Devakumar Edwin is the Group Executive Director of Dangote Group. A Chartered Engineer, he bagged his first and Masters Degrees in Engineering from the Madras University in India and started his career in India in 1978, before joining the Dangote Group. In this interview with ROSELINE OKERE, he believes that Nigeria is on the path to becoming self-sufficient in petroleum products’ production and would soon emerge a net exporter.
Nigeria’s business development has been going through several challenges such as the declining crude oil prices and the fall in the value of the naira. How are these challenges affecting the country’s business environment? ?
The global economy has been going through crisis and all the commodities including oil and gas exploration and production, mining industry, manufacturing industries, shipping, have been affected. The fall in the price of the crude oil has also made a serious impact on the economy of Nigeria, with a major reduction in the revenue accruing from the export of oil and the resultant inadequate availability of foreign exchange. .
Though the country is going through a painful situation, we at Dangote, believe that there is a silver lining to every cloud and, in the long run, it would be good for the economy of the country since it will make the country to look inwards and focus on agriculture and local manufacturing. Even though Nigeria has become number one economy in Africa, unlike all the developing countries, we are still an import dependent country, both for agricultural products, as well as manufactured goods. Infact, the country is going through the current pain primarily because of its dependence on imports, which is driving up the demand for foreign exchange. This is the reason why my President, Alhaji Aliko Dangote is insisting that the situation is an opportunity for the country to transform itself from being an import dependent country to a self-sufficient economy.
If you look at large developing countries such as South Africa, India, China and Brazil, you will find that most all the items are locally made whereas if you walk into any shop or supermarket in Nigeria, you would find that almost of the items on the shelves are imported. This is a great opportunity for the country to focus on local production. We have done this transformation in the case of cement. Nigeria used to be competing for the first position, along with United States, for being the largest importer of cement in the world. Today, Nigeria is exporting cement to several countries. We use the locally available limestone and fuel. We produce the best quality cement using the best technology in the world with all our laboratories being managed by robots. Similar change can be made in the case of all the consumer goods, which are being imported today.
Similarly, focus should be on food sufficiency by increased investment in agriculture. We have arable land and water. Instead of importing all the food crops, including rice, they could be grown locally. This is the reason why we at Dangote, are also focusing on agriculture. Apart from creating massive employment, the focus on local production would also develop several entrepreneurs.
The government too has a very vital role to play. It should provide an enabling environment in terms of good road network to evacuate and distribute the manufactured/agricultural products, long term financing through industrial development banks at reasonable interest rate, reliable and adequate power supply and access to foreign exchange for buying the plant and machinery for setting up the new manufacturing facilities/buying the farm equipment required for investing in agriculture. Furthermore, every country provides investment incentives to all the new investors and, the government has to ensure that such incentives available presently are retained and in activities such as agriculture, that adequate incentives are provided to attract investment. .
The President of the Dangote Group has full confidence in the country and as such, he has set out a capital outlay of nearly $20 billion for investments in the petroleum refinery, petrochemicals plant, fertiliser plants, sub-sea gas pipeline infrastructure, agriculture (sugarcane and rice), power and generation. For the past two decades, every succeeding President and the Ministers for Industry and Trade, have been trying their best to attract foreign direct investments, but without much success. It is high time we focused inwards and encourage and support entrepreneurs within the country. Foreign investments will flow in only when they see the local entrepreneurs thriving and flourishing. If they do not see local entrepreneurs having the courage, trust, faith and confidence in the country and boldly investing in manufacturing activities, obviously, the foreign entrepreneurs and multinationals will not dare to invest. This is the reason why sub-Saharan Africa has been seeing a plethora of foreign investors coming and investing in extractive industries such as oil, gas, copper, iron ore, gold, platinum, coal, uranium and diamonds, extracting the natural resources and exporting them elsewhere to process them and add value, rather than processing and manufacturing the final products within the respective countries. .
What is the capacity of the refinery and when is it going to be completed?
The Dangote refinery is going to be very massive and good for the country. It will have a refining capacity of 650,000 barrels per day and it will be the largest single train refinery in the world. Just as we have made the investments in other businesses, the refinery too is being designed to have the highest levels of energy efficiency, operating efficiency, safety and environmental friendliness and to produce products of the highest quality (Euro V Grade). .
