Hefty fuel price hike a cashflow test for SMEs

04 April 2018 | Web Article Number: ME20189243

Agriculture & Sugar
Commerce & Trade
SMME Development & Support
Transport & Logistics

THE big fuel price increases which came into effect at midnight yesterday will have a negative effect on small businesses, wiping out any relief brought by the recent interest rate cut, economists have warned.

Motorists will now have to cough up 72 cents more per litre for 95 octane and 69 cents more for 93 octane. The price of all grades of diesel will go up by 65.2 cents per litre.

Jesse Weinberg, Head of the SME customer segment at FNB Business believes the hefty hike will dampen the impact of the recent interest rate reprieve for small and medium enterprises and pose a cashflow test as such businesses are predominantly run on very tight budgets.

“While the latest interest rate cut would have provided necessary relief for SMEs that are utilising credit facilities or servicing debt, the impact will most certainly be diluted by the fuel price hike. We also need to consider the fact that SMEs may still face further increases in expenses due to potential upward adjustments in electricity prices,” Weinberg said.

“This simply means small businesses will have to keep a firm grip on the management of their finances to get through this period. Those that are in a position to minimise their reliance on debt should do so without delay and in turn prioritise saving for rainy days.”

Commenting on the impact on agriculture, Dawie Maree, Head of Marketing and Information at FNB Agric, said the fuel increase comes at a time when the industry is heading for the harvesting of summer crops and therefore will increase production costs.

Maree said the immediate impact will be felt most by producers as input and distribution costs will go up.

“Distribution costs for agricultural produce in South Africa are already high with almost 80% of grain transported by road; therefore the increase will further squeeze producer margins. Eventually the impact of the increase will be inflationary as the costs of the producer will be passed on to the consumer,” Maree said.

“On the upside, the increase will not have an immediate impact on farmers as it is currently a low consumption month, however input costs over the long run are bound to increase with the higher price of diesel, which in the end will drive the cost of farming up.”

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