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Dangote: Powering Competition

Dare to transit next five years into the year 2020, then, you will see that Alhaji Aliko Dangote, 57, today is still far from the real riches his enterprise shall deliver. Like Nigeria, the Kano prince with the Midas touch, acclaimed to be the richest African, is a potential warming up to scoop much bigger, mind boggling money hauls far more than he currently makes across the globe.

At his ascending rate in cash takings, he was worth $11.2billion in March 2013, by April 2014 he hit $16.1billion and this month, April 2015 he is worth more than $25billion, Dangote can well be penciled down as the sure African for the league of ten richest persons in the world.

Prior to date, his money yielding ventures, mostly located in Nigeria, can best be mini enterprises compared to his new schemes. He is daring and affirmative in his bid saying “we don’t want 100 percent of our income to be coming from Nigeria. What we have done as a group is to say that at least in the next four years, minimum of our income should be 60 percent outside Nigeria and 40 percent from Nigeria, so that we can have baskets of different nature in Nigeria and Africa.” DANGOTE_dangote4 (2)

Known ongoing projects of the Dangote Group, a well-diversified conglomerate of 18 major subsidiaries in Nigeria include:

  • The Lagos OKLNG Free Trade Zone Refinery/Petrochemical and Fertilizer complex, the largest industrial complex ever in Nigeria that will produce 2.75 million tons of urea and ammonia yearly, while the refinery will have the capacity to process 400,000 barrels of crude oil per day. The refinery will produce gasoline, diesel, aviation fuel, household kerosene, slurry as raw material for carbon black, as well as 650,000 million tons of polypropylene yearly. The complex will cost a total of $13billion. The project on completion in 2017 shall transit Nigeria to self-sufficiency in fertilizer and refined petroleum products. The country now a net importer will become a leading exporter of the products
  • Gas pipeline infrastructure investment in a dual sub-sea gas pipeline, each of 500 kilometres length to ferry 2 billion standard cubic feet off shore gas per day, which could reshape the entire power generation structure for manufacturers in the country.

Diversification into telecommunication with the building of 14,000 kilometres of fibre optic cables to service the whole of Nigeria and as carrier of third generation 3G wireless infrastructure distribution network Dangote Group is developing with the Power Holding Company of Nigeria, PHCN, as partner to leverage on existing power distribution network.

  • The $7billion investment programme for the power generation and mining sectors that will also boost the national grid with 2GW of power.
  • Aside from running Nigeria’s largest cement manufacturing operations with a  production capacity of 19 million tons a year in Nigeria -10million tons at Obajana plant in Kogi State, the largest in Sub-Saharan Africa, six million tons at Ibese plant in Ogun State and four million tonnes at its Gboko plant, in Benue State – Dangote Cement Plc is investing more than $4billion to expand its production and import capacity to around 50 million tons a year by the end of 2015, with expansions at Ibese and Obajana, and new factory in Calabar, in Cross River State.
  • A $2billion fertilizer project in Edo State, the largest Fertilizer plant in Africa
  • Cultivation of 150,000 hectares of land accumulated across five states of Edo, Kebbi, Niger, Jigawa and Kwara, designated as the Staple Crop Processing Zone, SCPZ,  for the $1.3billion rice plantation/rice processing mill project to produce 960,000 metric tons of rice by 2018 and make Nigeria a net exporter of rice.
  • Integrated mega sugar plantation and sugar refinery projects in the seven states of Adamawa, Taraba, Jigawa, Kogi, Kebbi, Sokoto and Kwara. When completed in five years, Nigeria will become self-sufficient in sugar production with the $9billion investment that will create 75, 000 jobs producing 22million tonnes of sugar cane and 2.4million tonnes of sugar yearly. As date Dangote Group supplies 70% of the total sugar consumption for industrial and household use in Nigeria.
  • The $200million oil palm processing plant in Cross River State.
  • The ultra-modern pineapple processing factory at Oban community in Akampa Local Government in Akwa Ibom State, which will be the largest in Africa.
  • The 1,200 metric tons per day tomato processing plant in Kadawa, Kano State.DANGOTE_dangote (2)

When these upcoming projects are joined to his vast existing operations, in Nigeria a country he describes as the best kept global investment secret, then, we see the man knows what do to harvest more money beyond his: Fertilizer, Cement, Sugar, Rice, Flour, Salt, Pasta and Noodles, Tomatoes, Oil palm, Vegetable oil, Beverages, Real estate, Oil and Natural gas, Packaging materials, Logistics and Haulage, Telecommunications, Steel, and Ports operations. There is also export of agro-based commodities such as ocoa, gum arabic, sesame seeds, cotton, cashew nuts, millet ginger and leather products to several countries. Dangote Group also imports fish and owns three big fishing trawlers chartered for fishing with a 5,000 MT capacity. Before his move into petro products refining, Dangote has been active upstream as reference local investor with interests in different offshore blocks Nigeria together with Anadarko, Chevron, ExxonMobil, Petrobras and Statoil.

