***As cost of operations rises
***Dangote Cement, UACN lead inventory build-up
***Financial experts give more insight, proffer way out
By Peter Egwuatu
Manufacturing companies across sectors listed on the Nigerian Exchange Limited, NGX, entered the second quarter of 2026 with combined inventories (unsold goods) of about N1.77 trillion, even as their cost of sales rose to N1.43 trillion, highlighting the growing financial pressures confronting businesses and consumers.
Financial Vanguard findings show that combined inventories increased by 10.6 per cent, Year-on-Year, YoY, against first quarter, Q1’25, which was N1.597 trillion.
Over the same period, their combined cost of sales climbed by 13.7 per cent, from N1.261 trillion to N1.434 trillion.
The figures indicate a manufacturing environment in which companies are carrying substantially more stock while simultaneously facing higher cost of producing and selling their goods.
The inventory build-up cuts across consumer goods, building materials, agriculture, food processing and other manufacturing-related businesses.
However, the data also show significant differences among companies, suggesting that inventory accumulation is being driven by a combination of factors, including production requirements, changes in demand, input costs and company-specific business conditions.
Cost of inventory
Among the companies examined, Dangote Cement had the largest inventory position at N703.58 billion in Q1’26, compared with N671.55 billion in Q1’25, representing a 4.8 per cent increase.
UACN recorded one of the sharpest increases, with inventories rising by 231.8 per cent to N189.55 billion from N57.13 billion.
Okomu Oil Palm followed with a 90.3 per cent increase to N39.90 billion, while Livestock Feeds rose 35.9 per cent to N9.14 billion.
Inventories at PZ Cussons increased by 29.7 per cent to N69.37 billion, while Beta Glass rose by 28.8 per cent to N25.21 billion. Vitafoam’s inventory increased by 12.3 per cent to N23.20 billion.
Other companies recorded moderate increases. Lafarge’s inventory rose by 7.3 per cent to N110.64 billion, Presco increased by 3.6 per cent to N58.90 billion, while International Breweries rose by 2.2 per cent to N95.83 billion.
However, some manufacturers are recording declines in inventory.
Northern Nigeria Flour Mills recorded a 34.6 per cent decline to N31.46 billion, while NASCON Allied Industries fell by 17.1 per cent to N14.34 billion.
Cadbury Nigeria’s inventory dropped by 16.9 per cent to N27.14 billion, Unilever Nigeria fell by 7.7 per cent to N23.42 billion, Nestlé Nigeria declined by 7.3 per cent to N167.84 billion, while Nigerian Breweries fell by 6.7 per cent to N171.92 billion.
Cost of production
While inventories increased by 10.6 per cent, cost of sales expanded at a faster pace of 13.7 per cent.
If this trend is sustained, it could squeeze gross margins significantly unless manufacturers are able to pass higher production and distribution costs on to consumers through higher selling prices or achieve sufficient efficiency gains.
Dangote Cement recorded a cost of sales of N448.73 billion, up 10.2 per cent from N407.27 billion.
Nigerian Breweries recorded N233.16 billion, an increase of 7.4 per cent, while Nestlé Nigeria’s cost of sales rose by 10.8 per cent to N194.07 billion.
UACN recorded the biggest percentage increase in this dataset, with cost of sales rising by 226.8 per cent, from N41.75 billion to N136.41 billion.
PZ Cussons’ cost of sales increased by 51.1 per cent to N25.04 billion, while Champion Breweries rose by 90 per cent to N8.20 billion.
On the positive side, some companies succeeded in reducing their cost of sales. NASCON recorded a 21.1 per cent decline to N18.89 billion, while Northern Nigeria Flour Mills’ cost of sales fell by 35.9 per cent to N5.95 billion.
Okomu Oil Palm recorded a 24.5 per cent reduction in cost of sales to N11.70 billion, while International Breweries’ cost of sales declined by 9.1 per cent to N103.61 billion. Cadbury Nigeria, however, recorded a 15.4 per cent increase, while Unilever’s rose by 15.8 per cent.
Analysts’ views
Commenting on the increase in inventories, Fiona Ahimie, President, Chartered Institute of Stockbrokers, CIS, explained that the development reflects a combination of supply and demand-side factors.
She stated: “The increase in inventories reflects a combination of supply side and demand side factors. Many manufacturers have made significant investments to improve production capacity over the past year as operating conditions became more stable and access to foreign exchange improved. As a result, production has increased.
“However, demand has not expanded at the same pace. Although inflation has moderated, prices remain elevated relative to household incomes, which have continued to weigh on consumer spending.
‘‘Many households are still prioritising essential goods and cutting back on discretionary purchases. Businesses are also becoming more cautious with inventory management and procurement decisions.
