Fuel Shortage and its Potential Impact on businesses
Economy, Personal Finance, Retail

In the past week, news of a potential fuel shortage circulated around social media in reaction to a significant number of fueling stations not having any fuel. Lusaka residents resorted to panic buying by rushing to their nearest fueling stations and filling up their tanks in preparation for the shortage. But what is the cause of the shortage? According to the Minister of Energy and Transport, Hon. Matthew Nkuwa, there is no shortage of fuel. He says that truck drivers in charge of transporting the fuel are going through a strike, thus slowing down the transportation of the fuel and resulting in an artificial shortage.

However, what could the impact of a potential fuel shortage be on businesses in the middle of a pandemic stricken economy?

With the steady depreciation of the kwacha that has been accelerated by Covid-19, a potential fuel shortage would affect businesses by drastically increasing their production inputs. In the cases where businesses need fuel to run their business, i.e. generator for electricity, production would slow down dramatically and thus their income will equally slow down. Already, businesses were forced to slow down or come to a stop during the months of strict lockdown (which began March 2020). However, even though some of the lockdown restrictions were eased in June 2020, businesses were still finding it hard to stay afloat. With larger companies such as JET and Legit clothing stores closing down, we can’t help but fear the worst for smaller businesses. Some businesses still recovering from the negative effects of Covid-19, could experience more challenges with the effects of a fuel shortage.

Fuel is vital for the running of a smooth and growing business. It is used by cars, trucks, and planes to move and it is also used in the generation of power or electricity. For businesses, transportation of their goods and services is a key stage in their business/production cycles. A fuel shortage would cause major production and transportation shortages. If the good or service does not reach the consumer for purchase, then the business will make a loss. In addition to this, due to some of the transportation restrictions already set because of Covid-19, transportation of goods and services has already slowed down. For businesses that bring their goods or production materials across the border, truck drivers have a mandatory 14-day quarantine and testing period. This further slows down the supply chain.

On September 18th 2020, the government implemented a fuel increase that brought the petrol price to K20.34 and the diesel price to K19.97. A price increase like this partnered with a shortage of fuel could cause a major disruption to the economy and cause businesses, especially SMEs, to suffer tremendously. It would further inflate the prices of goods, both used in production and in consumption. Increases in fuel prices plus a fuel shortage would increase the cost of production inputs for businesses thus making it more expensive to produce goods and services. Businesses are then forced to inflate the prices of their products and services in order to cover the increased amount of expenses. With the inflation rate already high at 13.4%, this will adversely affect consumption because the prices of commodities will be higher and individuals will only be able to buy less as income purchasing powers will have decreased. In a country where about two-thirds of the population live below the poverty line, this could trigger a number of serious problems in the country, such as a hunger crisis.

Agriculture, being one of the biggest contributors to the wealth and economy of Zambia, would be one of the most affected industries by a fuel shortage. In the 2018/2019 harvests, Zambia yielded approximately 2 million metric tonnes of maize of which was a record low due to weather shortfalls. Although the 2019/2020 harvest has not been predicted, the magnitude of the harvest, transportation of the maize, and production of mealie meal would all be affected by a shortage of fuel. If the amount of maize harvested is less than the previous harvest, it could trickle down into a reduced amount of mealie meal produced/ available for sale and consumption and thus an increase in the price of it. Mealie meal being the staple food of Zambia would not only be harder to find, but it would also be very expensive to the majority of the population.

Are there any positive effects of a fuel shortage? Other than reduced traffic and reduced air pollution due to minimized carbon emissions, there are not many positive outcomes from a fuel shortage or any significance to business owners.

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