This refinery can make Nigeria to be 100 per cent self-sufficient for all the products including PMS (petrol), AGO (diesel), JET A1 (aviation jet fuel) and DPK (kerosene). Further, just as our investments in cement has made Nigeria not only to be self-sufficient but also to export, the refinery too would have adequate capacity for exporting these products. If new investments had not been made in the cement industry in Nigeria, the country would be spending about $3 billion per year in foreign exchange today, to import and meet the cement requirement of the country. Now, we are bringing foreign exchange into the country by exporting the cement.
Similarly, the country would not only save a huge amount of foreign exchange, which is going out of the country today towards importing the petroleum products, but will also ensure foreign exchange in-flow due to the export of the petroleum products. Furthermore, a massive amount of direct, as well as indirect employment, would be generated in the maritime industry since crude oil would be brought through Ultra Large Crude Carriers (ULCCs) / Very Large Crude Carriers (VLCCs) and the finished product can be moved through the sea, not only for export through Suez Max vessels, but also within the country to Port Harcourt, Calabar, Warri, among other places.
Since the products would be locally manufactured, we will not be facing the frequent crisis of shortage of the products in the country again, as well as the resultant high price, the long queues and the phenomenal loss of man-hours, either due to waiting in the fuel queue or due to the chaotic traffic jam caused by the fuel queues. If we can turn these huge number of man-hours lost in productive usage, you can imagine the contribution to the Gross Domestic Product. For decades we have been hearing the story of Nigeria flaring huge amount of gas (or re-injecting part of the gas back). Ultimately, not only is a phenomenal amount of money being lost every day and there is a huge level of environment degradation due to the flaring and the resultant carbon dioxide emission, but also it is a phenomenal loss of opportunity, since if this gas is brought into the country for productive use, it can help in power generation, production of fertiliser, petrochemicals, and provide a cheaper and cleaner fuel for many manufacturing industries.
One of the major reasons for the power problems being faced by the country is the inadequate availability of gas. Hence, we are creating a massive sub-sea pipeline infrastructure to capture all these gases and bring them to the land. We are investing in a 1,100 kilometres pipe corridor under the sea. Thus, we are creating a sub-sea highway to enable all those who are either flaring or re-injecting the gas to connect to our pipe network and bring it on-shore. This will bring to an end the gas flaring saga once and for all. The pipelines can deliver up to three billion standard cubic feet of gas every day. This will not only provide fuel for the power plants in the country, which at present, are starved of gas, but will also provide fuel to the various manufacturing industries in the country. For example, we (Dangote Group) are importing N2 billion worth of furnace oil and N1 billion worth of diesel every month just to support our manufacturing operation. You can imagine what a relief it will be for all the manufacturing industries who are either loosing production for lack of gas or spending a lot of money on alternative fuels such as diesel and furnace oil. This will also help these companies to bring down their cost of production and thus help the consumers since it will bring down the prices of the manufactured goods too. The availability of gas will also incentivise the investment into more manufacturing industries, leading to employment generation.
All of us keep complaining that the focus of the country has shifted from agriculture to oil. The farmers are not getting encouragement to focus on agriculture since the per acre yield in their farms is quite low. The yield is poor since adequate fertiliser is not available at the right price and at the right time- primarily because the fertilisers are being imported. Again, due to a lack of substantial investment in the fertiliser industry locally, proper analysis of the soil in the various states and various regions have not been studied and the general fertiliser being imported may not rectify the specific inadequacies of the soil in a particular location or meet the specific requirement of the crop being cultivated. .
We are investing in two large trains of fertiliser plants– each of them equal to the largest of such train available in the world today, with a total capacity of three million tonnes per annum, which would not only meet the entire requirement of Nigeria, but also, to a substantial extent, meet the current requirement of the entire sub-Saharan Africa. Thus, this fertiliser plant would not only save foreign exchange by taking away the necessity of imports, but also would generate substantial foreign exchange through the export of fertiliser. This would also lead to massive indirect employment apart from direct employment. It will give impetus to the agricultural sector since the farmers will be more encouraged to go into agriculture due to the better returns they will receive, as the yield of farm crops per acre would improve very substantially.
We are also investing in a large petrochemical plant. As you can see today, almost everything you see has an element of plastic usage in it and the entire raw material is being imported at present. This would lead to import substitution, again leading to reduction in foreign exchange out-flow and investments by several down-stream plastic industries. .
