Rising Cost of Sales in Nigerian Manufacturing Sector
The cost of sales for 12 major manufacturing companies in Nigeria has seen a significant increase in the first half of 2025, rising from N2.18tn recorded in the same period of 2024 to N2.6tn this year. This represents an increase of 19.68 per cent. The rise in costs is attributed to several factors, including inflation, foreign exchange pressures, and logistics constraints.
An analysis of the latest unaudited financial statements of these firms, filed with the Nigerian Exchange Limited, indicates that input and operational costs have surged due to various economic challenges. These companies span multiple sectors, such as food and beverage, cement, and consumer goods, among others. The cost of sales, also known as the cost of goods sold, refers to the direct costs involved in producing the goods or services a company sells.
The companies reviewed for their half-year cost of sales performance include Dangote Cement Plc, Dangote Sugar Refinery Plc, Nestlé Nigeria Plc, BUA Cement Plc, BUAfoods Group, International Breweries Plc, UAC of Nigeria Plc, Cadbury Nigeria Plc, Nascon Allied Industries Plc, Presco Plc, FTN Cocoa Processors Plc, and Champion Breweries Plc.
Dangote Cement Plc reported the highest cost of sales, increasing by 2.43 per cent to N853.56bn in H1 2025 from N833.27bn in H1 2024. This reflects continued high production activities despite challenging input costs. Dangote Sugar Refinery Plc saw a 36.38 per cent increase in cost of sales to N378.53bn, driven by elevated raw material prices and supply chain costs. Similarly, Nestlé Nigeria Plc experienced a 27.43 per cent rise in cost of sales to N356.17bn, reflecting inflationary pressures and rising operational expenses.
BUA Cement Plc reported a 15.66 per cent increase in cost of sales to N294.55bn, while the BUA Foods Group’s cost surged by 38.74 per cent to N292.03bn, driven by expanded operations and increased raw material costs. International Breweries Plc recorded a 36.62 per cent rise in cost of sales to N219.41bn, consistent with higher input and logistics costs. UAC of Nigeria Plc posted a 27.28 per cent increase in cost of sales to N82.15bn, reflecting increased manufacturing and distribution activities.
Cadbury Nigeria Plc’s cost of sales rose by 32.36 per cent to N55.39bn, largely due to rising packaging and raw material costs. Nascon Allied Industries Plc recorded a 43.56 per cent increase in cost of sales to N40.77bn, driven by higher production costs. Presco Plc’s cost of sales grew by 13.62 per cent to N25.49bn, reflecting inflationary input cost pressures. FTN Cocoa Processors Plc showed the highest percentage jump, with cost of sales rising by 1,427.52 per cent to N2.03bn from a low base of N133m, indicating expansion in operations. Champion Breweries Plc recorded a 38.48 per cent increase in cost of sales to N8.05bn.
Key Challenges Facing Manufacturers
Experts have identified several challenges impacting manufacturers. The volatile exchange rate is a primary concern, as many rely on imported inputs such as machinery and spare parts. This makes their costs vulnerable to currency fluctuations. High financing costs are another burden, with bank interest rates soaring above 30 per cent, directly increasing the cost of sales and overall operational costs.
Logistics and energy expenses also pose significant challenges. The high price of diesel, poor road infrastructure, and import duties escalate logistics costs. Additionally, the devaluation of the naira has led to increased finance costs, further straining businesses.
Strategic Recommendations
To mitigate these challenges, experts recommend that manufacturers focus on backward integration. By promoting import substitution and increasing local production, they can reduce exposure to foreign exchange risks. Exploring alternative energy sources such as solar or gas could help lower energy costs. Additionally, manufacturers should consider reducing reliance on expensive bank loans and explore cheaper alternatives like issuing commercial paper.
Impact of Inflation
The current wave of inflation is being fuelled by a sharp rise in energy costs and other operational expenses. Energy costs have tripled for many organizations, affecting transportation and staff remuneration. Companies have responded by adjusting pricing structures to offset financial strain, leading to an increase in revenue. This trend highlights the need for strategic adjustments to maintain competitiveness in a challenging economic environment.