Manufacturers’ cost of sales rise 20% in nine months

…hits N1.4trn

The production cost of 14 companies in the manufacturing sector rose by 20.2 percent to N1.43 trillion in the first nine months of 2023 from N1.19 trillion in the same period of 2022, a BusinessDay analysis of data from their financial statements shows.

The companies are Nigerian Breweries, Dangote Sugar Refinery, Nestle Nigeria, Unilever Nigeria, Cadbury Nigeria BUA Foods, Nascon Allied Industries, Guinness Nigeria, International Breweries, Champion Breweries, GlaxoSmithKline Consumer Nigeria, Morison Industries, Neimeth International Pharmaceuticals and Fidson Healthcare.

Further analysis of the data showed that BUA Foods reported the highest increase of 74 percent to N340.7 billion from N195.6 billion followed by Fidson Healthcare which rose by 46.4 percent to N24.8 billion from N16.9 billion.

Unilever and Cadbury grew by 30.6 percent and 25.6 percent respectively. Guinness Nigeria had 19.6 percent, International Breweries (17.8 percent) and Champion Breweries (11.8 percent).

“The cost of manufacturing is rising daily owing to scarce and unavailable manufacturing inputs that continue to shrink profitability and threaten the existence of the critical sector of the economy,” Francis Meshioye, president of Manufacturers Association of Nigeria (MAN).

He said more worrisome is the fact that the sector that should propel job creation, productivity, and economic growth is enmeshed with a series of challenges that constantly limits its contribution to the Gross Domestic Product.

Read also: MAN, research council to curb rising production cost

“Such challenges as epileptic power supply, insecurity, inadequate infrastructure, shortage of foreign exchange and naira depreciation are prevailing issues that are impacting negatively on the sector,” he added.

The Tinubu administration’s reforms including the removal of petrol subsidy and naira devaluation, implemented in the second quarter of the year, pushed the inflation rate to the highest level in 18 years.

Rising inflationary pressures have weakened the purchasing power of consumers, even as businesses grapple with higher operating costs.

The removal of the petrol subsidy tripled the petrol price to N617 from N184, causing public transportation providers such as buses, tricycles and motorcycles to raise transportation fares.

The naira has continued to depreciate against the dollar and other major foreign currencies since then.

The official exchange rate increased from N463.38/$ to N789.94/$ as at October 27. At the parallel market, the naira depreciated to N1,200/$.

The high cost of dollars and the implementation of a 7.5 percent value added tax on diesel imports, which was suspended in September, pushed its pump price to as high as N1,200 per litre.

The rising cost of energy and FX pushed the country’s inflation rate to an 18-year high of 26.72 percent in September from 25.80 percent in the previous month, according to the latest inflation report by the National Bureau of Statistics.

Read also: How manufacturing can drive Nigeria’s economic diversification and trade growth

The latest monthly Purchasing Managers’ Index by Stanbic IBTC Bank showed that business activity contracted in October for the first time in seven months.

The headline index dropped to 49.1 from 51.1 in the previous month. Readings above 50.0 signal an improvement in business conditions, while those below show deterioration.

In August, the Manufacturers Association of Nigeria (MAN) said manufacturing activities continue to suffer due to persisting scarcity of forex and further depreciation of the naira.

“Only 14.7 percent of manufacturers enumerated claimed that the rate at which forex was sourced improved in Q2; 66 percent disagreed while 19.3 percent were not sure if forex sourcing had improved in the quarter under review,” it said.

The association added that the lingering forex scarcity and continuous depreciation of the naira have left manufacturers bleeding and limited their capacity utilization since the importation of non-locally produced critical input has become a nightmare.

“Government has to address the root cause of this problem by giving priority to manufacturers. Manufacturing is the bedrock of any economy. And if you are failing in that space, you will trigger inflation and unemployment which could result in a decline in revenues,” Segun Ajayi-Kadir, director-general of MAN said.

Over the past seven years, several manufacturers, especially in the fast-moving consumer goods industry, have either left the country or stopped production of some of their products as a result of the difficult operating environment.

Read also: Manufacturers in N166bn loss as borrowing costs surge seven-fold

Problems such as rising interest rates, surging inflationary pressure, and foreign exchange volatility are impacting input costs, operating expenses and the general profitability of businesses in Africa’s biggest economy.

Some of the companies that have exited the country are Surest Foam Limited, Mufex, Framan Industries, MZM Continental, Nipol Industries, Moak Industries and Stone Industries.

In March, Unilever, which started operations in the 1920s, announced that it was stopping the production of its legendary OMO, Sunlight and Lux home and skin care brands in a bid to cut costs so as to concentrate on higher growth opportunities. GlaxoSmithKline Consumer Nigeria also plans to exit the country after 51 years of operations.

The sudden rise in the price of petrol and abolition of the official naira rate has caused a significant backlash, eroding the already earned income and trading capital of several multinational companies that had established their previous earnings based on the official naira rate at the time, according to Dele Oye, national president of Nigerian Association of Chambers of Commerce Industry Mines and Agriculture

“While the current administration has commendably set Nigeria on a long-term path to economic progression, it has been noted that some of the immediate positive economic policies of President Bola Tinubu have had an adverse effect on certain sectors of the country,” he said.