Daunting, it will be easy to see how Dangote Group’s bullish operations into 16 African countries and his cement company’s long-delayed overseas listing shall soon begin to yield mind boggling returns. His ventures span the Asian countries, Europe, Latin America, USA and the Gulf States, while bids in Iraq and Burma are works in progress. Aliko Dangote’s interests not only straddles the BRIC countries of Brazil, China, India and Russia, today’s world growing economic giants, he is the dominant business player in the top MINT countries of Mexico, Indonesia, Nigeria and Turkey, the emerging global economic power houses with the best youth demographics to support growths of presently unimaginable proportions.

Global partnerships

The Dangote Group also enjoys enviable repute and this has been drawing major investors into African to see a partner in the man Dangote. Steve Schwarzman’s Blackstone Group another fortune 500 billionaire says: “We’re aware that operating in Africa isn’t as easy as many other places. You have to have a very strong local partner, and we were lucky enough to find Aliko. He’s done a remarkable job and David Rubenstein of the Carlyle Group, sought out Dangote as well when raising money for his firm’s first sub-Sahara-focused fund in 2012. Dangote ultimately invested in the $700 million fund. “His name carries a great deal of weight,” Rubenstein says.

The Dangote Group’s subsidiaries include: ALCO International Limited, Dangote Nigeria Limited, Dangote Transport Limited, Dangote Cement Plc. (Listed on Nigeria Stock Exchange) , Dangote Salt Company of Nigeria Plc. (Listed on Nigeria Stock Exchange), Dangote Flour Mills Plc. (Listed on Nigeria Stock Exchange), Dangote Sugar Refinery Plc. (Listed on Nigeria Stock Exchange), Dangote Oil & Gas Industries International, Dangote Textiles Limited, Dangote Pasta Plant Limited, Dangote Holdings Limited, Blue Star Limited, Dansa Foods Limited, Dangote Agro Sacks Limited, Dancom Technologies, GreenView International Company Limited, Alheri Engineering Limited, and Kura Holdings Limited.

The Dangote Group’s model relies largely in exploiting opportunity of scale in areas of core competence, importing big time to significantly dominate the markets and industrial sectors of play after thorough risk analyses. He backwardly integrates from import to manufacturing by buying, building and expanding massive large scale industrial facilities that are usually the biggest in the countries of operations, when not biggest in Africa or the world.  Some of his acquisitions in Nigeria include the National Salt Company of Nigeria, Savannah Sugar Company, Osogbo Steel Rolling Mills, Nigerian Textile Mills and Benue Cement Company all of which he has considerably expanded far beyond when he bought. Dangote trades mainly commodities and majorly in sectors that yield high Returns on Investments, ROI, far in excess of 100% in the African countries that deliver best return in the world, beyond the flat five percent growth rate of the developed world. These are being replicated in the African countries of: Tanzania, Ethiopia, Senegal, Sierra Leone, Cameroon, Kenya, Zambia, South Africa, Republic of Congo, Mali, Gambia, Chad, Central African Republic, Gabon, Equatorial Guinea, and Togo.

Passion for Africa

Dangote Group pursues African economic revolution and gets global acclaim for its efforts. Its founder/president, Aliko Dangote, knows only Africans can develop and emancipate the continent from its triple obstacles of poverty, ignorance and disease and fired by the African esteem as “indomitable people” he has been souring above the storm like the eagle, totem of his corporate logo. To Dangote, this is Africa’s moment that must be seized. Africa is the high-growth markets in the world, with 54 countries and a population of 1billion, about 14% of global population. His foundation base, Nigeria, the most populous African country and sixth most populous nation in the world, 170 million people, has abundant human and natural resources with a large market and growing middle class. With a predicted consumer spending in 2020 as $1.4 trillion, by the McKinsey Report 2010.DANGOTE_countries (2)

These statistics flaunted by Dangote Group at its office in highbrow Lagos is what fuels the passion of Aliko Dankote, a man with strong local knowledge of Africa, which makes investing in Africa easy for him as one who loves being a pace setter and pioneer. He invested in cement companies when Nigeria was solely dependent on cement importation and Dangote Group’s massive investments come as first from an African Group into other African countries.

