Dangote: Championing Africa to Africa investment
For years, African economists and analysts have bemoaned the negligible rate of ‘Africa to Africa’ trade and investment. From colonial times right through independence to present times, the bulk of the continent’s trade had been with Europe, and lately America and Asia. Inter-African trade has only improved marginally, despite the existence of several regional economic and trade communities. The statistics is stark: inter-African trade, at just 12% is the lowest in the world. In comparison, inter-European and inter-Asian trade stands at 60% while inter-American trade stands at 40%. What was more, the few cases of Africa to Africa investments are from mostly South African companies that were liberated with the demise of apartheid and the beginning of majority rule in South Africa in 1994.
African countries had always looked to Europe, America and Asia for investments and trade. But the investments were few and far between and the trades were structured to benefit the more affluent partners. Analysts have held the position that Africa needed to increase inter-African trade and investment if it ever hopes to develop. But those investments have not been forthcoming. Africans usually cite lack of capital for investments. Those Africans who have access to the capital, probably because of the illicit way the capital was acquired, preferred to stash them in far away countries or tax havens. Other businessmen cite often the investment risk that Africa has become. True, African countries are characterised by political and economic instability and there aren’t developed institutions and infrastructure to fully support businesses and investments. What is more, politics tends to trump all economic considerations and businesses.
However, there is now an emergent African business class of entrepreneurs willing and ready to explore the many vast investments and business opportunities that litter the landscape of Africa especially south of the Sahara. They sure realise the risks and booby traps littering the investment landscape of Africa, but they are determined not to change the trend, stop the over-reliance on Europe and American investments, and take charge of the collective destiny of the continent. Happily, a good number of these entrepreneurs and industrialists are Nigerians. Aliko Dangote is one, and perhaps the most energetic and forceful of the lot.
Dangote is an incredible dreamer and he had a sharp nose for smelling business opportunities! Sometime in 2007, at a time he was still battling to finish the building of his flagship Cement factory in Obajana, and at a time when Nigeria imported most of its cement, he began to dream about establishing an African conglomerate cement factory that will be producing cement simultaneously in most sub-Saharan African countries. After a painstaking study of the cement market in Africa, he discovered, to his amazement, that sub-Saharan Africa was just a cement dumping ground for multinationals. These global brands had always considered the continent as a risk climate for investment and had set up only skeletal manufacturing services (cement terminals and cement grinding plants which need very little investment) in select locations in the continent while reserving the major investments in integrated plants for Asia and the Far East.
This was a good business opportunity and he could take over the cement market in sub-Saharan Africa with determined investments. What was more, this was happening at a time when African economies were experiencing rapid growth with increasing spending on infrastructure. Of course, this meant more demand for cement. He therefore began to position himself to take advantage of the opportunity only him, it appears, could see. On a visit to the East African country of Tanzania, he enthusiastically shared that dream with an assortment of government and business leaders in the country. And to put his pocket where his mouth was, he instantly declared he was ready to make an investment of $600 million to build a cement factory in the Southern part of the country to alleviate the cement shortage in that country.
To his shock however, his presentations were greeted with pessimism. He was soon to discover his name does not ring a bell outside Nigeria. “They didn’t believe us at all. They thought I was one of these ‘Nigerian 4-1-9’ scammers who try to go and scheme people out of their money…or just one of these clever Nigerians who would come and be lying to them,” Dangote told Bloomberg in 2013. Not long afterwards however, his name appeared on the Forbe’s list of the World’s wealthiest people and the Tanzanians realised they had been dealing with Africa’s richest man and one of the richest men in the world.
Even after the deal was reached and the construction of the Cement factory started on May 27, 2013, it took the visit of the Tanzanian President, Jakaye Kikwete – who was in Nigeria for the World Economic Forum in 2014 – to the ultra modern Dangote Obajana Cement factory in Kogi state – to be firmly convinced that Dangote indeed meant business and has the capacity to translate his dream into reality.
