What's Behind Zimbabwe's Fuel Price Hike?

In the face of a nationwide fuel hike that's seen prices soar from US$1.24 to US$3.31 a litre, Zimbabwe has been hit by widespread protests in the country's largest cities. The landlocked African nation is now selling some of the most expensive petrol and diesel in the world, with analysts claiming that the price surge was sparked by black market currency dealing and illegal fuel trades.

Government seeks to avoid nationwide fuel shortage

According to the local government, the price increases were introduced to minimise the risk of severe fuel shortages. Much of the country's foreign exchange has been channelled into the local mining industries which has left little leftover to purchase fuel. Zimbabwe is also heading into tobacco harvesting season, which can boost demand for fuel to power heavy machinery.

The government also maintains it's actively addressing the issue of illegal trading. Zimbabwe currently imports all its petroleum products, with the price of fuel is set by the government. However, it's not a foolproof tactic, with the government accusing locals of stockpiling fuel and selling it at inflated prices on the black market, as well as smuggling in cheaper fuel from neighbouring countries like South Africa. Both these activities have heightened local demand for fuel, inflated prices and contributed to the shortage.

"We have chosen to act, and act decisively. The shortage [of fuel has been] compounded by rampant illegal currency and fuel trading activities," wrote President Mnangagwa in a post on his official Facebook page.

Local currency crisis fuels petrol price hike

While this is partly true, critics maintain that the price surge was also triggered by the adoption of a hotly-debated local currency that's linked to the United States dollar. While it's supposed to trade at one-for-one value, the currency is often sold on the black market for much less. This means it's possible for dealers to purchase discounted local currency and use it to procure fuel at the set 1:1 price.

While the government is now under rising pressure to reverse the decision to increase the price of fuel, without the presence of a hard local currency experts warn Zimbabwe could be heading for a supply and pricing crisis.

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