As you can see, all these investments would lead to huge employment generation, both directly and indirectly, which in turn would address the social problems such as crime, insurgency, among others, being fuelled by lack of employment opportunities. There would be huge reduction in the out-flow of foreign exchange, as well as the additional in-flow of foreign exchange, with a very positive impact on the value of Naira that has been constantly going down over the past few years.
People have accused Dangote of having monopoly in every sector they venture into. Why is this so?
Before we started the sugar refinery, there was no sugar refinery in Nigeria. Nobody had prevented any company from investing in this line of business. The Dangote Group itself was the largest importer of sugar in the country. Alhaji Aliko Dangote saw an opportunity for backward integration and entered into the business. We entered into the cement business in the year 2000. There was a foreign company in the cement business, which has in fact been in Nigeria for several decades, having a monopoly on the business. We had the same opportunity with those who were manufacturing the cement earlier and nothing had prevented them from investing in expanding their capacity and retaining their monopoly! As such, there was and has been a level playing field available for everybody. All we did was to have trust and confidence in Nigeria and invest.
Prior to our entry to the cement business, Nigeria was producing about 1.8 million tonnes per annum. Last month, our company alone produced close to that capacity. If we had not invested, the country would have been importing the cement. Was it our fault to have invested in such huge manufacturing capacity? Or, to avoid having such large footprint in each of the businesses we have invested in, should we have invested only in small plants, allowing the gaps to be filled by imports? And, if we had done so, what would have been the scenario today, both on availability of cement and its price, with the limited foreign exchange available? From when is it a sin to invest in manufacturing capacities in Nigeria? The only way we could avoid becoming a dominant player is either by stopping our investments or minimising our investments. Is that what is expected from us – to stop or reduce putting up factories? !
Every investor, whether a foreign investor or a local investor, had and has the same opportunity like us. The only difference was that Alhaji Aliko Dangote had the confidence in the country and the courage to invest in the country. To be accused for being a predominant player in the businesses we are operating in, just because he did not keep his money safely with himself like many other people, but had the confidence to invest in Nigeria is, to say the least, outrageous.
On the contrary, if you look closely, you will see an entirely different picture. Before we invested in the sugar refinery, there was no other sugar refinery in Nigeria but, after we had invested, another company invested too in a sugar refinery. After we invested in the cement business, three other companies invested in cement manufacturing. Prior to our investment in the flour business, it was almost a dormant business.
Subsequent to our investment, many other companies made very substantial investments into this business. It is the same story with noodles and pasta. Prior to our investments, there was only one player in each of these businesses and now, there are so many companies manufacturing these products. We are like a magnet that attract others into investing in the line of businesses we are entering into, since investors believe that the Dangote Group is successful and the businesses we enter into are good opportunities for others too to invest in. Thus, we are actually inspiring our potential competitors to invest in our line of business. And, as I have mentioned, there are concrete evidences on ground for everyone to see.
Our investments in petroleum refinery, petrochemicals, fertiliser and gas pipeline are all massive investments and in future, will give us a large footprint. Hence, to protect ourselves from being accused of having a monopoly in these new businesses, should we refrain from entering into these businesses? Or, should we put up only small factories and continue to allow the huge importation of petroleum products and fertiliser and also allow a substantial portion of the gas to continue to be flared? Do we want to continue to export the raw material and import the finished products? Or, as my President Alh. Aliko Dangote says, should we continue to export employment and import poverty?
Look at these new businesses. Anybody could have invested in all these businesses. Everybody had an opportunity to invest. 73 companies were issued licenses to put up a refinery! Several companies got allocation of oil blocks against a promise to invest in the petroleum refinery. We have neither asked nor received a single concession from the Government for these projects, including the petroleum refinery project. In fact, the only correspondence we had with the Government was the application for the licence to set up the refinery.
Many people are concerned about Dangote’s access to crude oil for the refinery and how he intends to make profit in a regulated downstream sector?