Not that the Tanzanian plant was Dangote’s first cement factory outside Nigeria. In fulfilment of his dream, he began, almost simultaneously, the building of cement factories in 16 different African countries. Earlier in the year, he had commissioned a 2.5 million metric tonnes per annum capacity cement plant in Mugher district in Ethiopia, and another 1.5 million metric tonnes per annum capacity in Maisaiti district, Ndola, Zambia with a 3o megawatts of coal-fired plant to boot. Dangote also hopes to commission similar cement factories in Cameroun, Senegal and South Africa this year.
The new 3.0 mmtpa capacity Tanzanian plant, described by Tanzanian President as the largest in East and Central Africa and took a record 24 months to build, doubles the country’s cement production capacity to 6 million mtpa, making it to become one of the few African countries that have attained self-sufficiency in cement production with additional capacity to export to neighbouring East and Central African countries. This is a significant milestone for Dangote as a company, for Nigeria, and indeed for Africa.
In the beginning
From very humble beginning in 1978, Dangote started as a trading company and took advantage of the rising demands for various commodities. He engaged in the importation, distribution and sales of commodities like sugar, salt, cement, pasta, rice, vegetable oil, flour, steel rods, etc and export of agro-based commodities such as cocoa, gum Arabic, sesame seeds, cotton etc. The eventual abolition of the import licensing regime led to increase in the scope of the company’s operations. Unlike other companies however, Dangote was disciplined and ensured the reinvestment of retained earnings into the business. In addition, he concentrated on building the Dangote brand such that by 1997, it became the leading commodity trader in the company.
However, a trip to Brazil in 1997 and seeing very large manufacturing complexes in that country finally convinced him to go into manufacturing of virtually all the products he used to import. He had since the capacity for massive job creation inherent in manufacturing. What was more, Dangote had, by this time, began to think of the type of legacy he should leave behind in Nigeria. Manufacturing, beyond helping him to build his business and increase his revenue, would also contribute to the development of Nigeria and its economy. As early as 1999, the Dangote Flour Mill had begun operation. It was followed shortly in 2000 by the Dangote Sugar Refinery, which is the second largest sugar refinery in the world and the largest in Sub-Saharan Africa with a current production capacity of 1.44 mmtpa. Other production outfits like the Salt refinery, Agro Sacks Ltd and others soon followed.
The Big Break
The big break for Dangote however, came with the Obasanjo administration’s backward integration programme and his insistence that Cement importers should manufacture the product locally. Nigeria then was the largest importer of cement in the world, but with huge deposits of limestone and availability of local fuel. Local production was less than 30% of national consumption. Obasanjo gave the commitment to protect the industry from dumping through anti-dumping duties. To back up his determination, all existing government cement factories (which were all under-performing) were privatized. The policy also stipulated that cement importation licenses would only be allocated to importers with proof of building factories for local cement manufacturing in Nigeria.
For Dangote, this policy could not have come at a better time. He was already thinking of how to reverse the trend of cement importation in Nigeria and sub-Saharan Africa. He quickly bought the Federal Government’s 65% in the Benue Cement Company in Gboko in 2000 and in 2002, also acquired the government’s stake in the small cement plant in Obajana with vast deposits of limestone that could be progressively exploited for more than 100 years. UNICEM (a consortium which comprised of Flour Mills of Nigeria, Lafarge and Holcim) took over the federal government’s interest in Calcemco Cement. Lafarge later acquired stakes in Ashaka Cement Company in Bauchi.
Up until now, and even until 2008, Lafarge was the undisputed market leader in Nigeria with its two subsidiaries [Lafarge WAPCO (2.0mmtpa and Ashaka Cement (1.0mmtpa)] controlling around 63% of the sector’s installed capacity. But while Dangote proceeded with single-minded determination to invest in the ramping up production capacity, others were merely content to set up only skeletal local manufacturing while continuing with the profitable importation business. The reason for this is simple. Nigeria and the entire sub-Saharan Africa was a dumping ground for cement and clinker by the multi-nationals who had major cement investments in Asia and the Far East, and who considered sub-Saharan Africa an investment risk area. Their major investments in Nigeria and sub-Saharan Africa therefore consist of cement terminals and grinding plants – inexpensive investments to support cement dumping activities. Some of these importers even attempted to challenge the Obasanjo administration’s programme through various spurious court actions.
