Nigerian Manufacturers Face N666bn Cost Surge Amid Inflation and Economic Challenges”

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In 2024, the cost of sales for 10 major manufacturing and consumer goods companies in Nigeria surged to N665.95bn, marking a 72.47% increase from N386.16bn in 2023. This sharp rise highlights the mounting financial pressures on the sector, driven by inflation, foreign exchange volatility, and escalating production costs. The companies involved, listed on the Nigeria Exchange, reported this increase in their financial statements, reflecting the difficulties manufacturers face in maintaining profitability amid rising costs.

The increase in the cost of sales is attributed to a combination of inflation, fluctuations in exchange rates, and rising expenses related to raw materials, energy, and logistics. For instance, Guinness Nigeria Plc recorded a 107% increase in its production costs, which jumped to N200.60bn in 2024. The higher costs are particularly challenging for companies like BUA Foods Plc, whose costs skyrocketed due to rising raw material prices and energy expenses, which are exacerbated by the country’s economic conditions.

BUA Foods Plc saw the most significant increase, with its cost of sales rising 76% to N248.15bn in 2024. Guinness Nigeria also faced major cost pressures, with its production costs doubling. UAC of Nigeria, a diversified conglomerate, experienced a 52.5% jump in its cost of sales, reaching N151.32bn. The pharmaceutical sector was not immune to these challenges, with Fidson Healthcare and Neimeth International Pharmaceuticals also seeing substantial cost increases of 54% and 67.5%, respectively.

Other smaller companies such as Learn Africa Plc and Berger Paints Nigeria Plc also reported notable increases in their cost of sales, with rises of 63.9% and 30.6%, respectively. However, SCOA Nigeria Plc was an exception, reporting a 52% decrease in its cost of sales. FTN Cocoa Processors and Honeywell Flour Mills also faced increases in their costs, with the latter seeing a 147% surge, underscoring the widespread nature of the cost burdens in the sector.

Industry analysts caution that unless manufacturers can offset the rising production costs with higher revenues, their profit margins will continue to decline. This situation may lead to increased product prices, reduced dividend payouts, and potential downsizing or layoffs. Additionally, with Nigeria’s inflation rate reaching 34.80% in December 2024, the economic outlook remains grim, and the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, has voiced concerns over the challenging environment manufacturers are facing, with no immediate relief in sight.

Source: Punch

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