here’s why

The adjustment on the price in Zimbabwe is ordinarily a reaction to movements in the global oil price.

  • Petrol hiked to US$1.34 per litre
  • Diesel remained unchanged in USD terms, but up in local currency
  • Consecutive upwards monthly price reviews since start of the year

HARARE – Fuel prices have been heading upwards in Zimbabwe since the turn of the year and this month is no exception. Yesterday, the Zimbabwe Energy Regulation Authority (ZERA) announced new prices for both petrol and diesel, making it four consecutive months of price hikes – in 2021, but why are the prices going up?

Before looking at the push factors, here is the price structure. The price of Petrol (E10) has was increased to US$1.34 per litre from $1.30 set on March 5, 2021, whilst diesel 50 remained unchanged at $1.32.

In local currency terms, petrol increased to ZWL 112.96 and diesel increased to ZWL 111.77 from the March prices of ZWL 109.17 and ZWL 110.41 respectively.

These prices reflect an increase of 11 percent and 7 percent from $1.21 and $1.23 set on 5 January 2021 for petrol and diesel respectively, whilst in local currency terms, it has increased by 14 percent and 11 percent from ZWL 99.35 and ZWL 100.91 in January for petrol and diesel respectively.

Amidst the price hikes, questions are being asked. ‘Why are gas prices so high?’ Second, and more particular, ‘Why are gas prices so high in Zimbabwe compared to other regional countries?’ The answers to these questions are intertwined with one another.

First, why are prices at the pump so high in general? There are several factors at play here that all have had an impact since last November:

  1. The loosening of COVID restrictions globally in recent months has led to a rapid recovery in global demand for crude oil that has exceeded the expectations of all of the “experts” on the subject, leading to a tightening of global crude markets;
  2. Strong discipline among the OPEC+ nations related to their agreement to limit exports has also played a major role in tightening the relationship between global supply and demand;
  3. Suez Canal Crisis which brought shipping traffic to a halt in one of the world’s busiest waterways, after the EverGreen cargo ship set lodged in the Suez Canal triggered mounting costs for global trade and that cost is passed to consumers at the pump. According to some reports, the blockage affected 10% of the global crude oil supply.

A confluence of factors has driven up the price of crude oil. Since gas prices at the pump tend to follow the price of crude on almost a linear basis, none of this is really surprising.

But what about Zimbabwe? Basically, oil prices in Zimbabwe like elsewhere are a function of the global oil price. The adjustment on the price in Zimbabwe is ordinarily a reaction to movements in the global oil price.

Why fuel is more expensive in Zimbabwe compared to regional countries? The government charges high import tariffs on fuel as a means to raise income to fund government programs. As a result, the high tax charges are making the country’s fuel more expensive compared to countries like South Africa, Botswana, Tanzania, Namibia Mozambique, Zambia, and Malawi. The difference, according to Economic Analyst, Zvikomborero Sibanda spill back to decades of economic mismanagement;

Exchange rate dynamics also play a role. The price of fuel in local currency terms like many other commodities is subject to exchange rate dynamics. The local currency has been on a free fall against the US dollar on the interbank market since the year began and this has resulted in price reviews in line with prevailing exchange rates.

A culmination of the above and structural rigidities in the fuel sector which remains unliberated results in a higher cost for the country’s fuel.

Equity Axis News


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