JULY 2017
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NO RELIEF FOR SA ECONOMY After experiencing some relief at the pumps in July, South African motorists will have to budget for a fuel price increase in August. Based on unaudited month-end fuel price data, the Automobile Association said that South Africans can expect a petrol price increase of around 20 cents a litre from Wednesday 02 August 2017, while those driving diesel-powered vehicles will need to fork out around 30 cents more. The price of petrol dropped in early July by up to 69c a litre, while the price of diesel came down by 60c. This followed a breather of 25c a litre in June after increasing 30c a litre in May. While the petrol price drop offered some financial reprieve, South Africans were encouraged to prepare for potential fuel fluctuations, suggested Priya Naicker, advice manager at Old Mutual Personal Finance. Naicker explained that this can be done by determining how much money you currently spend on petrol. You should then set aside between 5% and 10% of this value each month as a buffer against future increases. Debt Rescue CEO Neil Roets said, “If we are to see a significant rise in the fuel price in August, this will have a substantial impact on the prices of virtually everything. Roets also reminded consumers that South Africa's ailing economy is on the brink of a recession, with two quarters of negative growth recorded. “It is going to make for a toxic mix that is going to severely impact the more than half of all South Africans who are three months or more behind in their debt repayments.” The AA stated that the increases are mainly due to currency weakness in the month of July, although oil prices also played a part. This meaning a weaker rand and higher oil prices for the increase. “The rand accounted for about two-thirds of the hike, with a slight uptick in international fuel prices contributing the remainder," the association pointed out. The AA also warned that, should current trends persist, further price hikes could take place in the months ahead: "While the rand continues its volatile trend, international fuel prices have surged strongly in the past ten days. If this upwards movement continues into August, fuel users can expect further bad news." “The rand depreciated slightly, on average, against the US dollar during the period under review. This led to higher contribution to the basic fuel price on petrol, diesel and illuminating paraffin by 11.15c/l, 10.93c/l and 10.88c/l,
respectively,” it said in a statement.
“The prices of petroleum products increased, on average, in the international markets in line with the higher crude oil prices. The crude oil prices rose, partly on drawdowns of global inventories including in the closely watched US market. “The market has been anticipating a return to balance at some point this year and there are signs now that it is happening. The current expectations are that the rising crude oil prices will hit a ceiling as higher prices may tempt OPEC members to start producing above the output cuts agreed late last year and reconfirmed in June this year,” the DoE. For July 2017, the WesBank mobility calculator reflects that the average cost of motoring has risen to R7,119.80. This is 6.1% higher than July last year, when the monthly mobility basket was R6,709.53. Compared to five years ago, the total cost of motoring is now 24.2% higher. In July 2013, monthly costs amounted to just R5,732.64. Average monthly fuel spend While instalments, fuel, and maintenance costs have increased consistently, average monthly fuel spend has actually declined over the last two years. When viewed as a portion of the monthly motoring budget, fuel spend only accounts for 31% in July this year. This contrasts with 34% in July 2016, and 39.7% in July 2013. “Fuel prices are influenced by the exchange rate and the international price of oil, with general inflation playing a far smaller role,” said Mahoney. “In 2013 and 2014, fuel prices were on the rise and the monthly fuel spend was roughly equal to a small vehicle’s instalment. This is no longer the case, but it doesn’t mean the cost of motoring is lower.” What’s with our economy? Barclays Africa Group just delivered further evidence that South Africa’s economy won’t be climbing out of the doldrums anytime soon. The Johannesburg-based lender kicked off the earnings reporting season for South Africa’s banks with a decline in total first-half income, the first interim contraction since Maria Ramos took over as chief executive officer in 2009. The strain of South Africa’s economic contraction also showed in the 10 percent decrease in earnings excluding one-time items at the bank’s main South African consumer unit in the six months through June as lending at its mortgage and credit card businesses shrank. Income from fees on transactions and commissions and deposits dropped 14 percent, while costs increased faster than revenue.
“We expect the economic environment to remain challenging,” Ramos said in an emailed statement. The company also sketched a bleak outlook for the rest of year across its businesses in 12 African countries, predicting “low- to middle-single digit loan growth,” a decline in its net-interest margin, slower revenue growth and higher costs. South Africa slumped into a recession in the first quarter after all but two industries shrank amid continued political wrangling and policy uncertainty. Barclays Africa’s South African banking operations account for 74 percent of normalized earnings before one-time items.
The country’s foreign-currency debt was downgraded to junk in April. Unemployment is also at a 14-year high as the governing African National Congress prepares to pick a new party president at the end of the year. “Key risks facing South Africa in the second half include heightened political and policy uncertainty in the run up to the ruling party’s December elective conference, the potential for the country’s sovereign credit rating to be downgraded further, and for weak business and consumer confidence to lead to a longer, more protracted recession,” Barclays Africa said.
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