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Written by Pio Sioa
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Saturday, 09 February 2008 |
Several disturbing scenarios are starting to float to the surface as the relentless surge in oil prices, push inflation towards bleeding levels.
It has certainly been hacking away mercilessly at Samoa’s main economic arteries.
The basic scenario for the business world in response to inflation is either price adjustments, or prioritisation of operation with an eye towards cost cutting measures, to stay afloat.
There comes a time however when the proverbial axe has to eventually fall somewhere or on something, to ease the financial load and ensure the business remains viable.
One of the unsettling scenarios to appear out of any prolonged economic strain for Samoa involves freight and flight services.
Shipping as we all know provides the lifeline trade is dependent on, and not just for Samoa but other neighbouring island countries as well.
As oil prices continue to squeeze earnings for shipping companies plying the sea routes to Samoa, when will it reach the point where it is decided that the profit margins are no longer worth maintaining the service?
When will shipping 60 containers a month or more no longer earn enough for the shipping companies to keep their services going?
When that happens, have we imagined where Samoa will end up?
The reported boom in Samoa’s tourism industry is being sparked off by airlines offering cheap holiday packaged fares.
How long will these cheap offers be affordable to the travellers, if the climate of soaring oil prices persist?
Have we imagined the impact on the tourism industry and the national economy if and when PolyBlue and Air NZ discover that profit returns are no longer worth maintaining flight services to Samoa?
Fortunately for everyone these are just scenarios, still it is worth digesting carefully.
Maybe the optimists are unlikely to give them a second thought. The possibilities are too far fetched to be believed anyway.
The undecided will probably ponder the possibilities seriously and remain inconclusive.
The pessimists are always ready to accept the worst and are easily persuaded.
The facts are simple however. Costly increases in oil prices are hurting our economic efforts.
What maybe an added 6 or 7 sene to the price of popular products like petrol, diesel or kerosene, is magnified many times over by inflationary costs.
By the time the end product is within hands reach, the accumulation of add on costs while it was making its way to you is a shock to the family budget.
The only upside one may wish to consider for the sake of comfort is the regulating influence of natural market forces.
The simple principles of supply and demand, as it is happening now, ripples right back to where the whole vicious cycle started - the price of oil.
But the consequences depends on the strength of the economy. Larger economies could absorb or adjust itself quickly to the ripple effects.
The adjustments however maybe be too much for smaller and vulnerable economies like we have in Samoa to absorb.
Economic release valves have to be explored and exploited as quickly as possible to ease the pressure on the national economy.
We can ill afford any prolonged exposure to the cycle of increased oil prices versus compensating world inflation. The disturbing scenarios discussed earlier may not be too far fetched if the cycle is allowed to run unchecked.
New local ventures like the new Pacific Oil Company, making a go at coconut oil as an alternative source of renewable source of energy for Samoa, is reassuring.
Biofuel seems to be the in word right now in the face of the outcry for economic relief for economies the size of Samoa.
Coconut oil is one example. In the case of Samoa it has progressed from the talking stage into the actual production phase.
It warms the heart to know that every litre of oil extracted by the company, subtracts from the volume of diesel we are forced to import into the country.
More litres of coconut oil extracted, less diesel imported, more foreign exchange saved or diverted elsewhere to benefit the country.
There are other agricultural produce that warrants a serious look, as potential sources of renewable energy, if biofuel is the kind of release valve that holds the promise of economic relief for us.
Caution and foresight however will have to be factored into our pursuits for biofuel energy.
People have to eat sometimes, and we do not want to upset the balance.
Other than that we should press on with what is available to us as alternative sources of fuel.
We have a research institute already in place to point out the directions for us to follow. If it needs strengthening, then it should be made a priority.
We need to inject more financial and brain support into research that will ease our economic woes.
Right now the thinking should be concentrated on reducing our oil expenses, not clogging up the roads with RHD.
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