Growth, Challenges and Opposition
In 2000, shortly after winning the bid for FG’s stake in BCC, the government and people of Benue State faulted the process and indicated they are unwilling to let Dangote take over the company. The former governor, George Akume and former Industries Minister, Iyorchia Ayo, led the protests and they both promised that the last of their blood will be dropped in the take-over of BCC by the Dangote Group. They openly touted their preference for Lafarge because, according to them, Lafarge, as the world’s largest cement manufacturers, had a recognizable track record, whereas Dangote had not produced a single bag of cement before.
But an underlying reason, one which was never stated – publicly at least – was Dangote’s Fulani heritage. Dangote is a Fulani man from Kano State. The Tivs have been embroiled in a never-ending conflict with Fulani pastoralists over land and grazing rights. Quite a lot of them view the Dangote take-over of BCC as another attempt at total domination of the Tivs by the Fulani’s. To underscore their determination to oppose the take-over, Dangote was banned from entering the state or at least, Gboko – the town where the factory was located. A large section of the factory was even destroyed by a mysterious fire incident. As a last resort the state government went to court to prevent the take-over.
Dangote had to shift focus to building a brand new green-field cement factory in Obajana. By 2007, Dangote’s Obajana cement plant was commissioned. With an installed capacity of 10.25 million metric tones per annum, the two line plant was one of the largest standalone cement factory in the world. In 2012, another line with capacity of 5.25 mmtpa was added to the plant. A fifth line with 3.0mmtpa capacity is expected to come on stream by the end of 2015.
By this time, the Benue state government had no option than to allow Dangote take-over the BCC. In 2009, Dangote increased the Gboko plant’s capacity from 900, 000 to 3 million mtpa. The capacity was further increased to 4 million mtpa. In 2010, Dangote consolidate his cement business by merging the BCC with the Obajana plant to form Dangote Cement. Further still in 2012, the Ibese 6 million mtpa capacity plant was commissioned to serve the Lagos and South West market.
To put Dangote Cement’s rise into perspective, we may have to compare it with Lafarge. While Lafarge’s local installed capacity grew by a factor of 2.1x to about 6.3 mmtpa between 2000 and 2012, Dangote’s grew by around 21.4x to 19.3 mmtpa over the same period. Currently, it has a combined production capacity of 23.25 mmtpa making it the undisputed market leader in the Nigerian cement market with a 70% market share. Lafarge comes a distant second with 8 million mtpa capacity and controls 20% of the market. BUA group, incorporated in 2008, accounts for 10% of the Nigerian cement market.
Dangote cement is currently listed on the Nigerian Stock Exchange (NSE) and with a market capitalization of 3.1444 trillion naira (about $15.8 billion) ranks not only as the largest company on the NSE, but also ranks as the biggest quoted company in West Africa and the only Nigerian company on Forbes Global 2000 companies. Dangote plans to list the company next year on the London Stock Exchange.
Thanks to Dangote, Nigeria is currently self-sufficient in cement production and is even a net exporter of the product. The company is the best performer on the floor of the stock exchange and one of the most profitable cement factory in the world with sometimes a 60 per cent margin on Ebitda.
