Devakumar Edwin, Group Executive Director of Dangote Industries Ltd, outlines the Nigerian giant conglomerate’s plans to expand into oil refining as well as large-scale agro processing.
The Dangote Group has plans to invest $3.8bn in sugar, rice and milk over the next three years. What is the rationale for the investment?
Yes, the conglomerate will be expanding its operations in the country and will be investing heavily in sugar, milk and dairy production.
To recap our manufacturing trajectory: we started with textiles (which was closed down) then we moved into construction and food production. The construction segment involved cement production and expanded into granite and other related products. Food production involves a sugar refinery and flour mills; as well as the production of pasta and noodles.
We used to invest primarily into the commodities we are trading in. For example, we brought in the salt from Senegal, cement from Benin and Togo, sugar from Brazil and pasta from Italy.
When we went into manufacturing, we adopted backward integration. We wanted to produce pasta locally because we were already trading in it. To manufacture pasta, we needed flour so instead of relying on firms like Flourmill Nigeria, who were already producing pasta and flour and who could have held us to ransom, we realised that we would have to invest in a flour mill.
We went into cement production because we were already trading in cement and we went into salt manufacture also because we were trading in salt. This gives us a huge advantage because we already have the consumer, the market, the trading, distribution and logistics networks among others. Our aim is now to replicate the revolution our group brought about in cement production in agriculture, particularly rice and sugar.
Another logic of our strategy is to go into businesses where there is a demand-supply gap. Following on from the construction and food production, our focus is on oil and gas. There is a huge demand for gas, diesel, kerosene, aviation fuel and the rest.
There is a huge demand for rice and sugar – most of which is imported in raw form. By producing them locally, we are filling the demand and supply gap.
Also, we chose the right timing to invest. For example, the petroleum pricing is going up in the country because of a shortage of foreign exchange and the loss of consequent loss of value of the naira. Most of the manufacturing companies have closed down due to this shortage of foreign exchange as Nigeria is very heavily import dependent. By refining oil locally, we not only satisfy the needs of the country by closing the demand supply gap, but we also make the economy stronger and more stable by reducing the need for foreign exchange.
Will these new products serve both the Nigerian and export markets?
For the rice and sugar products, we are primarily focusing on the Nigerian market. As we continue to grow in future, we can export. This is just as we did in the cement industry – we continued to expand until we met the full capacity of the Nigerian market and from last year, we started exporting cement.
For rice and sugar, our current focus is to meet the local demand, which is huge; the conglomerate plans to increase its production of sugar to 1.5m metric tonnes a year by 2020 from 100,000 tonnes now and is seeking to add 1m tonnes of rice. As other companies also step in to fill the gap, we will continue to expand and export.
Are there any estimates for job creation?
In the sugar business alone, for each of the projects we are going to start in four states, Niger, Nasarawa, Taraba and Adamawa, the direct employment alone will be a minimal of 30,000 people and it will go up substantially during planting and harvest because they are seasonal. Having 30,000 people at each site will add up to 120,000 in the four sites during harvest and plantation time.
For rice, we are talking about 1.5m tons from paddies across more than 300,000 hectares of land. This will involve doing business with about 600,000 farmers. And the farmer will also employ other people to assist him; let’s say he employs five people – this will add up to millions of jobs.
How will the projects be financed?
Due to the massive scale of the projects, we have a number of ways of financing them: local banks and the Central Bank of Nigeria will provide working capital finance. We shall bring our equity and the export credit agencies shall provide financing for the equipment – sugar mills, coal generation power plant, ethanol distillery, paddy parboiling equipment, rice milling, polishing & sorting equipment, rice husk power plant, silos, etc.
Is the current business climate in Nigeria conducive to expansion?
If the business climate in any country is very conducive for investment, that country will be an export dependent economy and not an import dependent economy. Investors will invest in a place where their investment is secure and generating higher returns.
Coming back home, most of our investments are in Nigeria and sub-Saharan African countries with a lot of challenges. In the last two weeks alone, in four countries in which we have invested, there have been legislative changes for absolutely no sound reason except being highly hostile to investors. But we are already there, we can plan how to manage the situation.
But the advantages for us in investing in Nigeria and other African countries are that we are better suited to manage these difficult situations. Again, a very fundamental law says the higher the risk, the higher the returns, so if we are confident of managing the risk, we also know the returns are better.
Being an African company, we know the long term reality better, we know the challenges better and we are in a better position to manage them and we get better returns.
What government policies would help to facilitate and speed up investment?
In the manufacturing sector for example, the country has not come up with any major policy to attract investors. It has one policy, called the “pioneer status” which grants businesses three years tax free with a possibility of an extension for another two years. In other countries, for example Senegal, it is 10 years tax free. But right now the government is thinking of removing this incentive, which will mean less investment enters the country.
On the agriculture sector, if the government can focus more on the infrastructure, it will be helpful. We have never been dependent on government policy, we have always looked at how we can operate without any support or any help from government.
What future plans do you have beyond the sugar and rice operation?
The other areas we are looking at are tomato and dairy milk production. Nigeria is the largest importer of tomato paste, especially from China. We are looking to grow tomatoes locally.
Also, the company plans to have 50,000 cattle producing 500m litres of milk a year by 2019. We have done our feasibility studies on the two products.
In the long term, another area in agriculture we are looking at is oil seeds; the country is importing about 80% of vegetable oil. A little palm kernel is home-grown but the bulk of it is imported – so we want to go into oil seed production and then have the vegetable oil products produced locally.
What legacy do you think the president of the Dangote Group is looking to leave behind?
The legacy that Aliko Dangote is looking to leave behind is for the companies to be the highest employer of labour, after the government. This is one of the reasons why we are investing heavily in manufacturing so that we can become the highest employer of labour in the private sector. With agriculture, there is going to be massive creation of employment that will engage the rural people and take their mind off evil activities like Boko Haram.
African Business Magazine