Could fuel prices end JB’s presidency?

Fuel prices could sink the Malawi economy and as it plunges in a free fall, the Joyce Banda presidency may not be too far behind.

Since taking over in April this year, fuel prices have gone up by an average of around 108 percent—double the price she took over from her dead predecessor Bingu wa Mutharika.

Just to put things into perspective, petrol prices have jumped by about 60 percent or K226.30 over the past six months from K380 in May to K606.30 today.

Diesel is up 66 percent or K237.40 whereas paraffin for industrial use has galloped by nearly 200 percent or K338.90 from K171 to K509.90.

Paraffin for domestic use has remained at K171 for obvious political reasons given that most of its users are the poorest urban dwellers and rural people who form the bulk of the voting bloc.

Meanwhile, during the same period, the kwacha has shed a cumulative 80 percent. With foreign currency reserves dwindling, especially during the lean period covering the next four months, the local unit can only soften further against leading global currencies.

There is no sign that the kwacha’s depreciation will bottom-out soon going by the paltry official import cover of less than one month.

In geopolitics, instability continues to be the Middle East’s poster. Israelis and Palestinians have renewed their favourite pastime—shelling each other and bombing away any hopes of peace.

Israel still wants to bomb Iran to curtail the Persian country’s nuclear ambitions. Civil war rages on in Syria.

Chances are that the prolonged Syrian war could further destabilise the rest of the Middle East, especially if Western governments make the mistake of intervening militarily to end the human slaughter and suffering there.

Russia and China, both birds of the same undemocratic feathers which see Syria as their strategic leveraging tool (especially for Moscow) in the region, are watching and may not tolerate the United States’ intervention there. Put it bluntly, Syria could spark a Third World War if mishandled.

Most international security experts agree that Syria is no Libya and the significance of the two Arab countries’ differences has not been lost on President Barack Obama and his national security team. This is why, despite pressure for his administration to topple the Syrian regime, the newly re-elected leader of the free world has exercised restraint.

Obama won’t even try to cripple Damascus air capabilities through a no-fly zone. So, both in the short and medium term, volatility in the Middle East—a region of strategic importance to oil production and transportation—is here with us.

Nearer home in Nigeria, terrorists continue to disrupt oil production. Thus, unless Opec, the oil cartel, dramatically ups output, which I doubt because there is really no incentive for doing so, global oil prices could continue to rise even with gas-guzzling Western economies struggling to pick-up and are suppressing demand.

Growth in China is rebounding after months of speculation that the Beijing bubble could burst after over-heating. This could push demand for oil up, especially if the Eurozone can solve its debt crisis and rebuild their economies. Oil prices—if looked from the context of the exogenous global geopolitics and the local politics of the kwacha—can only head north.

And so, as the Banda administration soldiers on with its free-market crusade, including on fuel where it wants to mitigate against importation losses by re-introducing a fuel importation and pricing regime based on the so-called automatic pricing mechanism (APM) that allows full cost recovery for all fuel imports, Malawians should brace for month-to-month fuel price increases for the long haul. Under the APM, pump prices are being adjusted to reflect fuel price movements on the international market and allow fuel importers to recover importation costs on a real time basis.

This is why, effective June this year, pump price adjustments have tried to reflect changes in the value In Bond Landed Costs (IBLC) of petroleum products and movements of the kwacha against the US dollar. A change in IBLC of more than five percent triggers a price adjustment. The same applies to movements in the kwacha exchange rate.

This explains the now chronic pain at the pump.

Thus, as the cost-push effects of regular fuel prices punch holes into people’s pockets, course through the whole economy, further wreaks havoc on headline inflation and cripples people’s ability to pay for their most basic needs, social unrests could be on their way to consume what was supposed to be a promising and barrier sweeping presidency.

When that time comes, not even the only job she is good at—incoherent speeches and handing out crumbs of maize flour—can save Mrs. Banda and her bunch of hangers-on who, behind her back, are too happy to see her blunder her way out of State House as they await the next occupant with Capital Hill candies to plunder with.

It will be a massive lost opportunity for Malawian women.