The 7.3% electricity tariff hike announces by the Electricity Control Board (ECB) will negatively impact businesses and consumers, economic analysts have warned.
This comes as consumers and businesses are faced with a higher electricity tariff hike above the 7.3% adjustment approved by the ECB come July when distribution companies effect their new tariffs for the new financial year after having applied to the regulator.
“Higher electricity prices will weigh on consumer spending in the retail sector as energy costs are a basic necessity. The tariff hike kicks in halfway through the upcoming Winter season, meaning that households will face higher costs in heating their homes,†Simonis Storm Economist Theo Klein told The Brief.
He warned that electric car drivers would not be spared from the imminent high electricity costs, a position which could put a dent on the on-going shift by some drivers from fuel powered cars, citing environmental concerns and high fuel prices.
“This tariff hike increases the cost of consumers who have switched to electrical vehicles, making it slightly more unattractive to switch to this alternative mode of transport,†Klein said.
The Windhoek-based economist added that most businesses will most likely pass the additional costs coming from the electricity increase to customers, creating an additional burden for consumers who have lately faced a raft of price increases.
“General businesses will see an increase in fixed costs as a result of higher electricity prices. Businesses can either switch to alternative energy sources such as solar energy, or they will have to pass on higher costs to consumer prices if they are unable to absorb the costs themselves,†he said.
Klein also indicated that Namibia’s attractiveness as an investment destination was at risk.
“Namibia already has a reputation of being uncompetitive in terms of water and electricity prices compared to other jurisdictions. The recent electricity tariff hike will increase our competitiveness and has the potential to deter foreign investors from setting up shop in our country,†he said.
FNB Namibia Group Economist, Ruusa Nandago the tariff hike will have a negative effect on an already constrained consumer as it will add further inflation pressures, slowing demand for goods and services a development which will hit businesses.
“This is in the context of national employee compensation growth lagging behind inflation growth and limited job opportunities in the economy. Consumers will therefore have to reprioritize expenditure to accommodate the increase in electricity prices. This will dampen overall demand in the economy for other goods and services,†she said.
“The hike will certainly increase operating costs for businesses and they are likely to partially or fully pass on price increases to the final consumer. However given the already struggling consumer this might result in decreased demand for their products and services. Absorbing the price increases will also weigh on businesses as it will further squeeze profit margins.â€
Electricity regulator on Thursday approved an increase in the average bulk tariff from the currently approved tariff of N$1.6982 per kilowatt-hour to N$1.8222 per kilowatt-hour for the period 2022/2023.
The approved tariff adjustment is effective from 1 July and will apply to NamPower bulk customers, i.e. Regional Electricity Distributors (REDs), Local Authorities, Regional Councils and Mines.
NamPower had submitted a tariff application for an effective bulk tariff (inclusive of generation and transmission) increase of 12.78%, which would have resulted in an average increase of N$ 1.6982 per kilowatt-hour (kWh) to N$ 1.9153 per kilowatt-hour for the financial period 2022/2023.
