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Dreading December petrol prices

Fuel prices are expected to show big increases in December due to the continued rise in the crude oil price and the further weakening of the exchange rate, says independent economist Fanie Brink.

According to the latest information from the Department of Energy announced this morning, the prices of gasoline 93 (ULP & LRP) in Gauteng on Wednesday, 6 December 2017 could possibly increase by 71,9 cents per liter and the price of diesel with a 0,005% sulphur content possibly increase by 61,1 cents per liter.

According to international sources, the average daily Brent crude oil price has increased this month to its highest level since June 2015 of $64,27 per barrel.

The members of the Organisation for Petroleum Export Countries and Russia meet again later this week to decide on an extension of their 9 month agreement reached in July this year to bring about a better balance of international supply and demand by reducing its oil production

Because of further increase in the crude oil price, it is expected that the average international price of gasoline may rise by 45,7 cents per liter and the diesel price by 34,3 cents per liter.

The daily average R/$ exchange rate has weakened over the past month from about R/$13,80 to R/$14,20 due to political uncertainty and further economic deterioration that caused a further downgrading in the country's credit status last week.

This weakening in the exchange rate is expected to result in an increases of 26,2 cents per liter in the gasoline price and 26,8 cents per liter in the diesel price.

The final price changes will be announced by the Minister of Energy. Source: Department of Energy

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Construction prices forecast to rise

MMQSMace, a leading South African cost consultancy business, and Stellenbosch University’s Bureau for Economic Research (BER) have forecast a South African construction tender price growth of 7,4% in 2017, including 5,3% inflation, and an 8,8% increase in 2018, including 5,1% inflation.

Analysis shows that the construction sector in South Africa is suffering amid the country’s wider economic turmoil.

The data has shown a sharp rise in construction prices of 9.5% in the first quarter of 2017 – good news for construction companies but likely to be balanced out with a restrained performance across the rest of the year.

The strong increase in early 2017 has been driven by high national inflation pressure and a marked increase in input costs. Optimism in the sector is low, with industry respondents reporting negative confidence levels not seen since the 2008/9 economic downturn.

Business plan permissions – a measure of the value of planning permissions granted in South Africa – fell significantly across all construction sectors in March by 16,3% and then more radically in April by 41,2%. Overall, the value of building plan permissions was down by 21,9% year-on-year compared to the same period in 2016.

The economic turmoil has had a particularly serious impact on non-residential construction, which has seen a significant drop in both building plan permissions (down by 67,2%) and completions (down by 62,5%) year-on-year compared to 2016.

This is balanced out by a more positive outlook in the residential sector, which saw a significant upswing (52%) in year-onyear completion value compared to 2016. However, the fall in the construction pipeline is beginning to bite here as well, meaning the sector cannot be relied upon to provide a steady stream of construction work.

Overall, the sector is likely to be looking forward to December, when there are hopes that the appointment of a new leader by the ANC will bring some political and economic stability.

Mandla Mlangeni, Director of MMQSMace Cost Consultancy, said, “We’re seeing a strong rise in tender prices in South Africa in 2017 driven by significant input price growth and general inflation here compared to other markets. A lack of business confidence and an uncertain political and economic outlook has led to a stagnation in investment across both the commercial office and residential sectors this year, with increasing reliance on the planned infrastructure pipeline for our forecast of an improved outlook in 2018."

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Anti-competitive practice of pseudo-generics continue to drive up SA medicine prices

South African consumers continue to pay more for medication long past the expiry of a patent, as a result of the increasing occurrence of pseudo-generics in the South African pharma marketplace.

This is according to Erik Roos, CEO of Pharma Dynamics – a leading generic pharmaceutical company – who says pseudo-generics are often identical in all aspects to a branded product, but carries a different name and is sold at a slightly lower cost, thereby fooling consumers into thinking it is a true generic.

“The difference in cost between a pseudo-generic and true generic product can be up to 40%, but because patent medicine producers have a first-mover advantage by launching these pseudo-generics before the patent has expired, they maintain market domination. This crowds out natural competition as generics struggle to infiltrate the market and ultimately this practice pushes up the price of medicine.”

According to research, an originator’s profit drops by about 30% to 40% once a true generic version of a product is introduced, while market share diminishes by up to 80%, which is why most originator companies release pseudo-generics or clones to ensure a continued price advantage.

Pseudo-generics are common across medication categories and their presence has increased substantially in recent years.

Roos notes that the National Department of Health (NDoH) does have a rule against one company selling the same medicine at a different price, but that some pharma firms have found a loophole in the system. “In many cases the brand name company will register a subsidiary with a different trade name to bypass this rule.”

He adds that it is a practice adopted by most originator companies abroad and in South Africa, but in the past few years, various international reports confirm the uncompetitive nature of such practices which have been proven to lead to higher long-term medicine prices.

“It is important to keep in mind that generic companies also incur costs for laboratory testing as well as approval from the South African Health Products Regulatory Authority (SAHPRA) long before the patent expires on a product. This comes at a huge cost to the industry and further impacts on the extent to which medication can be discounted.

“The debate over affordable medication is hugely emotive in our country where 12 million people live under the breadline and where the poor often have to forego potential life-saving treatment because of the high price tag on medication.

“South Africans can no longer afford to pay unnecessary high prices for medicines because of uncompetitive practices which keep more affordable generics off the market and benefit only the big pharmaceutical companies.”

How can consumers distinguish between a pseudo-generic and a true generic?

“The best way is to ask your doctor or pharmacist before making the purchase”, advises Roos. “To the average consumer, these products all look the same, but doctors and pharmacists understand a drug’s makeup and life-cycle, and will be able to point you to the true generic equivalent for maximum savings.”

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