To justify his decisions, he says “For any business, it is not good to do only one line of business, only in one country. The best thing to do is to take your business into several other countries, so that even if issues should arise, it will not affect your bottom line, which is your turnover and your profitability. That is the main reason why we try to look at other countries in Africa. In Africa, we have problems of infrastructure, going forward in the next couple of years, there will be a lot of developments in terms of infrastructure, housing, dams, roads, you name it. We decided to focus on that.

“We are motivated to create an African success story because we believe that entrepreneurship, especially our own home-grown African entrepreneurship, holds the key to the future economic growth of the continent.”

Dangote Group forages into Africa with great focus and impactful investments, the acquisition of 64% equity in the Sephaku Cement (Pty) Limited based in South Africa, the establishment of cement plants in Zambia and Cameroon are just tips of the group’s drills into the growing economies where development projects in construction are upcoming on a large scale.

That Dangote is passionate about Africa’s economic potential is an understatement. He is determined to make his mark and one of his credo is “nothing is impossible.” On this thrust he controls 70% of the Nigerian sugar market, 53% of the cement market, 75% of the salt market and the Dangote Group, is one of the 40 African companies with the potential to rival Fortune 500 Companies. His Dangote Cement alone, the only Nigerian Company on Forbes Global 2000 has 30% of the total market capitalization on the Nigerian Stock Exchange. As he says, “passion is what drives me forward”.

In his submission, he insists the business climates in Nigeria and other parts of Africa have improved tremendously over the years. Political stability has been largely responsible for this. African governments are also paying greater attention to the economy by addressing hindrances to business; he noted that some African countries perform better than other emerging market regions in the World Bank’s most recent Ease of Doing Business rankings. For instance, while corruption no doubt remains a big challenge in Africa, 14 African countries ranked higher than India, and 35 higher than Russia, in Transparency International’s Corruption Perceptions Index

On cement

The aim is to build a world- class African company, with market capitalisation of $50bn, by 2015. He enthused “Our long term ambition is to develop 46 million metric tons of production and terminal capacity in Africa by 2015. We want to become a truly pan-African cement champion competing globally with the largest cement companies in the world. We are also motivated by the fact that Africa’s business opportunities are potentially very large, particularly for companies in infrastructure-related industries. This growth in infrastructure will only increase demand for cement. Our development plans are carefully designed to address the current gap between supply and demand.

“We are currently consolidating our cement businesses across Africa to reap the benefits of scale. Our intention is to consolidate our cement assets into one company that will have the scale and resources to compete globally.

“The listing of Dangote Cement Plc on the Nigerian Stock Exchange (NSE) in October 2010 is part of this strategy.”

Future direction

The leading producer of cement in Africa is a moving target, looking further than being the cement giant; Dangote wants some form of consolidation and focus on new areas that include rice farming, agriculture, mining, fertilizer, petrochemicals and infrastructure. Just like the group did some years back when it partially pulled out of some small manufacturing industries like flour to concentrate on cement, mining, fertilizer, petrochemicals, infrastructure, power and road construction, one of its future direction is agriculture and agro allied businesses.  Dangote Group is excited that the Sub-Saharan Africa, apart from Brazil, has the largest  arable land and is also blessed with huge quantity of water for irrigation. The projection is Africa would become the bread basket of the world in the next 20 years as the world could be running short of water and would need adequate arable land unlike Sub-saharan Africa. When that time comes, Dangote Group wants to be well entrenched on the field.

Political influence

Dangote Group deploys prime efforts to tell the public its success was mainly due to the vision and foresight of the founder, Aliko Dangote, not on political connections. His perceived close links to successive governments helps to protect his businesses but it does not confer on his companies’ further advantage.

“If you are successful in Africa, you are bound to be attacked from here and there. There will be people who say that, without government support, there is no way this guy can make money.” He explains in an interview with Daily Sun newspaper: “It is better for us to try and have a good policy and also keep engaging government officials so that they can come up with friendly policies. It is a question of direct concern, if you have a big business, will you prefer to be a friend of the government or will you rather be an enemy of the government? Government is too powerful, you cannot fight the government. You don’t expect a company of our type, or business of our type to now be anti-government. It is in my best interest to contribute towards the growth of Nigeria first, before contributing to my own company, because my own company has limitations. Nigeria must do better for Dangote to do well in terms of business.”

