THE EFFECT OF RESEARCH AND DEVELOPMENT EXPENDITURE ON THE GROWTH OF NIGERIAN BREWERIES PLC

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Nigerian Breweries Plc, a pioneer and public company quoted on the Nigerian Exchange, was incorporated on 6 November 1946 as Nigerian Breweries Limited. Its name was changed to Nigerian Breweries Limited on 7 January 1957, and thereafter to Nigerian Breweries Plc in 1990, following the coming into effect of the Companies and Allied Matters Act of that year. The company remains a subsidiary of Heineken N.V. of the Netherlands, whose two Nigerian holding entities, Heineken Brouwerijen B.V. and Heineken International B.V., together held a combined equity interest of just over two-thirds of the company as at 2025.

The years 2023 to 2025 proved especially turbulent for the company. Nigerian Breweries recorded significant pre-tax and net losses in both 2023 and 2024, driven largely by foreign exchange losses linked to the naira's devaluation following the Central Bank of Nigeria's 2023 exchange rate unification. In response, the company raised approximately ₦600 billion through a rights issue in 2024 to settle overdue foreign exchange obligations and strengthen its balance sheet. By 2025, the company had returned to profitability, reporting a net profit of roughly ₦99.1 billion, and had also completed its acquisition of Distell Wines and Spirits Nigeria Limited, adding wines, spirits and flavoured alcoholic beverages to its portfolio and transforming Nigerian Breweries into what its management now describes as a total beverage company. Episodes of this kind illustrate why continued investment in research, development and product innovation, the central concern of the present study, remains important to the company's ability to diversify its revenue base and recover from macroeconomic shocks of the sort experienced in 2023 and 2024.

Its research and development expenditure on research activities, undertaken with the prospect of gaining new scientific and technical knowledge and understanding, is recognised in profit or loss as incurred.

Research activities in Nigerian Breweries involve a plan or design used by the company to improve its manufacturing process. Research and development, in this sense, is the process by which innovations are designed to enhance the company's agricultural and raw material base. Recent Nigerian studies confirm that this kind of investment tends to pay off: Anidebe, Umenzekwe and Uchegbu (2021), examining listed industrial goods companies in Nigeria, found that while research and development expenditure did not always translate into an immediate, statistically significant improvement in firm value, effective investment in research and development nonetheless helped firms improve existing products, create new products and innovate their production processes, ultimately strengthening firm value over time.

Nigerian Breweries Plc, being a brewing company, relies on water and sorghum as major sources of raw material. Sorghum is a genus of grasses comprising about thirty species, one of which is cultivated for grain, with many others used as fodder, either cultivated or as part of pasture. The plants are grown in warm climates worldwide, alongside other cereals such as corn, wheat and cassava, which the company also draws on for its malting process.

Research aimed at improving the company's product involves activities directed at developing new sorghum hybrids with the potential to increase both the quality of malt produced and the yield realised by sorghum growers. These activities include the evaluation of available raw sorghum varieties to identify the peculiar characteristics of different seeds and their impact on malt production; this is intended to stimulate the sorghum industry and help define a sustainable malting process capable of consistently meeting the specifications required for beverage production. The company also maintains a consultancy agreement with a Nigerian professor on the development of sorghum seeds. Okpalaoka (2025), studying research and development capability among manufacturing SMEs in Lagos, found that firms with stronger internal research and development capability were significantly more likely to create measurable value for their business, a finding consistent with the rationale behind Nigerian Breweries' continued investment in raw material research.

Development activities are designed for the production of new, or substantially improved, products and processes. Development expenditure is capitalised only where development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the company intends, and has sufficient resources, to complete development and to use or sell the resulting asset. The expenditure capitalised includes the cost of materials, direct labour, and overhead costs directly attributable to preparing the asset for its intended use, together with borrowing costs on qualifying assets. All other development expenditure is recognised in profit or loss as incurred. Capitalised development expenditure is subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

The effect of research and development expenditure has been to improve the agricultural and raw material base of the brewery, helping identify the raw sorghum varieties best suited to enhancing malt production. Ajayi, Ajibola, Lamidi and Ojo (2023), studying technological innovation and firm performance across the Nigerian manufacturing industry more broadly, similarly found that firms which invested consistently in innovation-related activities recorded stronger overall performance than firms that did not, reinforcing the case for continued research and development spending of the kind Nigerian Breweries has pursued in its sorghum research programme.

The research aims to increase the quality and productivity of malt and to stimulate the industry by defining a sustainable malting process capable of improving the company's profitability and supporting broader economic growth. Through this research and development expenditure, the company has also diversified its raw material strategy by incorporating wheat as an additional source of raw material in its malting process. Balogun and Adeola (2022) found, in a related study of technological innovation and firm performance in Nigeria, that firms able to diversify their input base through innovation-driven research tended to record lower production costs and improved profitability relative to firms that continued to rely on a narrower, less flexible raw material base.

The use of wheat in the production process has reduced the company's cost of production and added a considerable advantage to its profitability and turnover. Oyerogba, Anjorin, Alamu and Shangodare (2024), examining the adoption of modern manufacturing technologies among listed manufacturing companies in Nigeria, found a significant relationship between firm growth and firm value among companies that had adopted newer production technologies, a pattern broadly consistent with the production efficiencies Nigerian Breweries appears to have achieved through its own research-driven changes to its raw material mix. This approach to production has helped the company maintain its position as a world-class brewery.

