eBusiness Weekly
Tapiwanashe Mangwiro
Diesel is the fuel of the economy, and it is in just about everything that we use with the bulk of manufactured and retail goods moving day and night on trucks and trains powered by this form of fuel.
Farming also relies heavily on diesel and it is so deeply embedded in Zimbabwean life that its consumption is often seen as a barometer of the country’s overall economic activity. Without it, the supply chains would collapse, and things simply would not work.
Current Situation
Micheal Kouhl an economist with Barclays (UK) said; “The diesel situation came to be as demand came back a lot faster than other products at a time where there are refineries that shut down across the globe and the ability to supply was hindered.”
A confluence of factors has also strained diesel markets.
These factors include reduced refining capacity due to the pandemic, increased demand amid Covid -19 recovery and Chinese export quotas.
“All of those things combined led the world to really have low inventory,” he added, also mentioning a recent increase in demand for jet fuel, which may have to compete with diesel at the refinery.
Back home asked about the possibility of the diesel shortage reaching us, the Permanent Secretary in the Ministry of Energy and Power Development, Engineer Gloria Magombo said the country will always be ready for such a situation.
“Having fuel reserves is a matter of national security and we have them, unfortunately I cannot say how much we have and how long they will last because it will cause discontent in the country and it may be a false alarm,” Eng Magombo said.
Eng Magombo said the country should not panic as her ministry is ready to deal with the situation if it arises and they will release reserves if need be as they try and sort the situation.
Mining
Mining is one of the major consumers of diesel in the economy, alongside logistics and such a shortage will hit the sector really hard.
Chamber of Mines chief executive, Isaac Kwesu said; “This will be disastrous, considering that our open pit mines heavily depend on diesel more than electricity, so you can imagine.”
In the mining sector, small scale miners solely depend on diesel to run their generators and an increase in the cost of diesel or a shortage if it hits home will be of huge consequence.
According to the Chamber of Mines CEO, semi large mines also depend heavily on diesel and this will leave them with reduced activities.
“On top of the small mines and the semi large ones, our coal mines are diesel dependent and a shortage of it hits them it means that even electricity generation is at risk and you can imagine the effect,” Kwesu added.
Farming
Sam Miller, the chief executive of the Commercial Farmers Union (CFU), said if a shortage was to happen locally, the situation would be catastrophic as everything they use on farms is diesel powered.
“Machinery on our farms are diesel powered, the plows that prepare the soil for planting run on diesel. Tillage machines that break up and aerate the soil and machines that fertilise it use diesel. Planting and seeding equipment need diesel. Once the food is grown, along come the harvesters, which operate on diesel,” he said.
According to Miller, diesel is one of the major inputs on a farm and during this preparation season a farm depending on its size their diesel input would be between 5 000 to 15 000 litres and it being in short will hamper production.
Besides operations on the farm, the cost of diesel will reduce their profit margins and would need producer prices to be adjusted as well.
“Transport fees will shoot over the roof, from delivery of inputs, travel to markets and this will hit us in the knees crippling our operations,” Miller added.
Trucking Industry
From small trucks to big trucks, diesel fuel helps the world stay connected. Tony Chifamba with Zimbabwe Trucking Association, said it’s an important part of our society.
“The economy and the supply chain is fueled by diesel, but the tank is at a risk of running empty if the diesel shortage hits home,” he said.
Chifamba added that truckers have been feeling pain financially at the pump for long and it has forced them to adjust prices of their services, but also risk another price hike which will make them return to first quarter pricing.
The impact can be felt by consumers across the country because the big-rig trucking industry heavily relies on diesel to fuel its trucks. The increase in diesel price, which is currently at US$1.73 per litre, will be passed on to consumers so companies can remain profitable.
Economist Prof Tony Hawkins said; “I think the biggest mistake consumers and households make is that they do not have enough information really to know where their money is going.
“Most people do not use diesel fuel, but it is big in the transportation industry and for more of the things that we buy. So we will definitely feel it if it is going to be another one of these facts that we feel most people will not know where it is coming from.”
Prof Hawkins suggested that if the situation arises, creating a budget and sticking to it in an effort to get prices to go down including curtailing a lot of unnecessary spending will be key.
Diesel is the workhorse of the construction sector, representing 98 percent of the industry’s energy consumption, according to Manfree Tanyanyiwa of Fibro Contracting.
Uses include heavy-duty equipment such as excavators for digging foundations, graders for moving soil and pile drivers for strengthening foundations.
“Consider the typical office building. It may require the removal of three to four stories’ worth of soil, hauled by diesel trucks. Cranes, running on diesel, help workers construct the structure’s frame. All of the equipment needed to run an office building gets there by diesel truck,” Tanyanyiwa said.
Economy
The high cost of diesel is already rippling through corporate supply chains and if a shortage occurs, it means higher prices resulting in companies beginning to add a fuel charge on some of its stock and transfer it to the consumer.
Analyst Namatai Maeresera said; “The impact is already reaching store shelf prices, and if the shortage hits home we will have to expect more of the same.”
“Essentially, all goods that have to be shipped by trucks are going to be impacted meaning that the current downward trend of inflation will have to be reversed because everything depends on diesel one way or the other,” said Prof Hawkins.