This has resulted in several complaints of the company monopolizing the cement market in Nigeria, running his competitors out of business and usually relying on political-induced waivers and restrictions to advance his business. So rife was the accusation that sometime in 2008, the Yar’adua reversed the backward integration policy of his former President Obasanjo by unbanning the importation of cement. Many expected Dangote Cement to suffer as a result of that action, but it had hardly made a dent in his business. Former Managing Director of Dangote Cement Devakumar Edwin has this to say on the trying perio:
“our business models never depend on any government protection. Risk analysis is a major focus in our company prior to any investment. In fact, we never depend upon any government patronage or any government contracts in any of our business activities… When Yar’adua government came, it totally opened up the importation of cement…it issued Import Lincenses for almost 18 million tones of cement, which was more than double the entire cement consumption of the country at the time. It happened just as we had commissioned the Obajana Cement Plant. If our business model had been based on the assurance of government protection in the form of import restriction or anti-dumping duty, we would have been wiped out and, probably, we would have been out of the cement business.”
Former President Obasanjo also agreed with reasoning when in 2012 he denied ever granting Dangote any waver noting, “he never had any waiver which others did not have. He only took advantage of the policy and it was made in the largest interest of all.” Yet the opposition voices continued. It was as if some Nigerians never expected and never wanted a very successful Nigerian entrepreneur and industrialists. So rife were the voices of opposition that it was being suggested that Dangote wasn’t a real businessman and cannot operate or survive outside Nigeria where he appears to have the policy makers in his employ.
Haven mastered the Nigerian market, Dangote wasted no time in moving to 16 other African countries. With Dangote Cement now operational or still under construction in Zambia, Tanzania, Ethiopia, South Africa, Congo (Brazzaville), Sierra Leone, Ivory Coast, Liberia, Senegal, Ghana, Congo (DRC) etc, his dream of dominating the cement market in sub-Saharan Africa is well undo way. Naturally also, the loud chatters and oppositions in Nigeria has quietened a bit. Indeed, if all goes according to plan, Dangote will triple its cement output to 61 million metric tonnes per annum by the end of 2017 and Nigeria will account for almost half of this figure. As Aliko Dangote himself said during the commissioning of the Zambian plant:
“Though this is a significant milestone for us as a company, we are also excited by the fact that it is an African company that is spearheading this economic revolution in a sister African country. This shows that Africa is gradually taking its destiny in its own hands rather than continue to wait for investors from outside the continent, as has been the case in the past. We are strong advocates of ‘Africans investing in Africa,’ and we are for now, using the cement sector, which is a key indicator of the state of economic development on the continent, as our launch pad. In due course, we will consider investing in other key sectors of the African economy. We believe this is the only way that Africa can achieve the much desired double digit growth rates, which will enable us to catch up with the rest of the world.”
But Dangote isn’t done with the Nigerian market. He’s always willing to propel economic growth by investing in any area of need. Recently, he is investing big-time in agriculture and rice production. He’s also finally decided to come to Nigeria’s aid to help the country stop fuel importation. It is on record that Nigeria currently imports most of the petrol it consumes as its refineries are old, dysfunctional and inadequate to meet local demand. Besides the billions of dollars that go into importation, the government subsidises the cost of petrol. In 2011, the cost rose to an unprecedented $8 billion dollars.
Since 2002, the government of former president Obasanjo had granted over 12 refinery licenses to investors but none of them (except the small Orient refinery in Anambra) had been able to build a refinery. The established multinationals like Shell, Mobil, Chevron, Total etc have declined several invitations to build refineries in the country because, as they claim, it is a business with very low margins and with excess production capacity the world over.
Unable to watch as the nation bleeds and export jobs and expend a major part of its revenue (more than the funds budgeted for education, health, agriculture and employment generation) only on subsidising imported petrol, Dangote has now built an ultra modern refinery and petrol chemical plant. The whopping $11 billion refinery, with a capacity of 650, 000 barrels per day in a single train (the largest of such in the world) and located around the Lekki free trade area in Lagos, will create about 20, 000 jobs alone during construction and much more after and will come on stream in 2008. The petrochemical plant will also produce 750, 000 metric tonnes of polypropylene per year and 2.8 million tonnes of fertiliser per annum.
Perhaps, when the refinery comes on stream and the company is making clean profit, we will have traducers accuse Dangote of dominating the market of oil refining in Nigeria and exercising unfair monopoly.
Christopher Akor