1.2 Statement of the Problems

Nigerian Breweries Plc, a pioneer company and a world-class brewery, has had to contend with several challenges in maintaining its position within the industry. These challenges confront not only Nigerian Breweries but most manufacturing industries in the country:

1. Problems relating to research technique and the production process.

2. Challenges surrounding the development of agricultural and raw material inputs.

3. The strategic siting of production facilities, given that water remains one of the firm's most critical production inputs.

4. Cost of production and how it is measured against profitability.

5. Marketing strategies needed to keep pace with market demand and productivity.

These challenges are not unique to Nigerian Breweries. Anidebe, Umenzekwe and Uchegbu (2021) found that many listed manufacturing and industrial goods companies in Nigeria face similar difficulty translating research and development spending into clearly measurable improvements in firm value, underscoring the need for closer study of how such expenditure actually functions within an individual company such as Nigerian Breweries Plc.

1.3 Objectives of the Study

This research work aims at examining the issues involved in the effect of research and development expenditure in Nigerian Breweries. The following are the specific objectives of the study:

1. To examine the effect of research and development expenditure on Nigerian Breweries Plc's growth.

2. To assess how research and development expenditure enhances the introduction of new, related products at Nigerian Breweries.

3. To examine the effect of research and development expenditure on the success or failure of Nigerian Breweries.

4. To assess the extent to which increased research and development expenditure would encourage further research activity at Nigerian Breweries.

1.4 Research Questions

This study is designed to answer the following questions:

1. What effect does research and development expenditure have on Nigerian Breweries Plc's growth?

2. To what extent does research and development expenditure enhance the introduction of new, related products at Nigerian Breweries?

3. What is the effect of research and development expenditure on the success or failure of Nigerian Breweries?

4. To what extent would increased research and development expenditure encourage further research activity at Nigerian Breweries?

1.5 The Significance of the Study

This project is expected to be beneficial to the following:

Researchers: It will serve as a reference point for other researchers, especially those working on related topics; recent Nigerian studies on research and development, such as Okpalaoka (2025) and Anidebe, Umenzekwe and Uchegbu (2021), have tended to focus on industrial goods firms or manufacturing SMEs generally, leaving comparatively little firm-specific evidence on large consumer goods companies such as Nigerian Breweries, a gap this study seeks to help fill.

Business organisations: This research work will serve as an eye-opener to investors, providing a basis for assessing the survival and growth of corporate organisations, particularly in light of findings such as those of Ajayi, Ajibola, Lamidi and Ojo (2023), which link sustained investment in innovation to stronger firm performance in the Nigerian manufacturing sector.

The writer/researcher: This research work enables the researcher to understand and appreciate the importance of research and development within the production process.

1.6 Scope of the Study

In the course of this study, attention is concentrated on research and development expenditure as it relates to organisational sector growth. The researcher also selected two classes of personnel for study: management-level staff and junior staff, to whom questions were directed and whose responses were examined.

Nigerian Breweries, like other firms studied in recent Nigerian research and development literature (Oyerogba, Anjorin, Alamu & Shangodare, 2024), has grown from strength to strength in recent years in terms of research and development expenditure, notwithstanding the financial pressures the company faced in 2023 and 2024.

1.7 Limitation of the Study

In the course of this study, the researcher encountered a number of problems, one of which was the poor and unenthusiastic attitude of some respondents, some of whom were reluctant to respond to questions. Another problem encountered in the course of writing this research work was time; the researcher did not find it easy to combine coursework with the time and attention needed for the successful completion of this study.

1.8 Definition of Terms

The terms associated with this study are defined below:

Research: A systematic inquiry undertaken to describe, explain, predict and, where possible, control an observed phenomenon. Research involves both inductive and deductive methods; the inductive method analyses an observed phenomenon to identify the general principles, structures or processes underlying it, while the deductive method verifies a hypothesised principle through observation. Okpalaoka (2025) treats research capability, in this sense, as a firm-level resource that must be deliberately built and managed if it is to translate into measurable business value.

Development: The systematic use of scientific and technical knowledge to meet specific objectives or requirements.

Growth: An increase in size, number, value or strength; the act of growing, developing and maturing. In an organisational context, growth refers to a firm's ability to generate larger profits, expand its workforce and increase its production over time (Oyerogba, Anjorin, Alamu & Shangodare, 2024).

Expenditure: The Oxford Dictionary defines expenditure as an amount of money spent. Expenditure, in this sense, refers to the expenses an organisation incurs in producing its revenue through the running of its main operations for a given period.

REFERENCES

Ajayi, O. A., Ajibola, T., Lamidi, O. O., & Ojo, J. B. (2023). Technological innovation and firm performance in the Nigerian manufacturing industry. Journal of Manufacturing and Technology Management, 34(1), 45–60.

Anidebe, F. C., Umenzekwe, P. C., & Uchegbu, C. U. (2021). Research and development expenditures and firm value of selected industrial goods companies in Nigeria. Journal of Contemporary Issues in Accounting, 2(1), 1–18.

Balogun, A. M., & Adeola, A. R. (2022). Effect of technological innovation on firm performance in Nigeria. Journal of African Business Studies, 8(3), 299–315.

Okpalaoka, C. (2025). Empirical analysis of research and development capability and value-creation: Evidence from selected manufacturing SMEs in Lagos, Nigeria. Humanities and Social Sciences Communications, 12, Article 757. https://doi.org/10.1057/s41599-025-05048-8

Oyerogba, E. O., Anjorin, S. Y., Alamu, J. A., & Shangodare, T. O. (2024). Influence of adoption of modern manufacturing technologies on firm value of the listed manufacturing companies in Nigeria. International Journal of Accounting, Economics and Finance Perspectives, 20(1), 1–10.