The crude oil is sold by the producers, including NNPC, globally. It is a free and transparent market and crude is an internationally traded commodity. Our refinery can not only handle the Nigerian crude oil but also all the crude varieties produced in the entire African continent as well as a variety of crudes from the Middle East, USA and elsewhere. We have specially designed the refinery to handle a wide range of crude oil, including sour crudes and heavier crudes. The products can be sold exactly as the importers are selling their products today. If the regulated pricing mechanism continues, the distributors of our products will continue to be entitled to receiving the price differential. Further, we would be in a position to sell at a competitive price compared to anybody who wants to import the products. The Government will obviously buy the product from the most competitive source – especially when our products are of superior quality. Further, the refinery is also designed for export. In fact, the entire production can be exported. As such, we don’t have any concerns about either the access to crude oil or the sale of our products.
The problem of pipeline vandalism has been a major problem to refining crude in Nigeria. What is your plan on this?
In view of this persistent problem, we are adopting a unique solution. We are bringing the crude to the refinery through ships.
Some people are of the opinion that Dangote is seeing rapid growth due to its influence in government policies. What is your take on this?
I was in an international cement seminar when somebody asked a question – how do we get incentives and benefits in the various countries we are entering into. My answer was simple – that, we have a fundamental policy of not seeking any incentives or benefits apart from what is available for all the investors under the existing laws. Once anybody asks for special benefits and receives them, when ever there is a change in the elected officials, the succeeding officials will target that company for attack since they will be identified/branded as friends of the earlier Government. I am personally aware of some companies in some countries who had suffered in this manner.
We simply look at the incentives available in the country and avail them. Of course, prior to the investment, we would be making in-depth investment analysis and, either the availability of adequate incentives or the lack of it would have a substantial impact on our decision whether to invest in that country or not. This is applicable to our investments in Nigeria too. We have never sought or received any special or additional incentive in Nigeria. We have availed only the benefits which are available to all the investors in the relevant sector.
However, in many of the countries, the policies provide substantial investment benefits, even more than what is available in Nigeria. We are a multinational company and normally, countries invite us for investment. But seeking and availing special incentives will not only put our company at risk but also affect the image of our company as being close to the Government. We do not take any such risk.
In fact, depending upon the Government policies alone for making a decision to invest, could be very unwise. For example, in Nigeria, President Obasanjo’s administration encouraged investment in the cement industry. Seeing the potential, many companies, including our company, invested. When the subsequent Government came, not only the policy of limitation on the importation of bulk cement was removed but also the importation of bagged cement was encouraged, by the issue of a multitude of licenses! License were issued for importation of 17 million tonnes of cement!! If the local manufacturers had invested purely based on the Government policy, their businesses would have been ruined. Hence, it is wiser to analyse the available incentives and make a call whether one should invest in the country or not, rather than trying to influence the Government to receive some benefits. It would be foolish and very risky, apart from having the potential to ruin the image of a large and multinational company such as ours.
How do you see the cement industry? Would you say that Nigeria is now self-sufficient in cement production?
Nigeria is currently self-sufficient and, in fact, we are exporting cement. We have commenced expansion of our capacity with a view to expand the export activity.
Our Group also has a good opportunity since our investments overseas are benefiting us. We have been able to bring in a substantial amount of foreign exchange into the country in the last four months. More foreign exchange will flow in as new plants have been commissioned recently in other countries. This foreign exchange in-flow from our overseas investments in cement plants will help us to avail the foreign exchange required for the new investments being made in Nigeria.
As an investor, we do face challenges. Apart from Ethiopia and South Africa, we had to invest in power plants in all the other countries. At Obajana, we invested in a 90 kilometres gas pipeline, a dam, a large housing estate and other infrastructure. It is the same story in many other countries we have entered into. Every investor faces similar challenges. But, if no invests are forthcoming, the countries will remain as importers of finished products even though they may have the raw materials available locally.
How are your cement businesses doing in other African countries?
We have a large market share in every country we have entered into except South Africa where we have a smaller foot-print and, within a short span of time, we are able to produce and sell up to full capacities due to our superior product quality. The reason we have been growing so fast is due to the fact that, unlike many other manufacturers and unlike many other foreign investors, we are not taking away our profits. We are reinvesting all our profits back into manufacturing. It is true that this is giving us a dominant position in the manufacturing businesses we are involved in but, is there anything wrong in reinvesting the profits into additional manufacturing capacities, providing employment, generating tax revenues, adding to the GDP and creating wealth rather than keeping away the profits safely elsewhere?
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