“There is also a degree of deliberate inventory buildup by some manufacturers who expect stronger demand in the coming quarters.
‘‘So, while higher inventories may suggest slower sales in some cases, they can also reflect strategic positioning in anticipation of improved market conditions.”
On production costs, Ahimie said manufacturers have continued to operate in a high-cost environment despite some improvements in macroeconomic conditions.
She stated: “Energy remains one of the biggest cost drivers, with many companies still relying on alternative power sources. Transportation and logistics costs also remain elevated, while the prices of many raw materials, both imported and locally sourced, have remained relatively high.
“Interest rates have also stayed at elevated levels, increasing the cost of financing working capital and expansion. While exchange rate stability has reduced some of the uncertainty around imported inputs, businesses are still adjusting to the higher cost structure that followed the exchange rate reforms.
“These factors have combined to keep production costs under pressure, even though the pace of cost increases has become more manageable compared to previous periods.”
On what the government can do to reduce production costs and strengthen purchasing power, Ahimie said improving infrastructure, particularly electricity and transportation networks, should be a priority.
“Reliable power alone would significantly reduce production costs for manufacturers that currently depend heavily on generators,” she said, adding that policy consistency was equally important because businesses make long-term investment decisions based on predictable policies.
She also called for greater access to affordable financing, especially for manufacturers and small and medium-sized enterprises, noting that lower financing costs would support investment, productivity and competitiveness.
On the demand side, she said policies supporting job creation, improved real incomes and sustained lower inflation would strengthen household purchasing power.
“As consumers regain spending capacity, manufacturers will experience stronger demand, inventories will decline naturally, and production will become more efficient,” she stated.
David Adonri, Managing Director, Highcap Securities Limited, attributed the inventory build-up partly to inflation and declining consumer purchasing power.
He stated: “Inflation started spiking this year, resulting in erosion of purchasing power by consumers. Consumer pull was adversely affected. Nigeria’s economy is majorly import dependent and rising global inflation emanating from Iran War infiltrated into domestic manufacturing cost.
‘‘Rising domestic energy and distribution were other cost-push factors. Insecurity crippled several domestic sources of raw materials.’’
On measures to reduce unsold goods and production costs, Adonri said boosting aggregate demand would be difficult without first addressing inflation and supply constraints.
“Insecurity is another albatross stifling supply. Peace and progress go hand in hand. Without solving the insecurity challenge, the rural economy cannot function and help to close the supply gap notwithstanding an increase in public and private spending.
“After restoring a firm order nationwide, aggregate demand can be boosted in the strategic sectors of the productive economy.
‘‘These are what can revive the economy, lower production costs and enhance consumers’ purchasing power,” he said.
In his own remarks, Olatunde Amolegbe, Managing Director, Arthur Steven Asset Management Limited, said the increase in inventories was likely the result of both demand- and supply-side dynamics.
Although inflation has moderated significantly from a peak of 33.4 per cent in 2024 to 15.91 per cent as of June 2026, he said the effects of the previous period of elevated inflation continued to weigh on household purchasing power.
“Consumer demand is gradually recovering but remains below the pace required to absorb production, particularly for discretionary and non-essential goods,” Amolegbe said.
He also noted that the monetary policy environment remained restrictive, with the Monetary Policy Rate, MPR, maintained at 26.5 per cent at the Monetary Policy Committee meeting of July 22, 2026.
“High financing costs continue to constrain consumption, inventory financing, and business expansion,” he said.
He stated: ‘‘Many manufacturers have sustained production to preserve market share, meet distribution commitments and maintain efficient capacity utilisation.
‘‘However, sales growth has not kept pace with production, resulting in inventory accumulation.
‘‘Some manufacturers may also be maintaining higher inventory levels as a strategic buffer against potential supply chain disruptions or future increases in input costs’’.
On production costs, Amolegbe said manufacturers continued to face structural cost pressures despite greater exchange-rate stability.
“Many manufacturers continue to experience the lagged effects of earlier currency depreciation, particularly those that rely heavily on imported raw materials, machinery, and industrial inputs,” he said.
He added that energy costs, logistics, transportation and utility expenses remained relatively high, while elevated interest rates had increased financing costs for working capital and capital investment.
On the way forward, Amolegbe said government policy remained critical to improving the competitiveness of Nigeria’s manufacturing sector.
He called for continued investment in reliable power supply, transportation infrastructure and logistics networks, as well as expanded access to affordable financing for productive sectors.
He also advocated support for local sourcing of raw materials through backward integration initiatives and targeted fiscal incentives for manufacturers.
“On the demand side, policies that promote employment, improve productivity, and support sustainable growth in real household incomes would strengthen purchasing power and stimulate consumer demand, helping manufacturers reduce inventory levels,” he stated.
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