Inflation, FX Volatility Increased Dangote Cement, 10 Others’ Production Cost to N4.1tn in 2023

Kayode Tokede

Following soaring inflation rate and exchange rate volatility, Dangote Cement Plc and 10 other companies spent a whooping N4.1 trillion on production cost in 2023 financial year, analysis of their results have revealed.

The N4.1 trillion cost of production is 37.5 per cent higher than the N2.99 trillion reported by the 11 companies in 2022 financial year.

Other companies investigated by THISDAY are: Geregu Power Plc, Nigerian Breweries Plc (NB), Lafarge Africa Plc, BUA Cement Plc, BUA Foods Plc, MTN Nigeria Communication Plc, Dangote Sugar Refinery Plc, Nascon Allied Industries Plc, Nestle Nigeria Plc and Seplat Energy Plc.

In the period under review, inflation rate in Nigeria increased to 28.92 per cent Year-on-Year from 21.34 per cent December 2022, while the value of Naira at the official rate depreciated to N899.39 against the dollar in 2023 from N448.55 against the dollar December 2022.

Inflation rate reached over 15-year high in Nigeria amid foreign exchange policy of the Central Bank of Nigeria (CBN), insecurity in food producing states, among other factors.

The surging costs of doing business by these listed firms on the Nigerian Exchange Limited (NGX) underlined the country’s biting inflation, the deterioration of the Naira, and the failure of the ease of doing business campaign of both the Ministry of Industry, Trade and Investment, and the federal government.

Amid challenges, six of the companies reported cost of production much higher than the 28.92 per cent inflation rate in 2023.

Specifically, Geregu Power declared 64 per cent cost of production to N40.25 billion in 2023 from N24.48 billion reported in 2022, while Dangote Cement reported N1.01 trillion cost of production, representing an increase of 51.8 per cent from N662.89 billion reported in 2022.

Other companies with cost of production above inflation rate include: BUA Cement with 39 per cent cost of production to N276.04 billion in 2023 from N198.38 billion in 2022; MTN Nigeria Communication declared 43 per cent growth in cost of production to N650.5 billion in 2023 from N456.75 billion in 2022 and Seplat Energy declared 68 per cent growth in cost of production to N347.53 billion in 2023 from N206.7 billion reported in 2022.

According to THISDAY analysis, the 11 companies’ profit after tax dropped to N402.26 billion in 2023 from N1.15 trillion in 2022 with Nigerian Breweries, MTN Nigeria Communication, Dangote Sugar Refinery, and Nestle Nigeria reporting losses over hike in cost of production, foreign exchange losses, among other expenses.

A breakdown showed that NB reported N106 billion loss in 2023 from N13.19billion in 2022, MTN Nigeria announced N137.02 billion loss in 2023 from N348.73 billion in 2022; Dangote Sugar Refinery posted N73.76 billion in 2023 from N54.74 billion in 2022 and Nestle Nigeria announced N79.477 billion in 2023 from N48.43 billion in 2022.

Analysts believe the hike in cost of production is a reflection global economic unrest following the crisis between Russia and Ukraine, stressing that companies operating in Nigeria and in Africa are not operating in isolation.

Speaking with THISDAY, the Vice President, Highcap Securities Limited, Mr. David Adnori stated that the growth in cost of production reported by these companies have negative impact on profit and dividend payout to shareholders.

According to him, “The world is currently facing high inflation rate and Nigeria, Africa at large are not exempted from this experience, with countries on the continent witnessing record high inflation rate. The surge in inflation rate is following the rally in crude oil prices, amidst the face-off between Russia/Ukraine.”

The World Bank in a report stated that following Russia’s invasion of Ukraine, trade-related policies imposed by countries have surged.

The global food crisis has been partially made worse by the growing number of food trade restrictions put in place by countries with a goal of increasing domestic supply and reducing prices. As of February 26, 2024, 16 countries have implemented 23 food export bans, and 8 have implemented 15 export-limiting measures,” the report disclosed.

On heightened inflationary environment, the Group Managing Director, Dangote Cement, Arvind Pathak, stated that the company had implemented new and innovative business strategies that helped to drive up revenues, contain costs, and protect margins.

“These initiatives included fuel mix optimisation, propelling the use of alternative fuels to replace more expensive fossil fuels. We also began the phased transition from diesel power trucks to full Compressed Natural Gas (CNG) trucks,” he said.

Speaking the CEO, Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf explained to THISDAY that inflationary pressures remain a key concern in the Nigerian economy, both for businesses and the citizens.

He highlighted that implications of high inflation rate include escalation of production and operating costs for businesses, leading to erosion of profit margins, drop in sales, decline in turnover and weak manufacturing capacity utilization, high food prices which impacts adversely on citizens welfare and aggravates poverty.

He further stated that weak purchasing power, which poses significant risk to business sustainability and price volatility, which undermines investors’ confidence are major implications of high inflation pressure.

He explained that the major drivers of inflation and cost in the economy include exchange rate depreciation, which has a significant impact on headline inflation, “especially the core sub index and liquidity challenges in the foreign exchange market impacting adversely on manufacturing output.”

He added, “High transportation costs affecting distribution costs across the country. This is also reflected in the huge differential between farm gate prices and market prices; monetization of fiscal deficit (CBN financing of deficit) is highly inflationary because of the liquidity injection effects on the economy. This becomes worrisome when statutory thresholds are exceeded and high transactions costs at the nations ports increases production and operating costs of businesses.”