Renowned Economic Expert, Bismark Riwane has warned against the continuously high cost of diesel in Nigeria, as he predicted that more companies would collapse as a result.
In an interview where he attributed the basic challenges businesses in the country face to the high cost of energy, which included the recent surge in diesel prices, Rewane also made mentioned that companies are being pressured by foreign exchange (FX) instability.
“Two things are happening: one electricity supply has dropped and the price of diesel went up by 300%. So, when you add the two together you will find out that there was an increase in the cost of power.
“Two, the foreign exchange availability was reduced significantly,” Rewane said, as he maintained that all the issues have become palatable for many businesses, such that they are struggling to thrive.
Speaking further, he added that “with the cumulative effect of the decadence and adequate pricing, the cost of producing electricity is much more than what the tariff is giving them. Therefore, unfortunately, every day they produce they are moving closer and closer to their collapse.
“Because in economics, you produce where your marginal revenue is equal to your marginal cost, but here, the marginal cost is higher than the marginal revenue. That is the basic rule of economics and that is happening in the electricity market.
“And for the foreign exchange market, the supply of forex fro basic inventory is not available and, therefore, the more unavailable it is the more people have to buy forex at a prohibitive cost. So, cumulatively, all of these things are leading to a massive increase.”
BizWatch Nigeria understands that as of Monday, July 25, 2022, diesel was selling between N600 and N800 per litre, from less than N200 early this year.
