Environment and Development Economics

Table of Contents - June 2012 - Volume 17, Issue 03  

Theory and Applications

The poverty implications of high oil prices in South Africa

Margaret Chitigaa1, Ismael Fofanaa2 and Ramos Mabugua3

a1 Economic Performance and Development, Human Sciences Research Council, Private Bag X41, 134 Pretorius Street, Pretoria, South Africa. Email: mchitiga@hsrc.ac.za

a2 International Food Policy Research Institute (IFPRI), Dakar, Senegal. Email: I.Fofana@cgiar.org

a3 Financial and Fiscal Commission, South Africa. Email: Ramosm@ffc.co.za

Abstract

An energy-focused macro-micro approach is used to assess the poverty implications of government policy response to increases in international oil prices in South Africa. The first scenario assumes that increases in international oil prices are passed on to end users with no changes in government policy instruments. In this scenario, poverty indicators increase. The second scenario assumes that the world price increases are nullified by a price subsidy by the government. This scenario still leads to an increase in poverty as the beneficial price effect is cancelled out by a decline in households’ income induced by the financing method used. While revenue generated from a 50 per cent tax on windfall profit of the petroleum industry helps to minimize the loss in government revenue, it does not contribute to mitigating the increasing poverty trend, since the decline in saving and investment under this scenario restricts the country's growth, employment and income distribution perspectives.

(Received January 24 2011)

(Revised September 27 2011)

(Accepted December 17 2011)

(Online publication February 03 2012)