Diesel price drop will bring some relief to battered consumers

While the increase in the price of diesel between 62 cents and 63 cents a litre from Wednesday is going to bring some relief to battered consumers who depend on road transportation to convey most of the commodities they consume including food‚ the dismal state of the economy is going offset this drop.

That’s the view of Neil Roets‚ CEO of debt management firm Debt Rescue‚ who adds that the six cents a litre drop in the petrol price will have hardly any effect at all.

Roets said the short to medium term outlook for consumers looked increasingly gloomy with the depreciation of the rand playing a major role in the overall picture.

“Every commodity we import from abroad has to be paid for in US Dollars and that includes crude oil. As things stand at the moment there is a strong likelihood that the exchange rate may weaken further which is going to offset the decreasing price of crude oil‚” he said.

“The problem is that the severe drought in especially maize producing areas is going to lead to substantial increases in the price of all foodstuffs including staples like maize and wheat which will have to be imported at almost twice the local price.

“There is little the government can do to mitigate the prices of food‚ especially the cost of maize meal which is expected to increase by 50%.

“Subsidies are never a good idea and in South Africa at the moment there is no excess cash available to even consider subsidies. Feeding schemes may be a more efficient way to prevent widespread hunger but that will require massive organisational structures and we know the government’s track record on that issue is not good‚” Roets added.

Independent economist Dawie Roodt said any hope the government had of increasing taxes on fuel might have to be put on hold because of the near stagnant state of the economy. The most efficient mode of increasing government revenue would be VAT but that could cause widespread civil unrest.

Roodt said the same tactics that brought the government to its knees on the issue of university fees would be used to put a stop to an increase in VAT.

“We will see riots the likes of which we have never seen in this country if government increases VAT even by a modest amount.”

Roets said there was a host of other increases including Eskom’s request for a double digit increase coming down the pipeline that were going to massively impact on consumers who were already vastly over indebted.

It was highly likely that the unemployment rate of 25.5% would rise significantly because of the near zero% growth rate forecast by several economists including Dawie Roodt.

“Our massive unemployment rate which in reality is closer to 40% if people who have given up looking for jobs are taken into account‚ accentuates the reality that all South Africans are in for a very rough ride‚” Roets said.

He said the fact that most consumers owed more than 75% of their monthly salary cheques to financial institutions showed just how dire the situation actually was.

Roets said his company was seeing double digit increases in its growth rate largely because of the growing number of deeply indebted consumers who were seeking relief by going under debt review.

“Debt counselling remains the best way for consumers to manage their debt load by negotiating with creditors and paying off their debt in smaller instalments over a longer period of time.

“None of their assets may be attached by debt collectors while they are under debt review‚” Roets said.