Africa’s Richest Man Has a Built-in Advantage with Nigeria’s Government

To start to understand how Aliko Dangote, Africa’s richest man, came to have such influence over the Nigerian government, it is useful to go back in time to 2003. Before then, he was a Nigerian billionaire just like any other.

But in the run up to the 2003 election campaign, president Olusegun Obasanjo had a famous falling out with his vice president, Atiku Abubakar, over the latter’s attempt to succeed him as president after only one term. Obasanjo had also been operating on the understanding that Atiku, as the People Democratic Party’s (PDP) money man, would fund his re-election campaign.

But Atiku told him that all the money had been spent during Obasanjo’s turbulent first term, notably on lobbying the national assembly not to impeach him on two different occasions. Without access to the party’s old fundraising machine, Obasanjo was left with no choice but to find his own new donors.

In his 2013 book, The Accidental Public Servant, the current governor of Kaduna state and former minister under Obasanjo, Nasir El-Rufai, describes how this episode presented Dangote with an opportunity he has maximized to his great benefit. He writes:

Obasanjo had to resort to raising money from other sources and that was how Aliko Dangote came into prominence in the government. From 1999 to 2003, nobody had heard of Dangote having anything to do with the federal government in any significant way. – El-Rufai, Nasir. The Accidental Public Servant (p. 170)

Dangote Stays Winning
By the time president Goodluck Jonathan came to office, the PDP-led government had become very closely and publicly aligned with Dangote. During a presidential media chat in 2011, the president told his interlocutors that Nigeria was to begin exporting cement that year because “Dangote himself, because he is the number one producer, told me” [pdf, page 64].

This Dangote promise of cement exports is repeated nearly every year, Nigeria is desperate to be seen to be diversifying exports beyond oil. Most recently at this week’s FT Africa Summit where Dangote announced—to vice president Yemi Osinbajo’s hearing—that the date for cement exports from Nigeria will now be 2018.

A few people have raised concerns about the relationship between Dangote and the government and its impact on policy decisions. But if they thought things would change under president Buhari’s new All Progressive Congress (APC) government, which came into office in May 2015, they were mistaken. Barely three months after being sworn in, the vice president was leading a government delegation to Zambia to commission a Dangote Cement plant.

Since then, the vice president, with several ministers in tow, have also visited the Dangote refinery for an “inspection” even though it was mainly sand filling of the site going at the time. Early last year, in a separate visit to the Dangote refinery construction site, the Central Bank governor, Godwin Emefiele, said “more Nigerians need to think like Dangote” and pledged to support him as much as possible.

Perhaps unsurprising then that a Reuters investigation in June last year found Dangote’s companies had been receiving preferential foreign currency allocations from the Central Bank at a time when the Nigerian economy had been almost crippled by a dollar shortage.

Cementing his status
While Dangote is involved in many industries, his wealth—over 90% of his net worth—has come from his cement business. Dangote Cement’s 65% share of the Nigerian market means that it also sets the prices for the commodity in the country. And it has used this advantage to generate large profits—the gross margin on its cement was as high as 70% a few years ago and has slowly come down to just under 50% in 2016. A Bloomberg Intelligence report showed average global cement profit (EBITDA) margins were 17.2% in 2015, but Dangote Cement reported a margin of 42.3% in the same year.

In 2013, an analysis of the world’s top 15 cement producers revealed that while Dangote Cement’s revenues of $2.4 billion represented 2% of the cohort, its profits of $1.2 billion represented 13% of all net profits in the group. In that year, its net profit margin was 52% with the next most profitable producer—China’s Anhui Conch—managing a 17.8% margin.

Dangote has used the sentiment of “national pride” very cleverly to his advantage. The government and indeed many Nigerians have almost come to accept that paying over the odds for cement is a sacrifice worth making in the name of having cement produced in the country.

The Nigerian press also helps to propagate the story of Nigeria’s cement “self-sufficiency”. This self-sufficiency argument is never challenged with the simple point that it is easy to make that claim when the product is priced beyond the reach of the vast majority of Nigerians. If prices came down to global averages, would Dangote Cement be able to meet demand with its current production levels?

Dangote also regularly inundates Nigerians with stories of how he has put all his eggs in the Nigerian basket and how he is always betting on the country by investing more than any other foreign investor. Every now and again, he announces large investments in an industry (usually one favored by the government of the day) sometimes running into billions of dollars. The stories and announcements (which may, or may not, come to fruition) help to reinforce the narrative Dangote is always investing in Nigeria even when no one else is doing so.

The cost to Nigerians
The nature of cement as a product that is too heavy and costly to transport and too tricky to smuggle has allowed the Nigerian market to be a captive one for Dangote.

In June 2016, the World Bank published a report examining the impact and costs of lack of competition in a number of industries in Africa. They found that African cement prices averaged $9.57 per 50kg bag compared with $3.25 globally. Put another way, Africans paid 183% more than people around the world for the same product.


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