Rising operating cost drives firms’ price hike

Several firms are raising their prices in response to rising operating costs, fuelled by the naira fall, high raw materials’ and energy prices.

There have been hikes in the prices of goods and services in the last one year. The costs of electricity, data, calls and fuel have risen by over 50 percent.

The National Bureau of Statistics (NBS) recently released the country’s Consumer Price Index (CPI), which showed that the rebased inflation rate decreased to 24.48 percent in January up from 34.48 percent last December. The inflation rate fell further to 23.2 percent in February.

Consequently, MultiChoice, owners of DStv, GOtv, informed customers of the price review, set to take effect on March 1, 2025, attributing the adjustment to rising costs of delivering the premium content. However, it was opposed by the Federal Competition and Consumer Protection Commission (FCCPC).

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In its latest financials, MultiChoice stated that in the rest of Africa business, the group is implementing several initiatives to support improved financials, including price adjustments to counter the impact of inflation, renegotiation of content deals where feasible, restructuring of select packages to enhance average revenue per user (ARPU), and optimisation of the DTT network.

Multichoice raised the price of its DStv Compact bouquet from N15,700 to N19,000, the Compact Plus to N30,000, and the Premium subscription to N44,500.

Similarly, after a long battle with Nigeria Communication Commission (NCC), telcos were allowed to review their price upward by 50 percent. The telcos wanted to boost their revenue in order to cover rising costs.

For MTN, the hike is meant to support “the ability of operators to continue investing in infrastructure and innovation, ultimately benefiting consumers through improved services and connectivity, including better network quality, enhanced customer service, and greater coverage.”

Latest results released by multinationals listed on the Nigerian Exchange Limited (NGX) reveal that rising cost of goods and services in 2024 ate into their profit, 68.5 percent higher than the previous year.

Some of these multinationals include: MTN, Dangote cement, Nestle, International Breweries, Nigeria Breweries, PZ Cussons, Cadbury, Axa Mansard, Unilever, Beta Glass, Total Energies, and Lafarge Africa.

A cursory review of some of the full-year 2024 results published by some of Nigeria’s largest companies reveals higher input and operational cost on a year-on-year basis.

The companies spent heavily on power and raw materials. In the full year of 2024, the energy cost surged significantly across the country. Notably, the cost of diesel sold as high as N1300 per litre in some areas of the country, while some firms had to cut down on working hours to manage costs.

For instance, MTN Nigeria reported N1.5 trillion operational expenses (OPEX) in 2024, representing an increase of 76.6 percent from N860.3 billion in 2023.

The increase in OPEX and cost of sales impacted the telcos’ profit before tax, which increased by 9.2 percent to N1.3 trillion from N1.2 trillion in 2023, despite a 36 percent increase in profit.

Overall, the company made a loss of N400.4 billion as a result of this and foreign exchange exposure.

The federal government has said that for electricity tariffs to reflect the actual cost of production, some Nigerians might need to pay over 65 percent of what they are currently paying for a kilowatt/hour of electricity.

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Olu Verheijen, special adviser to President Tinubu on energy, was quoted as saying that the current power tariff would rise by about two-thirds to reflect the cost of supplying it.

She said that the higher energy tariff is required to fund the maintenance necessary to improve reliability and attract private investors into power generation and transmission.

The move to raise tariffs for a third time comes amid mounting pressure from Nigeria’s debt-burdened electricity distribution companies (Discos) for tariffs to be cost-reflective so they can improve their finances.

High volatility of the naira, most of last year, was another pain point for these multinationals. The naira went from being the best performing currency to the worst performing currency, and went as low as N1800/per dollar last year.

This led to the exodus of many multinational from Nigeria.