In the first half of the year, consumer products businesses that are listed on the Nigerian Stock Exchange (NGX) reported a notable increase in their cost of production.
Eight of the largest consumer products companies listed on the NGX had their financial statements reviewed, and the results show that, on average, production costs increased by 67% in the first half of 2024 compared to the same time the previous year.
During the evaluation period, some enterprises experienced a nearly twofold increase in their manufacturing expenses. In the first half of 2024, the eight companies reported total operating costs of N1.58 trillion, up from N952.32 billion in the same period of 2023.
Cost of production rising for all businesses
Cadbury’s production costs increased by 65% over a year, from N25.38 billion to N41.85 billion, in the first half of the year.
Nestle, a competitor in the food product sector, saw a 74% increase in production costs from N154.43 billion in the first half of 2023 to N269.67 billion in 2024.
Over the reviewed period, Unilever Plc had a slight increase in production costs. Its financial report data shows that the cost of its products increased from N32.26 billion to N37.69 billion.
This is comparable to NASCON Allied Industries, whose manufacturing costs in the first half of 2024 were N28.41 billion, up from N19.2 billion in 2023.
Nigerian Breweries’ manufacturing costs increased by almost treble in the first half of 2024 compared to 2023. Between the first half of 2023 and 2024, it climbed from N165.09 billion to N320.08 billion.
Dangote sugar also almost increased at the time. From N144.59 billion in 2023 to N277.49 billion in the same period of 2024, it increased by 92%.
During the reviewed period, International Breweries had a 104% growth in its production costs, from N78.65 billion to N160.58 billion.
Effect on margins of profit and loss
The enterprises under examination experienced a significant decline in profitability due to the increase in manufacturing costs. Five of the eight enterprises that were examined in the first half of 2024 had after-tax losses.
For instance, in the first half of 2024, NASCON Allied Industries’ earnings decreased by over 16.8%, from N5.82 billion in 2023 to N4.82 billion.
In comparison to the same period in 2023, International Breweries, Nigeria Breweries, and Dangote Sugar experienced a poorer half-year. Compared to 2023, these companies’ losses throughout the time increased.
Nigerian Breweries Plc saw an increase in losses from N47.55 billion in 2023 to N85.19 billion in the first half of 2024. Within the same brewing sector, International Breweries saw a 262% increase in losses throughout the reviewed period, going from N41.43 billion to N150.23 billion.
Dangote Sugar’s losses increased from N27.98 billion to N144 billion in the first half of 2024 – a 400% increase.
The fortunes of these enterprises during that period were significantly impacted by the increase in production costs.
Causes of rising operating costs and how organizations might reduce them
Olumuyiwa Adebayo, the head of the Nigeria Employers’ Consultative Association’s (NECA) committee of finance specialists, commented on the increase in production costs and blamed it on supply chain and logistical problems, energy costs, and pressures on currency rates.
He claims that the depreciation of the Naira over the past year has raised the price of equipment, raw materials, and other imported industrial inputs.
When it is possible, he counseled businesses to source components and raw materials locally to reduce the cost of raw resources. He claims that this strategy not only reduces currency risk but also fortifies the local supply chain.
Nestle has been actively pursuing the replacement of imported maize starch with cassava to protect its finances from the impact of foreign exchange depreciation throughout Nigeria and Africa since COVID-19 disrupted global supply chains in 2020.
Additionally, he asserted that the price of diesel, which is used in the manufacture and distribution of many consumer products companies, has significantly increased as a result of changes in the world oil market.
Furthermore, the withdrawal of Nigeria’s petrol subsidy and the hike in electricity rates for Band A customers, which may include industrial users, may cause their production expenses’ energy cost component to increase.
Given similar research by Nairametrics that found that Nigerian cement companies’ energy costs increased by 160% in the first half of 2024 compared to the same period in 2023, his position on energy costs sounds reasonable.
According to his words, “The significant rise in operational costs is a complex issue influenced by multiple macroeconomic factors. The depreciation of the Naira against major foreign currencies has significantly increased the cost of imported raw materials, equipment, and other production inputs… With fuel subsidy removal and fluctuations in global oil prices, energy costs have surged, directly affecting manufacturing and distribution costs. Many companies are still heavily reliant on diesel generators due to unreliable grid power, further compounding energy expenses.”
The exchange rate is still lower than it was in the second half of 2023, even if it has stabilised over the last two months. Production costs for these businesses are therefore anticipated to be higher than they were in the final six months of 2023.
Pricing impact
These corporations’ increased production costs have trickled down to their product prices, driving inflation to over thirty years of highs and stifling consumer spending in the process.
The Consumer Price Index (CPI) is still at a 28-year high, despite a July dip. This has an influence on consumer purchasing, particularly on major brands.
According to a recent Nielsen IQ survey, a surge in the price of certain commodities has caused almost 70% of Nigerian customers to switch brands within the last year.
The study also revealed that in the first quarter of 2024, transaction volume in the FMCG industry fell by about 20%.
