Nigerian manufacturers are grappling with significant financial losses due to the sweeping macroeconomic changes implemented by the Federal Government (FG). A major challenge has been the escalating cost of sales, with leading manufacturers reporting a dramatic 90.6% increase in their financial results for 2024.
Cost of sales refers to the direct expenses a company incurs to produce goods and services sold, including raw materials, logistics, energy, and other manufacturing expenses. Analysts attribute this surge to rising inflation, volatile foreign exchange rates, and soaring production costs within the sector. However, they foresee a more favorable outcome in 2025, assuming the current stability in some key macroeconomic indicators persists.
Financial Vanguard findings indicate that the steep increase in manufacturing costs has pushed several companies to adopt aggressive cost-cutting measures, such as layoffs and price hikes, to stay afloat. Despite attempts at backward integration by the top 12 consumer goods manufacturers to ease production costs, many still face financial and economic hurdles.
Data reveals that costs for importing raw materials have surged by 88% year-on-year (YoY) in 2024, highlighting that backward integration efforts have either fallen short or remain insufficient to shield firms from high importation costs driven by inflated exchange rates.
Furthermore, the findings show that major manufacturers have successfully reduced their exposure to bank loans, which had severely impacted profitability in the previous year. Nonetheless, the high interest rate regime implemented by the Central Bank of Nigeria (CBN) since 2023 continues to take a toll on financial costs.
The companies examined by Financial Vanguard include Nestlé Nigeria, Cadbury Nigeria, Unilever Nigeria, Nigerian Breweries Plc, BUA Foods, Guinness Nigeria, Northern Nigeria Flour Mills, Dangote Sugar, Honeywell Flour Mills, Flour Mills Nigeria, UAC Nigeria, and Golden Guinea.
Rising Cost of Sales
The combined cost of sales for the 12 leading consumer goods companies skyrocketed by 88.5%, reaching N3.91 trillion in 2024, compared to N2.1 trillion in 2023.
Nestlé Nigeria saw a 97.7% increase to N652.5 billion in 2024, up from N329.9 billion in 2023.
Cadbury Nigeria’s cost of sales grew by 77.2%, reaching N111.7 billion from N63.04 billion in 2023.
Unilever’s cost of sales rose by 30.6% to N94.03 billion, up from N72.01 billion.
Nigerian Breweries’ cost of sales surged by 97.5% to N764.5 billion from N387.03 billion.
BUA Foods’ cost of sales increased by 110% to N985 billion, up from N469 billion in 2023.
Guinness Nigeria saw a 37.5% increase to N208.03 billion from N151.3 billion.
Dangote Sugar’s cost of sales rose by 78.7%, reaching N634.6 billion, up from N355.1 billion.
Northern Nigeria Flour Mills saw a rise from N16.4 billion in 2023 to N25.7 billion in 2024.
Honeywell Flour Mills posted a sharp increase to N248.8 billion, up from N100.5 billion.
UAC Nigeria’s cost of sales rose by 52.5%, totaling N151.3 billion, up from N99.2 billion in 2023.
Flour Mills recorded a similar 52.5% increase, reaching N151.3 billion, compared to N99.2 billion in 2023.
The total cost of raw materials for these top 12 firms escalated to N2.2 trillion in 2024, up from N1.2 trillion the previous year.
Finance Costs
The companies’ combined finance costs grew by 81.0% to N1.2 trillion in 2024, up from N664.6 billion in 2023. However, their total bank borrowings decreased by 6.4%, from N1.9 trillion in 2023 to N1.7 trillion, signaling a shift towards reducing reliance on bank loans due to the prevailing high-interest rate environment.
Despite these challenges, the firms’ combined turnover rose by 67.7%, reaching N7.6 trillion in 2024, compared to N4.5 trillion in 2023. However, their loss before tax (LBT) surged by 76.6%, rising to N407.4 billion in 2024 from a loss of N230.7 billion the previous year.
Company Responses to Performance
Despite the adverse environment, company leaders remain optimistic about their performance. Mr. Wassim Elhusseini, Managing Director of Nestlé Nigeria, emphasized the resilience of the company’s brands and teams, noting a 75.2% revenue growth and a 35.6% improvement in operating profit. He highlighted that the Q4 2024 results marked a return to profitability with a net profit of N19.7 billion, compared to a loss of N36.4 billion in Q4 2023.
Mr. Hans Essaadi, Managing Director/CEO of Nigerian Breweries Plc, credited strategic pricing initiatives, market expansion, and operational efficiencies for their impressive revenue growth, despite macroeconomic challenges.
Engr. (Dr.) Ayodele Abioye, Managing Director of BUA Foods, stressed the company’s ability to navigate supply chain and foreign exchange challenges effectively, achieving strong performance in FY 2024.
Tobi Adeniyi, Managing Director of Unilever Nigeria, also expressed satisfaction with the company’s sustained growth, driven by operational efficiency, cost optimization, and expanding market share.
Expert Opinions on the Economic Landscape
Analysts have been critical of the economic environment and its impact on business growth. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), stated that the high costs of sales were primarily driven by exchange rates, finance costs, energy expenses, and logistics. He described 2024 as a transitional year in economic reforms, but expressed optimism for 2025, citing signs of stabilization in the exchange rate and reduced energy costs.
Dele Oye, President of NACCIMA, attributed the sharp rise in costs to a complex mix of factors and proposed several solutions, including long-term policy frameworks, infrastructure development, and a reduction in interest rates to ease manufacturers’ financial pressures.
Segun Ajayi-Kadir, Director-General of the Manufacturers Association of Nigeria (MAN), highlighted the persistent challenges, including declining purchasing power and rising production costs. He called for actionable macroeconomic reforms with clearly defined actions and timelines to stabilize the economy.
Raw Materials Costs Driven by Domestic and External Factors
Analysts such as David Adonri and Olatunde Amolegbe pointed to both domestic and external cost-push factors as responsible for the surge in raw material costs. Insecurity, high energy costs, and the volatile exchange rate further exacerbated inflationary pressures, negatively impacting corporate turnover. However, they are hopeful that these pressures will ease in 2025, with improved economic signals. They emphasized the need for local sourcing of manufacturing inputs and aggressive marketing strategies to counter these challenges.
Moving Forward
The analysts agree that public policy can play a key role in boosting corporate turnover while reducing production and distribution costs. Identifying and addressing cost-push factors through appropriate policies, including the domestication of input sources and energy cost reduction, will be crucial for making businesses more cost-effective and competitive.
