Amid ongoing inflationary pressures, companies in Nigeria have reported a 28.8 percent year-on-year increase in their cost of sales for the year ending December 31, 2023. This rise is attributed to various macroeconomic challenges, including high inflation, escalating energy costs, and a foreign exchange crisis.
Vanguard’s analysis of financial statements from 20 leading companies revealed that their combined cost of sales reached N5.37 trillion in 2023, up from N4.17 trillion in 2022. The companies surveyed include major players such as BUA Cement, Lafarge Africa Plc, Dangote Cement Plc, Flour Mills of Nigeria (FMN) Plc, and Unilever Nigeria Plc.
Among these companies, BUA Foods and Unilever Nigeria Plc experienced the most significant increases in costs, with rises of 64.2 percent to N468.98 billion and 61.4 percent to N67.86 billion, respectively. Dangote Cement also saw a substantial increase of 52 percent, bringing its cost of sales to N1.01 trillion.
Other notable increases were recorded by BUA Cement (39.1 percent to N276.04 billion), Fidson Healthcare (36.4 percent to N31.98 billion), Cadbury Nigeria Plc (32.7 percent to N63.04 billion), and Flour Mills of Nigeria Plc (28.3 percent to N1.36 trillion). Neimeth Pharmaceuticals Plc was the exception, with a 36.2 percent decline in costs.
Economists at PriceWaterhouseCoopers (PWC) have highlighted the impact of rising inflation and foreign exchange volatility on production costs. In their Nigeria Economic Outlook for August 2023, PWC emphasized that these challenges could negatively affect firms’ performance.
“To optimize costs across value chains, companies should conduct thorough analyses across the value chain. For overhead costs, they should examine benefits versus pay, consider greater segmentation of reward, implement a hiring freeze, and improve visibility of non-payroll expenses,” PWC recommended.
PWC also advised streamlining organizational design to eliminate duplication, conducting marketing audits to enhance cost transparency, and prioritizing high ROI marketing campaigns.
Additionally, they recommended “managing supply issues by reducing promotion frequency without compromising depth, identifying alternative sourcing locations, aligning procurement across business divisions, and optimizing spending through global and local deals.”
These strategies aim to help companies mitigate the adverse effects of Nigeria’s challenging economic environment, marked by persistent inflation and fluctuating foreign exchange rates.