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PREPARE FOR LIFE IN GUTTER

18/04/2018 08:33:00 By Thabiso Dlamini

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April fools is definitely on us this year.

Left, right and centre basic needs such as electricity, water, user-fees, housing, general goods and services are incurred price hikes as of April 1, 2018. I am sure we are all aware of this pickle we find ourselves in, and our wallets are already starting to feel the pinch. ‘Having money’ in this country is quickly changing into a ‘false-friend’, and we can expect the standard of living to spiral into the gutter from here onwards. The most appalling price hikes are the electricity tariffs, which in essence have incurred a 30 per cent increase in a space of two years. In 2017, the Swaziland Energy Regulatory Authority (SERA) approved a 15 per cent tariff increase which saw domestic electricity tariffs rising from E1.26 to E1.45. It meant that buying E100 worth of electricity as a domestic consumer would give you 69 units in 2017 as opposed to 79 units in 2016. In 2018, we find ourselves paying yet another 15 per cent extra such that E100 worth of electricity is now worth a meagre 60.6 units.

The way the price gauging tariff instrument is set up at SEC, households can expect to lose at least nine units in every E100 they spend on electricity each year. The funny thing is that the prices keep increasing well above inflation, which basically means SERA and the Swaziland Electricity Company are adjusting electricity tariffs far beyond the general cost of living in Swaziland. In 2015 inflation averaged at 4.96 per cent while SEC tariffs increased on average by 9.3 per cent. Again, in 2016 and 2017 inflation averaged at 7.84 per cent and 6.24 per cent respectively, while SEC tariffs increased by more than 10 per cent with domestic tariffs incurring close to double the required adjustment aligned to the cost of living. Basically, the utility effects price hikes targeting the highest amount of revenue it can make, unfortunately at the expense of you and me as the consumers. Electricity is a basic need and government needs to remind itself of this fact. Enough said.

Turning the page to the Swaziland Water Services Corporation (SWSC), we learned in the past two days that this other important utility will be implementing a 13.7 per cent hike on water. What is this utility really adjusting for? Drawing water from rivers, purifying the water and sending it to the end-user? The business and processes of distributing water to households has not changed drastically last time I checked, so what justifies a tariff increase beyond average inflation? Don’t these utilities gain economies of scale as the number of connections increase over time? SWSC is an extension of government and has the social responsibility to ensure clean water for all and the basic requirement of this responsibility is to make sure that water is affordable. Enough said. Maybe it is worth going back to basics. Inflation measures how much more expensive a set of goods and services have become over a set period, usually over a year. It is true that no company is immune from the impact of rising costs of doing business. Inflation affects each company in a different way depending on the type of industry it falls under and so management of these companies have to be in tune with the changing cost economics of their input cost structures up to the price paid by the ultimate consumer.

While companies like SEC and SWSC should in fact make a series of short-run price changes to adjust for chronically rising costs, the fatal mistake is to solely depend on these short-run price hikes instead of engaging in innovative strategies that enhance the competitiveness of the utilities in the long-term. Think about this: SEC is still importing a large share (80 per cent) of its electricity from South Africa and is happy to do so to infinitum. When the prices of electricity in South Africa increase, we can expect even more price increases here. It’s easy for SEC to push any price hikes to the end-consumer and this is how SEC tariffs inevitably fall into the long-term price traps pushing more consumers out of affordability. SWSC on the other hand is still selling water it draws from rivers and from industrial effluent, and there is nothing complicated and changing about that. It just needs to expand to make sure that more households are connected and get better at making and sustaining those connections.

Now the sad story is that the extent to which households’ nominal incomes (which is the money they receive in current money within the period these price hikes occur) does not increase as much to catch up with the price hikes. Really, households are much worse off because they can only afford to purchase less and less of what they did before. Their purchasing power in terms of real-inflation-adjusted income is falling. Considering all the price hikes accumulating on basic goods and services such as electricity, water, value added tax, and cost of obtaining services from government, workers should really be demanding a cost of living adjustment that is more than average inflation each year. But increasing inflation can send the country into financial instability and we certainly do not want that! Prepare for another Stone Age era, kiss your money goodbye!