On Tuesday of last week, the Daily Graphic began reporting of petrol shortages in Accra. (Apparently, diesel is still widely available.) Lines of cars reminiscent of those in the 1970s in the US began popping up at fuel stations around Accra. Taxi drivers recount how you either have to wake up at pre-dawn hours to line up and/or wait for hours before you can have your tank filled.
Officially, the reason for the fuel shortage is due to the government’s failure to pay bulk oil suppliers up to $600 million for monies accrued since 2011 for fuel supplied to the country. The government contests this amount; they state that the money owed is around $100 million. Banks that had been providing credit to the bulk oil suppliers but have recently stopped doing so.
Unofficially, the rumored reason for the fuel shortage is that petrol stations are hoarding petrol in anticipation of price hikes to take effect on July 1st. Unlike the US, the price of petrol and diesel are set by the government rather than the market. For the last two years, I have noticed that the price of a liter of petrol is roughly equal to $1. As the cedi depreciates, the price of petrol rises. Since the government is responsible for adjusting prices, there is a lag. Currently the price of a liter of petrol is 2.73 cedis. The exchange rate suggests that a price of liter of petrol should be 3.00 cedis.
I would prefer that the reason for the shortage is anticipated price hikes because the inability of the government to pay its debts on time suggest larger problems for the country.
Moody’s, an American rating agency, recently downgraded Ghana’s sovereign debt to B2 from B1 with a negative outlook. According to Trading Economics, other countries with a B2 rating include Cambodia and Vietnam. Moody’s points to Ghana’s “high debt burden and deteoriating debt affordability. Interest payments have risen from 14 percent of government revenues in 2012 to 23 percent of government revenues in 2013. According to Moody’s this places Ghana in the 95th percentile of countries under fiscal stress. This suggests that the country’s debt could be further downgraded.
In order to ease the demands for petrol, the government has released some oil from the country’s reserves. Reports from JoyFM suggest that consumers are also hoarding fuel due to the recent fuel uncertainty.
Discontent among lay people is rising. Many people cannot understand why the cedi has depreciated from 2.20 cedis per dollar at the start of the year to 3.00 cedis per dollar today. (I believe the government has arrested further cedi depreciation by intervening in the forex market.) Power outages throughout Accra — and presumably the country — seem more frequent than under previous administrations. Furthermore, the government has broadened the definition of the services that the value added tax (VAT) can be applied to. Now people have to worry about having enough petrol to get to work. Lastly, many people are upset about how the national team performed in the recent FIFA World Cup and blame officials at the Ministry of Youth and Sports.
Fuel Shortage Has Minimal Impact on Me
I have cut back on the amount of travel around town that I do. I’m fortunate that I live close to a number of supermarkets and restaurants. If I need something, I can walk to get it.
Two weeks ago, my sister came to visit. We planned to travel to Mole National Park in the northern part of Ghana to see the elephants. The trip requires a 1 hour flight to Tamale and a 2 1/2 hour drive to the park. Up until Friday, we still had plans to go. As the fuel situation became more dire, we decided to cancel the trip because we were concerned that we would be stuck in the middle of nowhere. A travel agent we spoke to on Friday said there was only 1 fueling station with petrol in all of Tamale.
I hope the government can get its act together and find the money to pay monies owed to the bulk oil suppliers. If the country does not have enough petrol for both commercial and personal use, I’m afraid economic activity could grind to a halt. The luster that used to make Ghana an attractive place to do business could fade.