Nigerian manufacturers are grappling with a historic surge in operational costs due to soaring inflation, currency depreciation and escalating energy prices that is squeezing their profit margins and threatening the financial health of several listed firms.
Analysts have cautioned that without urgent policy intervention, the nation’s industrial sector could face prolonged financial strain.
Data from the Nigerian Exchange Limited (NGX) reveal that manufacturing companies have seen their combined cost of sales surge by over 100% in 2024, rising from N899.2 billion in 2023 to N1.718 trillion.
This sharp increase has forced many companies to adopt aggressive cost-cutting measures, including layoffs and price adjustments, to stay afloat.
Key players such as BUA Cement, Nestlé Nigeria, and Nigerian Breweries reported unusual increases in production costs despite revenue growth.
Nestlé Nigeria posted a loss after tax of N164.6 billion for the 2024 financial year despite a 75.3% rise in revenue to N958.8 billion.
The company’s cost of sales soared by 97.8%, driven by the high cost of imported raw materials, exacerbated by the naira’s depreciation and persistent foreign exchange challenges.
Similarly, BUA Cement recorded a 90.5% increase in revenue to N876.47 billion but saw profit growth constrained to 6.4% due to rising raw material and energy costs.
The unification of exchange rates in 2023, which led to a sharp depreciation of the naira, has been a significant contributor to the rising costs.
Imported inputs have become markedly more expensive, making it challenging for manufacturers to manage their cost base.
The situation was further aggravated by the removal of fuel subsidies, which resulted in a spike in logistics and operational expenses.
“The economic impact of this trend is reflected in rising product prices at a time when consumer purchasing power is weakening. Lower consumption leads to reduced economic activity, ultimately affecting GDP growth,” said Tunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited.
Amolegbe attributed the rising cost of sales to cost-push inflation driven by limited local supply and the high cost of imports due to naira depreciation.
He emphasised the need for increased import substitution in raw material sourcing and called on the government to address structural issues in the agricultural sector to enhance local production.
Finance costs have also spiked with Nestlé Nigeria’s finance costs rising by 68.2% to N392.8 billion, far exceeding its operating profit and becoming the primary driver of its full-year loss.
The company’s liquidity position deteriorated, with cash and cash equivalents plunging by 86.5% year-on-year to N22.642 billion, raising concerns about its ability to manage short-term obligations amid rising borrowing costs.
Industry experts have warned that if inflation and exchange rate challenges persist, many companies could face liquidity crises, leading to potential layoffs and a downturn in investor confidence.
The continuous depreciation of the naira and forex volatility have not only driven up operating costs but also resulted in foreign exchange losses, straining corporate balance sheets.
“Companies must find innovative ways to cut costs and remain competitive in this challenging economic environment,” Amolegbe advised. “There is an urgent need for the government to stabilize the naira and ease import costs, which have been exacerbated by foreign exchange volatility.”
