In a shocking blow to the local economy, authorities have announced that the petrol price is set to rise by R5,25 a litre in the first week of February. Diesel and household paraffin will rise by R4 and R6 a litre respectively.
Leading economists Schussler and Jardin have attributed the necessity for this hike to the volatility of the markets, affected recently by national, regional and international events.
The announcement that President Thabo Mbeki is to be out of the country for 301 consecutive days in the new year, owing to commitments to the New Partnership for Africa’s Development, the Democratic Republic of the Congo, Sierra Leone, Zimbabwe, Nigeria, Liberia, Libya, Ghana, the United Kingdom, the United States, India, Afghanistan, Iraq, the United Nations, China, Pakistan, Kashmir, North Korea, Israel, the European Union, the G8 and the upcoming Conference on Sustainable Development in Georgia, and the fact that retired Judge Joos Hefer will be appointed acting president during this time, has put the local market under considerable pressure.
Pressure on these markets increased with the revelation this week that Reserve Bank Governor Tito Mboweni has purchased an additional $5-billion to offset Mbeki’s itinerary and to prop up the rand against the bank’s net open foreign currency position, which could see it enter the red in the event of a freefall of the rand. Speculation has been rife that the currency could be debased by more than 50% against the dollar by next year’s end if there were to be no intervention from the Reserve Bank, as the buying and selling of the currency has reached unforeseen and unprecedented levels in recent weeks.
Although negative, this positive step by the Reserve Bank is seen by some as an overdue indication of its earlier reluctance to admit that the rand is an undervalued currency in world markets.
Notwithstanding that these interventions by the Reserve Bank are aimed at targeting inflation, analysts contend that inflation and interest rates will have to be cut again in the near future in order to maintain predicted growth figures for the first quarter of 5,7%.
This will come as a shock to consumers and will severely strain the pockets of the man in the street. And although it should be good news for exporters, who have struggled in recent months against soaring imports and the strong rand, the rise in the petrol price will dampen their enthusiasm, as trends indicate that exports will continue to suffer at the hands of the weaker rand and stronger global demand.
But the producer price index of the gross domestic product is expected to benefit producers. A market indicator has been the sharp rise in Horlicks and noodle shares in current weeks. The latter is perceived as a positive nod in the direction of the Asian markets, which are staging something of an upward economic trend.
But it is not only the local markets that are not exerting pressure. On the international scene, yet more significant political events have pointed towards a rise in petrol prices for local consumers.
The increased strength of the dollar against other international currencies, which is being attributed by analysts to a rare show of solidarity between members of the Organisation of Petroleum Exporting Countries (Opec) in their announcement that the price of oil will drop from $29,68 a barrel to $14,50 a barrel (the lowest in years), has also affected the showing of the rand and led to a sharp rise in the petrol price.
Reasons for this unprecedented decline in the oil price — pegged by the Opec members for the first three-quarters of the first quarter of next year — is said to be a recognition of three events in which the Unites States has played a significant role: the US-led invasion of Iraq, which has mediated greater stability in the region; the US-brokered peace deal between Israel and the Palestinians; and indications that the US is turning its steady gaze towards the intransigence of the island of Samoa in their continuing development of a new and improved machine gun that will outstrip the current virtues of the AK-47.
Local markets have been fickle in the face of these international developments and have not reacted strongly enough.
But it is not all gloom and doom. Analysts maintain there is some good news. The current wine lake, which has been bedevilling the local wine industry, could see a rise in the price of locally-produced beverages. This will create greater consumerism over the following months, reducing the lake and powering a rise in the consumer price index.
Added to that, certain other political events could play a role. The forthcoming election, which has seen an innovative coming together of the government, business and labour, could herald an almost certain victory for the man in the street.
Furthermore, there is the widely-held view that if Bulelani Ngcuka is allowed to continue in his role as main prosecutor of rainbow-collar crimes, new opportunities for job creation will be on the cards, resulting in the markets stabilising somewhere around the third quarter of next year.
The release towards the end of the fourth quarter of the South African Revenue Service’s figures is expected to show a swing in South Africa’s trade balance from the red into the far blue yonder.