Rwandans paying highly for soaring transport costs

Recently, transport fares throughout Kigali City increased by Frw20, while up-country fares increased depending on the distance.

Recently, transport fares throughout Kigali City increased by Frw20, while up-country fares increased depending on the distance.

The increase for both private and government-owned transport companies was legally approved by the Rwanda Utility Regulatory Agency (Rura).

However, the increase in fares is likely to see Rwandans pay more for goods and services.

Harriet Nyiyabakwiye, a grocery store owner operating along Nyarutarama road at Gishusho said that for her to stay in business, and continue earning profits, she had to increase prices by at least Frw10, Frw20 or more following the increase in transport fares, and she expects others to follow suit.

Nyiyabakwiye said the cost of transport for commodities from Kimironko market, where she buys her stock, has increased. "I used to pay Frw2,500 from the market to my shop by pick-up cabins, but now am paying Frw3,000," she said.

Nyiyabakwiye also noted that following the increase in transport fares, prices of other commodities will increase, especially essentials like sugar and salt, whose consumption or demand may not be largely affected.

This echoes the economic assumption which suggests that an "increase in the price of essential commodities does not affect the demand leaving other factors constant."

Since an increase in transport fares brings about an increase in the cost of production, it is plausible to believe that Nyiyabakwiye’s claims are true.

Why? The increase in the transport fares will equal to the cost of production and thus, will affect the price of the final product. The total production cost determines the market price of the final product.

Bralirwa, Rwanda’s leading brewery has increased prices of its beer products against the backdrop of increasing costs raw materials on the international market, fuel and transport.

All producers are, therefore, likely to increase their prices in the face of the rising costs of transport. Even in areas that are not affected, sellers are likely to increase prices, claiming the same.

According to Stevenson Nzaramba, an Integrated Framework economist attached to the Ministry of Commerce, increased fuel costs have a direct impact on in-country transport costs. They force humanitarian and commercial cargo through more expensive terrestrial routes.

These additional transport costs are either being passed on to consumers in the form of price increases or resulting in the higher cost of humanitarian operations by charity organisations.

Due to the Kenyan crisis, Rwanda had to adjust to higher oil prices and re-work its finance laws accordingly. Therefore, calculating spending based on reasonably high prices could be necessary by citizens.

It is, therefore, true that all of these industries will increase prices for their products. This is because fuel (oil) is an essential product used in lighting and running of industries. Its shortage will have a ripple effect on the entire economy.

Nzaramba said that considering the increase in fuel prices, it is inevitable that a growing burden of transport fare increases will have to be shared by consumers and businesses alike.

In Uganda, for instance, pump prices more than quadrupled, causing transport fares to sky-rocket within less than three days of the fuel shortage. Food prices soared while the manufacturing sector felt the brunt.

Earlier, Rwanda, unlike Uganda, took a long time to lift the fuel prices despite a drop of its importation via Kenya. The country survived on its reserves during the ongoing post-election violence in Kenya. It also initiated measures to control supply to citizens with increased demand.

Why controlled

The moves were to keep demand and supply under control in order to protect the economy. Since the demand for fuel was high compared to supply, the local people would have suffered. It would force the fuel prices high, and it is solidly true that fuel price increases affect economies worldwide.

Production would be costly since fuel is used to run the industrial machines. This could also cause delays in production due to limited supply.

How it was controlled

The country initiated measures to address the challenges, expecting the Kenyan crisis to last a short while. This was precisely to protect the economy from such challenges.

In a communiqué to all petrol stations, the Ministry of Commerce directed that small vehicles (saloon cars) be limited to ten litres a day, while pick-ups and 4x4s got twenty litres. Commuter taxis operating in the city centre were to be allocated ten litres of fuel for each round trip. And, for up-country commuter taxis and heavy trucks, they consumed adequate fuel for their respective trips.

The government also said that so long as the Kenyan crisis continues, all filling stations had to operate from six o’clock in the morning to nine o’clock in the evening.

Nzaramba further said the country has compensation funds that are used to subsidise fuel prices when they exceed a certain price, but these funds faced difficulties as fuel supplies continued to lower.

Those measures were weakened by the alarming forces of fuel demand and supply, thus pushing for an increase in price by an average of Frw22 per litre.

That increase in fuel prices caused transport fares to inevitably increase.

Col (Rtd) Dodo Twahirwa, the head of the Commuter Transport Company (ATRACO), justified that with his quote in The New Times mid-last month.

He was quoted to have said, "The previous transport fares did not match the cost of fuel and it was therefore necessary to increase them."

Col. Twahirwa argued before the increase that the previous standard taxi fares within Kigali City of Frw150 were fixed when fuel cost around Frw460 per litre, but the price has gone up to Frw726.

He further said that taxi operators were frustrated with regulated taxi fares which were not profitable at all.

Since there are strong theoretical expectations that changing transport costs will lead to economic impacts outside the transport sector, the increases were to meet the interests of transport companies.

Rura must have considered the scale and significance of such impacts before approving the increase since it strongly depended on local circumstances.

Nzaramba says that a true East African regionally integrated industrial policy takes into account the strength of one country to compensate for the weakness of another. The case should be the same for fuel as it is for agriculture, finance, and other economic activities.