Health
Drugmakers’ finance costs jump 47% amid high interest rates
By Arinze Nwafor
Nigerian pharmaceutical companies listed on the Nigerian Exchange recorded a 46.5 per cent increase in combined finance costs in the first quarter of 2026, as high interest rates and growing reliance on debt continued to squeeze profitability across the sector.
For stock market-listed companies, finance costs (also called finance expenses or borrowing costs) are the expenses a company incurs from financing its operations through debt and certain financial obligations. They are reported in the income statement and are deducted from operating profit to arrive at profit before tax.
An analysis of unaudited first-quarter results by Sunday PUNCH showed that the combined finance costs of MeCure Industries Plc, Neimeth International Pharmaceuticals Plc and Morison Industries Plc rose from N2.09bn in the first quarter of 2025 to N3.07bn in the corresponding period of 2026, an increase of N972.96m.
The rise came amid a mixed bag of results for the companies, with some posting strong profit growth while others recorded near-stagnant earnings.
MeCure led the pack in both revenue and finance cost growth. The company’s finance cost rose by 49.5 per cent, from N1.75bn to N2.62bn, even as its operating profit nearly doubled from N2.57bn to N4.54bn within the same period.
Neimeth’s finance cost climbed by 31.6 per cent, from N334.1m to N439.5m, while its profit after tax grew marginally from N105.5m to N113.4m.
Morison Industries, on the other hand, kept its finance expenses flat at N4.86m but still posted a loss of N8.16m for the quarter, an improvement from the N18.55m loss recorded in the same period of 2025.
Beyond debt servicing, the companies also expanded investment in fixed assets during the period. Fidson Healthcare Plc grew its property, plant and equipment by 12.9 per cent, from N30.94bn to N34.93bn, within a single quarter, while MeCure’s fixed assets rose by 9.3 per cent to N44.41bn.
May & Baker Nigeria Plc’s fixed assets, on a year-on-year basis, grew by 24.1 per cent.
In separate telephone interviews with Sunday PUNCH, experts, including the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the rising finance costs recorded by the companies largely reflected Nigeria’s high interest rate environment rather than operational inefficiency.
“Anywhere we are seeing high finance costs is largely as a result of the high interest rate regime. Because if MPR is at 26.5, what do you expect as far as financing costs are concerned?” Dr Yusuf queried.
He explained that companies typically prefer equity financing to debt financing because of the cost of borrowing, and that firms which reported lower finance costs may have chosen to reinvest profits instead of taking on new loans.
“I believe that some of them have opted for more equity financing or reinvesting some of their profits to reduce borrowing costs, which may have been responsible for the lower borrowing costs that you saw in some of those industries,” Dr Yusuf said.
Meanwhile, the Manufacturers Association of Nigeria, in its Manufacturing State of Affairs 2025 report, repeatedly warned of the risks high interest rates pose to industrialisation in the country.
The group projected that in 2026: “The CBN is anticipated to implement further cuts in the benchmark interest rate to about 23 per cent, in line with the disinflationary trend and to stimulate credit expansion and output growth.”
That expectation remains unmet, as the Monetary Policy Committee retained the benchmark interest rate at 26.5 per cent after its meeting on July 21 and 22.
Yusuf also linked the improved performance of pharmaceutical firms to government fiscal incentives, including import duty concessions on raw materials and intermediate products granted to cushion the effects of economic reforms.
“The pharmaceutical companies were part of the beneficiaries of those import duty concessions, which meant that their costs had come down, and which has also increased their profitability,” the CPPE CEO remarked.
He added that the naira’s exchange rate stability had pushed up the cost of imported drugs, prompting more Nigerians to switch to locally manufactured alternatives, a shift that has benefited domestic pharmaceutical manufacturers.
“Most Nigerians are buying mainly Nigerian drugs and imported ones, largely because of cost. And that has benefited those pharmaceutical companies,” Yusuf said.
Taking a different perspective, Professor of Economics and Public Policy at the University of Uyo, Akpan Ekpo, said the rising finance costs also reflected broader structural challenges in the operating environment, particularly the cost of alternative power supply.
“When firms spend a lot of money to generate power, it will increase the cost of doing business,” Ekpo said.
He noted that Nigeria’s continued reliance on generators, in the absence of stable grid electricity, had continued to inflate operating costs for manufacturers, including pharmaceutical companies. “Nigeria is still in a generator-driven economy, and it’s affecting companies,” Ekpo said.
He said government intervention, such as dedicating power supply to industrial clusters, could help reduce the cost of doing business for manufacturers, adding that exchange rate policy also played a significant role in determining company costs.
“If the company is involved with importing inputs and they need forex, and the exchange rate is stable, but it’s stable at a higher level for the nature of our economy, so the company will spend more now to get dollars,” Ekpo said.
What the rising finance costs recorded by the companies represent may be either sound leveraged investment or a warning sign, depending largely on whether operating profit is growing fast enough to justify the additional debt burden.
MeCure’s near doubling of operating profit alongside its 49.5 per cent rise in finance cost suggests the company’s borrowing is being comfortably serviced by growth in its core business.
Fidson’s balance sheet, by contrast, shows a sharp rise in short-term borrowing and overdraft facilities alongside a decline in cash reserves, a pattern more consistent with liquidity pressure than expansion-driven investment.
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