Economy

Opinion: Are Plummeting Oil Prices A Blessing for Zambia?

The price of oil has continued to decline in recent months. The commodity has for the last three to four months successfully breached the $50 per barrel barrier.

This has created a major blow to the oil exporting countries like Nigeria, Libya and Angola as well as the Middle East. Oil exporting countries have had to cut down on their production, thereby cutting down on employment.

During this period of job cuts, inventories are also reduced. According to Bloomberg, the original cuts in November were meant to send the market into backwardation, placing a premium on short-term supply and increasing OPEC revenues.

Analysts have suggested that cutting down production may support the price as it will reduce supply, thereby increasing demand, which ultimately raises the price of the product.

In the same vein, cutting down production will result in revenue cuts for OPEC members, and bigger struggles to balance stretched budget deficits they are already faced with.

For Zambia, a non-oil producing country, the low price on the international market could be a blessing for a stressed economy,whose citizens pay a high price accessing the commodity.

The Energy Regulation Board (ERB) recently announced it will review pump pricing based on the performance of international crude prices, with the other factor being the Kwacha’s stable performance against the dollar the last six months.

The presumption is that pump prices will reduce further next month when the next review is due. The stability of the Kwacha since its last huge drop can not be overemphasized, trading in the range of 9.55-9.85/USD.

Crude oil prices have been consistently declining with the last review conducted by ERB pegging a barrel at $55.

Today, international crude oil price regulators such as NYMEX and WTI are contracting trading prices between $48.08 and $51.03 per barrel.

All things being constant, the oil price fall curse for exporters is expected to be a blessing for Zambia.

A low oil price entails reduced production costs for fuel intensive industries and could ease transport costs too.

These factors will ultimately ease the cost of essential goods and cushion inflationary pressures to keep interest rates in check in Zambia. As of last month, the overall inflation rate was at 6.8 percent, while the food inflation rate was at 7.8 percent per Central Statistics assessment. The Consumer Price Index (CPI) was at 193.11 points.

Commodities such as mealie meal, bread and dairy products should have price cuts based on the activities in the oil industry.

Currently, the average price for a loaf of bread is K9, while a 25kg bag of mealie meal is pegged at K95. Cooking oil is selling for K35 for a 2.5 litre container. A bag of Dangote cement is going for K53 while Lafarge is at K54.

Commuters in the country will expect their fair share of the blessing. As of last month, the CPI for transportation was at 207.35. The bus fares for common routes were at K65 for Lusaka-Ndola, K85 for Lusaka- Kitwe, K120 for Lusaka-Livingstone and K150 for Lusaka-Solwezi.

Within Lusaka – the capital – bus fares were at K6 from town centre to Chelston, K7 from town centre to Avondale, K5 from Mtendere to Kalingalinga and K7 from town centre to Chawama.

In view of the competing factors, the benefits of low oil price should overrall benefit an ordinary citizen in an oil importing country like Zambia. There is no reason Zambians should continue paying the same, if not more, for essential commodities when oil prices have nosedived. It’s hoped the Zambian government will ensure the trickle down benefit of low oil prices reach its citizens in Shang’ombo, Ukwimi and Chavuma.

11 Comments

  1. Bukwe

    Oil was at $45 per barrel and fuel in Zambia was at K14 per litre.
    So its clear the price of oil does not matter at all as PF dealers just make more money.
    Adjust the price weekly instead of once per year to motorists.

  2. innocent

    Keep on working hard,so that we the ordinary citizens can benefit from these low prices. #one Zambia one nation

  3. Ubuchushi

    Nothing can happen to a country which z ruled by a visionless feace

  4. Hasty

    No benefits after all

  5. Native

    What does zambia benefit from international opportunities it should ordinarily exploit? NOTHING! What has zambia benefited from AGOA? NOTHING! In fact that is the period under which potential export production units like Mulungushi Textiles was shut, in the middle of a huge export opportunity. Expect little benefit from low international crude oil prices because I doubt if even INDENI is operational.

  6. Cj

    We need to work hard,even if the reduction of fuel prices will not be stabilise in our country.

  7. Jm

    The oil price had dropped long time ago. The reason the fuel price will continue to rise is because the ERB is controlled by state house. They engaged so many middle men in the procurement process so that they get something to fill up their pockets.
    The prices of will continue dropping but Zambia’s fuel price will also continue going up,

  8. GM

    I need expert explanation; why is dollar that used to trade at K4.5 to K6.0 now at K9.5 per dollar?when the inflation rate keeps on dropping? isn’t inflation a determinant of a weak or strong currency?? Where is the government getting wrong in economical management this country? No insults please…

    • Seasoned Engineer

      The exchange rate has nothing to do with inflation, but instead has everything to do with the balance of payment. If Zambia exports more of her locally manufactured goods and that money is brought back to be used within the economy, then the exchange rate will be affected.

  9. Kalisinje

    Let’s wait and see….its not good to always prejudice. It is true that the prices of crude oil reached it’s lowest low in February last year but it all depends on the economic environment surrounding us. I don’t think if you the commentators were taken to state house you won’t do like those office bearers. May be you are corrupt @ your work places and turn the institution into an animal farm. Its good to criticise others but sometimes learn to be patient. Its not being patriotic to criticise and politicise everything let alone rush into conclusion.

  10. kauzganga

    Kalisinje u ar dull
    Fact unlike insult

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