SA's cost of living hike: The DA's solution

According to a document released by the DA on Wednesday, South Africa will experience price hikes in several “cost of living” goods and services, which are avoidable with a little bit of intervention from the government.

The DA says increases in the basic food basket, the price of electricity, rail fares and petrol will make life impossible for people in the lower income brackets.

“Some people believe that the increasing cost of living is purely due to external factors and that we are powerless to act. There is in fact a great deal that government can do to help shield poor South Africans from rising prices,” the DA document says.

“We will therefore demand a Parliamentary debate on the rising cost of living as soon as Parliament reconvenes. Our Shadow Cabinet will use that opportunity to fight for the implementation of the set of proposals we announce today.”

The basic accusation is that the government is not doing enough to curb the rise in the cost of commodities necessary for basic living. The DA believes that a modification to the policies governing the price of liquid fuel, and a more efficient handling of Eskom and Metrorail, will result in the reduction of the basic cost of living in the medium term.

Proposals include a more thorough tracking of price inflation as it affects the poor, changing the way the price of fuel is calculated, allowing for the government to absorb above-inflation increases in the price of electricity, improving the security of Metrorail to ensure that all who use it pay for the service (the accusation being that there are too many freeloaders) and better use of strategic fuel reserves.

At Eskom, the DA believes that consumers are currently paying for what they use as well as the construction of new power plants. The power utility company should be utilising private-public partnerships to fund infrastructure investment, leaving ratepayers to pay for the service and nothing else.

The way the price of petroleum is currently calculated does not pass the positive fluctuations of the price of fuel on to the consumer. DA national spokesperson Mmusi Maimame told iMaverick that the relevant authorities should not make the ratio at which the fuel levy is exacted a static figure, but should rather fluctuate it so that a lower oil price can be passed on to the consumer in the form of cheaper fuel. The government should also to allow the price of fuel to be normalised to protect consumers from sharp upward movements in the fuel price.

Maimane acknowledged that the price of oil was out of the government’s hands, but said the levy on fuel is definitely in the government’s control and should be used to lower its overall price. He also said the inefficient management of Eskom meant that the billions being wasted through maladministration should be going to infrastructure development.

The DA has promised to meet the National Energy Regulator, the Reserve Bank, Statistics South Africa, the Petroleum Industry Association, the Central Energy Fund, the Competition Commission, Metrorail, the Passenger Rail Agency, AgriSA, PetroSA and iGas in the coming weeks. The opposition party has promised to request meetings with Cabinet ministers in the relevant departments to lobby for the policies.

There is a danger to the DA’s proposal. In a previous interview with Daily Maverick, EE Publishers managing director and energy sector analyst Chris Yelland explained that the current upward spike in the price of electricity is in large part a fault of Eskom adopting an RDP policy of real price reduction in electricity. The intention was noble – delivering the cheapest electricity in the world to as many people as possible – but the knock-on effect was that as soon as the surplus ran out, the price inevitably rose at an alarming rate.

“At the time there was very effective PR spin from Eskom, which said that the price reduction was because it was so well run and had such great management, but in truth it was achieved by cutting jobs and slashing capital reserves and all future investments,” Yelland said.

“At that time they built zero new power stations. In a way, this [agreement between the government and Eskom] set up a situation in future in which the surplus would inevitably come to an end and the electricity price would rise and we would experience shortages in power supply.”

The problem is that if the government adopts the DA’s proposal without considering the long-term effects of a medium-term price massage, we could arrive at a situation where the drastic Eskom price hikes are replicated in other sectors.

A dramatic example of where that sort of thinking leads is the Nigerian fuel subsidy. Even though Africa’s most populous country is also the continent’s number one producer of oil, a fuel subsidy was put in place to protect the largely poor population from a high basic cost of living. The cost of this subsidy eventually became too much, and it was scrapped. The result was a massive public riot, which eventually forced the government to reintroduce the subsidy, albeit at a reduced rate.

Which is not to say that the DA does not have a point. It’s a policy suggestion that would need the utmost delicacy and caution to get right. Which, in the reality of current political balance, has pretty much zero percent chance of becoming reality. DM

Table: The goods and services used by the DA to calculate the cost of living.

Read more:

• The DA’s plan to protect the poor from increases in the cost of living in the DA newsroom.

Photo: Residents are seen outside a shack on which an African National Congress (ANC) election poster is pasted at Waterworks, an informal settlement outside Soweto on 9 May 2011. REUTERS/Siphiwe Sibeko.