Part of the decision to increase public transport fares last year was the pressure from combi and taxi drivers at a time when passenger numbers were reduced in line with COVID-19 restrictions. Observers saw this as a relief measure driven also by the fact that there had not been a transport fare increase in a while and a normalisation measure to account for fuel price increases that Botswana had seen in the past.
Fuel prices went down in April and in June last year but went up in September the same year. Adjustments upwards were also made twice this year.
Generally the expectation is that over the course of next year, prices will spike as they did in 2021. The major increase seen this year was as a result of returning demand. This is compared to last year, when oil prices were coming down.
According to an RMB report, Brent crude prices have recovered on the back of news that the Omicron variant may not be as deadly as was initially anticipated based on initial data. According to authors Neville Mandimika and Daniel Kavishe, the global economy is expected to continue to recover, with minimal disruptions caused by the current wave.
“So far this year, Brent crude oil has averaged US$70/bbl. and is expected to trade between US$70 and US$80 as the year closes,” they noted. “We expect prices to lift during the first half of 2022 as demand lifts and as vaccination data globally continues to grow.” They are worry that increase in supply could still be outstripped by rising demand, therefore keeping prices high. The Bloomberg median forecast for 2022 is for Brent crude to hover around US$72/bbl.
Under the general equilibrium framework, if the price of fuel goes up, the fares of public commuting vehicles would generally go up. However, this does not play out as perfectly as transport operators expect in terms of fuel prices going up and fares going up. There are a few factors that play beyond that correlation that one would expect. Public transport operators expected that as fuel prices increased as they did this year, they would see public transport fares increase as well. This was because fuel price increases reduced the margins of combi and taxi drivers.
Observers argue that sometimes the reason this does not happen is probably based on expectations by maybe oil prices will come back down. In other words, it may be that the increase seen in fuel prices will only be temporary. Economists argue that government factors this into when and by how much to increase public transport fares to accommodate this expectation.
In South Africa, often when international oil prices go up, fuel prices go up. However, in Botswana the National Petroleum Fund (NPF) almost always makes this unnecessary. Even when this happens, the increase is not to the full extent playing out in another market. The outlook also plays into effect, according to experts.
One economist told this publication that “we’re going to increase but not by the same magnitude as everywhere else because they don’t have the NPF in place”. The forecast that the government also has in mind also comes into play. Therefore, it is believed that they increase with the expectation that they will keep it there for longer because oil prices are going to be a certain way over that forecast horizon.
If you increase by 50 thebe, for example, and international prices have increased by P1, a part of it might be expectation that some relief is being offered to oil importers in the form of P0.50. But over the medium term, for example, the expectation is that the absolute increase in fuel prices is P0.50.
An analyst who spoke to this publication explains that if an increase is solely on the basis of higher fuel prices this year, the question is whether you expect them to be persistently high or you expect a decrease over some period. Taking this into account, what comes into mind is what can be done with transport prices. Others add that government needs to balance it off against the pressure that is being created by combi and taxi operators and how long they are likely to be able to operate under such conditions.
One important factor that is being used by the public transport operators in demanding another fare increase is the fact that licence fees have also increased, resulting in their margins reduced even more. Operators are still dealing with the fact that the overall passenger numbers were reduced by COVID restrictions.