Abstract
The manufacturing sector occupies a critical position in the South African economy. However, in recent decades this sector experienced significant instability due to challenges within macroeconomic indicators. The sector's challenges include the issue of electricity distribution, growing inflation rate and commodities price instability. This study aims to assess the effects of electricity supply, inflation and fuel prices on food and beverage production and sales in the manufacturing sector. To this end, the study applied different econometric approaches such as Johansen test for cointegration, vector error correction model (VECM) and Granger causality test on a monthly time series data ranging between January 2002 and December 2019. The study findings suggested the existence of a joint long-run relationship between electricity distribution, inflation rate, fuel price and production and sales of both food and beverage within the manufacturing sector. The result also indicated that both electricity supply and inflation highly impact the production of food and beverage sales compared to the effect of petrol price. Granger causality results have shown that inflation rate can serve in predicting short term production and sales of food and beverage in the South African manufacturing sector. Given the aforementioned findings, the study suggested that to increase production and sales of food and beverage in the manufacturing sector, policymakers should reduce tax on imported fuel. This would assist in lowering petrol prices that may have a repercussion on the inflation rate. Additionally, besides the government support towards electricity production in the Eskom, more effort and resources (financial) would also be allocated to generate and improve other sources of energy such as solar, wind, gas and biogas. Keywords: inflation, Eskom, electricity, fuel price, manufacturing, South AfricaJEL Classifications: L60, E31, L11DOI: https://doi.org/10.32479/ijefi.12509
Highlights
Since the Second World War, the world experiences a significant increase in fuel prices that creates constraints in the production and sales of various products
Electrical energy is considered as a core input to industrial production (Isaksson, 2016). Owing to this phenomenon of high fuel prices, high inflation, low electricity supply and their risk towards production and sales in the manufacturing sector; this paper investigates the role and magnitude of production of food and beverage and sales risks owing to fuel price, inflation rate and electricity volatilities within the South African manufacturing sector
This study aimed to assess the impact of electricity supply, inflation rate and fuel price increase on food and beverage production and sales in the South African manufacturing sector
Summary
Since the Second World War, the world experiences a significant increase in fuel prices that creates constraints in the production and sales of various products. A high price of fuel and other forms of energy impact negatively on the global economy in both developed and developing countries (Cunado and Perez de Gracia 2005). From World War II till nowadays, the fuel price experiences drastic instability especially since the 2008 financial crisis. In December 2008, the price of the Brent crude oil $40 per barrel and increased to $126 in 2012. This price drastically dropped to $30.5 per barrel in January 2016, risen again to $81 per barrel in 2018, and fall below $ 20 per barrel in April 2020 (Macrotrends, 2018; The Economic Times, 2020). The country experienced a high inflation rate and low growth of below
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