Every economic agent in Nigeria is truly experiencing the heat of high costs. From companies to households, nobody is spared. Companies operating in the country are counting their costs daily, and many have seen their margins shrink significantly.

At first, the rising costs seemed to be more pronounced for families and individuals. However, the rising cost of living is already taking a high toll on Nigerians, whether in the city or the village. Families have been on the receiving end of the cost-of-living crisis, which started about three years ago and became quite pronounced as the Ukraine-Russia war got underway.

Today, the issue of high costs is perhaps one of the biggest factors confronting corporate strategists. From where to source raw materials at lower costs to strategies for selling products at reduced costs, planners have had their hands full.

Recently, as part of a classroom discussion, I had the opportunity to analyse the published financial statements of NASCON Allied Industries Plc with a group of journalists during a training session. NASCON is Nigeria’s leading refiner and distributor of household, food processing, and industrial-use salt.

We examined the report for the financial year 2024 as an exercise in the practice of the art of financial report analysis to establish the factors that impacted the company’s activities during the period. For this company, the report indicated that while gross profit rose by 25 per cent to N55 billion, distribution expenses alone accounted for N23.7 billion. This represented a 25 per cent jump over its value in the previous year. Of course, this cost was from the operating and financing costs that the company still had to account for.

Looking at the revenue and cost elements of the company, which in many ways are typical of most industries, it is clear that a high-cost, high-revenue environment does not necessarily guarantee high profitability. In the case above, while the gross margin rose by 25 per cent, distribution costs also increased by the same margin. When one hears about ‘distribution costs” what comes to mind immediately is the new price regime of petroleum products. The ripple effect of that measure is still evident in all segments of the economy.

By the time the company factors in other costs, certainly, the net margin will fall further.  This may not be generalised for all sectors or industries. But for those with low margins in the normal course of business, certainly, periods of high cost such as we have now could see the margins compressed much more significantly.  Certainly, the manufacturing sector belongs to this category, unlike the services sector.

Indeed, there is no gainsaying that the Nigerian business environment has become extremely costly, with all operators grappling with rising costs across the board. By their nature, costs can make or mar companies. Differences in handling costs make great differences between profitable and unprofitable companies, even within the same industries or sectors.

In the same vein, MTN Nigeria announced its full-year report for the 2024 period on February 27, 2025. It showed a net loss of N400.44b, up from a similar loss of N137.02b in the year earlier.

Financial analysts blamed that loss on rising costs: currency depreciation, and high interest costs (with MPR at 27.50 per cent). This high interest rate has impacted the activities of companies in all sectors. For NASCON, finance costs rose 18 per cent; for MTN, they jumped by a whopping 82.2 per cent, while net foreign exchange losses rose by 25 per cent.

Recall that when the regulators of the Nigerian telecom sector approved a 50 per cent tariff adjustment for the service providers in the industry, the Nigerian labour groups rose against the measures and threatened to mobilise their members to go on a nationwide strike for the tariff adjustments. Now, imagine what it would look like for any operator in the Nigerian economy to be barred from adjusting its price.

Perhaps it was only in the command economies of the defunct socialist systems that costs would rise, and companies would be barred from adjusting the prices at which they could sell their products. This does not in any way negate the need for regulations or price monitoring. Price manipulation is unacceptable. In the same way, an indiscriminate upward review of prices is against the consumers’ interest. However, it would be wrong to bar a company whose costs are rising from adjusting its prices at least to reduce in consonance with its new cost environment.

The challenge before policymakers is, therefore, to implement measures to lower the general price level. Such a development must be the product of actions taken by the government and its agents. The announcement of a further decline in headline inflation to 23.18 per cent in February,  might sound like a welcome development. The inflation rate was 24.48 per cent in January, according to the NBS, having fallen from over 34 per cent last December, following the rebasing exercise. Yet, as this column has repeatedly said, let this report reflect the reality that the generality of the agents, producers and consumers alike, can identify with.