But many are not led by this explanation, the April edition of Forbes magazine says the US State Department cable unearthed by WikiLeaks, says Dangote “held exclusive import rights in sugar, cement, and rice, using such advantages to do volume business and undercut competitors.” Though Dangote flatly denies this, as the magazine acknowledged, it went on to paint a less than fair filed picture of the relationship between former Nigerian president Olusegun Obasanjo and Dangote, Forbes wrote: “Obasanjo… worked overtime to ensure that any Dangote challenger who entered the market did so with a significant handicap. At the time Dangote’s sugar and flour companies went public, raw sugar was taxed 12 times less than refined sugar, wheat six times less than flour. Dangote Cement prospered from restrictive licenses. The companies retain a vice-like grip on their industries today, controlling at least half of the cement and sugar markets and about 25% of flour. “When Obasanjo took over, he took guys with him,” says a Nigerian belonging to the country’s overlapping circle of business and political elites. “He gave them a leg up.”

But Devarkumar V. G. Edwin, an executive director who has been working with the group for 23 years now in a recent newspaper interview says:  “We never got any special concession from the government; we have always been availing only the concessions available under the law to all the industries; we have never sought for or received any exclusive concessions and, we do not want any exclusive concessions for our company.

“If you seek special concession from the government, whenever there is a change in government, you will be exposing yourself to a danger as the succeeding government will look upon you as a friend of the previous government.  This can hurt your business,” he explains, saying: “One can be friendly with those who are in power, to prevent them from harassing you for no reason but, never try to use that relationship to avail business concessions.

“To be fair, under the prevailing laws, the government has already provided so many concessions, to the manufacturing sector.  We hear many times business men complaining about lack of infrastructure but, the law provides pioneer status tax concession and capital allowance.  Take for example our Obajana Cement Plant; we had no gas available nearby and we invested in a 90 kilometres long, 18 inches diameter gas pipeline; there was no ground water available and we constructed a dam; there was no housing infrastructure available and we constructed 700 houses; when we started, there was no telecommunication facility available and we bought Satellite telephones and installed Satellite connections for data communication; we had to construct a 3 kilometres by-pass road; there was no power available and we have installed a 225 megawatts capacity gas turbines based power plant.  Yes, we had to massively invest in infrastructure but the law permits to capitalize these investments and claim capital allowance.

“Investors should avail the tax benefits and concessions provided under the law and invest in the required infrastructure.  This helps both the investor and the country.  If you need superb infrastructure readily available, you should go and invest in Europe or US but, you would get three per cent to five per cent returns, whereas, here you will get better returns.  As such, you have the option either to invest in countries where everything is available but gives you minimum returns or invest here where you have to make a provision in your project cost for infrastructure but get better tax benefits and better returns.

The Challenges

As Dangote plays the Afrocentrist capitalist ambassador, he has good advice for entrepreneurs willing to play in Africa, the challenging but very rewarding environment, his counsel are: Think out-of-the-box, Be patience, and Understand the environment of operation.

Because as he listed, African businesses operate within the space of weak regulatory framework, poor level of infrastructural development and multiple taxations among others. Also, the major construction facilities are scare, equipment and tools are not readily available and the small and medium scale enterprises which could have provided support have been unable to develop or survive because of the challenges faced by them, including huge financial costs, lack of power and expensive fuel.

Dangotes’ business advice to African government

Address issues of tariff and non-tariff barriers.

Remove trade barriers to foster greater regional integration and encourage entrepreneurship.

Promote free integration of systems that allows the movement of people, goods and services across borders and removes the unnecessary delays at many African borders due to different certification systems ,the lack of coordination between the officials of the different countries across the border and weak border infrastructure, create enough space, facilities and even border officers.

Upgrade the poor infrastructure hindering economic activities as road; rail or power facilities are most places substandard, slowing down transport.

Set up more free trade zones, local investors that operate there will enjoy decent facilities and avoid the bureaucratic bottlenecks associated with getting approvals from various government ministries and agencies. The Jebel Ali Free Trade Zone in the United Arab Emirates was key to that country’s successful diversification of the economy from the oil sector.

Give tax holidays, customs incentives and other special concessions to investors operating in the FTZs, especially if they use locally sourced raw materials and export the end product.

Published in the Business Eye’s print version, Apr 2015 edition.

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