Inflation Drives Manufacturing Expenses to N2.6trn
The cost of sales for 12 manufacturing companies in Nigeria, in the first half of 2025, grew from the N2.18tn recorded in the corresponding period of 2024 to N2.6tn this year, representing an increase of 19.68 per cent.
An analysis of the latest unaudited financial statements of the firms for the period ended June 30 and filed with the Nigerian Exchange Limited indicated that the spike in the cost of sales was triggered by the rising input and operational costs driven by inflation, foreign exchange pressures, and logistics constraints.
The data was drawn from various sectors, including food and beverage, cement, and consumer goods, among others. The cost of sales, sometimes known as cost of goods sold, is simply the cost involved in directly producing the goods or services that a firm actually sells, according to financial experts.
The companies under review for their half-year cost of sales performance include Dangote Cement Plc, which recorded the highest cost of sales; 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.
In the period under review, Dangote Cement Plc recorded the highest cost of sales, rising marginally by 2.43 per cent to N853.56bn in H1 2025 from N833.27bn in H1 2024. The slight increase reflects continued high production activities amid challenging input costs.
Dangote Sugar Refinery Plc posted a 36.38 per cent increase to N378.53bn, up from N277.49bn a year earlier, driven largely by elevated raw material prices and supply chain costs. Nestlé Nigeria Plc saw the cost of sales rise by 27.43 per cent to N356.17bn from N279.67bn in H1 2024, reflecting inflationary pressures and rising operational expenses.
BUA Cement Plc reported a 15.66 per cent increase to N294.55bn, compared to N254.66bn in H1 2024, indicating steady growth in cement production activities. The BUA Foods Group’s cost surged by 38.74 per cent to N292.03bn, up from N210.45bn in H1 2024, driven by expanded operations and increased raw material costs.
International Breweries Plc recorded a cost of sales of N219.41bn, a 36.62 per cent rise from N160.59bn in the same period last year, reflecting higher input and logistics costs. UAC of Nigeria Plc posted a cost of sales of N82.15bn, up 27.28 per cent from N64.54bn in H1 2024, consistent with increased manufacturing and distribution activities.
Cadbury Nigeria Plc’s cost of sales rose by 32.36 per cent to N55.39bn, from N41.85bn, largely due to rising packaging and raw material costs. Nascon Allied Industries Plc recorded a 43.56 per cent increase to N40.77bn, from N28.41bn, driven by higher production costs.
Presco Plc’s cost of sales grew by 13.62 per cent to N25.49bn, compared to N22.43bn, 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, signalling expansion in operations. Champion Breweries Plc recorded a cost of sales of N8.05bn, up 38.48 per cent from N5.81bn in H1 2024.
Commenting, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, identified several major challenges currently impacting manufacturers, beginning with the volatile exchange rate. According to him, many manufacturers rely heavily on imported inputs such as machinery and spare parts, which makes their costs vulnerable to currency fluctuations. He explained,
“The first major challenge manufacturers face is the exchange rate because most of their inputs are imported, whether machinery or spare parts. The exchange rate has a huge impact on their costs.”
He also pointed out that the high cost of financing significantly adds to manufacturers’ expenses. With bank interest rates soaring above 30 per cent, the burden of expensive funds directly increases both the cost of sales and overall operational costs.
Yusuf noted, “The second factor is the cost of funds. Financing costs are extremely high, with bank interest rates above 30 per cent. This significantly increases the cost of sales and overall operations.”
Logistics and energy expenses are another heavy burden for manufacturers. Yusuf highlighted that the high price of diesel, poor road infrastructure, and import duties all combine to escalate logistics costs.
He remarked, “Another big expense is logistics, especially energy costs. The price of diesel to transport products is very high, and poor road conditions only add to these costs. Import duties on the materials they use also raise their expenses at the ports.”
Given these challenges, Yusuf recommends that manufacturers focus more on backward integration. By promoting import substitution and increasing local production, they can reduce their exposure to foreign exchange risks. He advised, “Given the challenges with foreign exchange, manufacturers need to focus more on backwards integration, that is, looking inward and promoting import substitution. The more they can produce locally instead of importing, the better.”
In addition, he suggests exploring alternative energy sources such as solar or gas, which could help reduce the high cost of energy. Yusuf explained, “They should also explore ways to reduce energy costs by using alternatives like solar or gas, which are more cost-effective.”
Finally, on financing, Yusuf believes manufacturers should lessen their dependence on expensive bank loans. Instead, he proposes issuing commercial paper as a cheaper alternative. He said, “Manufacturers should reduce their reliance on expensive bank debt. Instead, they could consider issuing commercial paper, which tends to be cheaper.”
He concluded by emphasising that these strategic steps could help manufacturers lower costs and improve their competitiveness in a challenging economic environment. “These steps can help manufacturers lower costs and improve their competitiveness.”
SOURCE: The PUNCH