It’s was always doing to be a tough year for South African entrepreneurs, but the decrease in fuel price is the silver lining needed amid the current energy crisis and a sluggish economy.
The massive drop in the fuel price (R1,27 for petrol and R1,05 for diesel a litre) last month has been attributed by the Energy Department to the decrease in the international oil price, which has been at its lowest level over the last six years.
Riaan Klopper, the head of business banking at Mercantile Bank, says the reduction will offer a significant breather for SMEs who operating in a tough environment.
Klopper says that entrepreneurs should use this break to plan ahead and invest in systems that can help them weather the energy crisis.
SME South Africa speaks to Klopper to find out what the decrease means for SMEs.
How can SMEs expect to benefit from the petrol price decrease?
The reduction in the petrol price has taken some pressure off SMEs. There are a few important benefits for business owners.
Firstly, input and operating costs will decrease, particularly for businesses which have a high demand for fuel such as the manufacturing and logistics sectors.
“The reduction in the fuel price isn’t a silver bullet”
Businesses will also benefit indirectly as consumers have more disposable income. This should stimulate demand/spending to the benefit of the entrepreneur and help business owners increase their turnover. The combination of increased turnover and reduced operating costs will have a positive effect on margins.
With the downward trend in the oil price, inflation should stabilise or even drop. This is likely to halt the cycle of interest rate hikes in the short to medium term, which provides more comfort and stability to the entrepreneur around his funding costs.
Which sectors or industries are most likely to benefit from the fuel decrease, and why?
All industries should benefit from the reduced fuel price. However, businesses in the manufacturing and logistics sectors will benefit directly from an operating cost perspective. Wholesalers and retailers should benefit from an increase in demand.
Where do you think business owners should be investing some of their petrol price savings?
The reduction in the fuel price isn’t a silver bullet. Business owners should keep in mind that the fuel price reduction cannot be viewed in isolation as factors such as the current electricity crisis also comes into play.
For most businesses the current savings, as a result of the fuel price, has to be ploughed back into the business to acquire alternative energy infrastructure and increase their consumption to run generators.
Entrepreneurs need to be cautious in their budgeting and spend wisely to the benefit of the business as the fuel price is likely to increase in the future and the current windfall is not necessarily sustainable.
We know South African entrepreneurs are resilient, creative and able to cope with adversity. It just requires some alternative thinking and a good challenge.