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frankiriri (m)
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Find below an extract from an analysis posted on Pro share.
The information should guide us in dealing in the stock of Dangote group.
If the trend continues Dangote may just lose his midas touch.
Dangote Group: A business empire under threat?
Posted Thursday, September 20, 2007
Dangote Group seems to be at the receiving end of some economic decisions taken by President Umaru Musa Yar'Adua’s administration. Are these threats to Aliko Dangote's business monopoly?
Alhaji Aliko Dangote, a business mogul whose resonance in business circle does not require introduction in Nigeria. His business activities in the last eight years of Olusegun Obasanjo’s administration have unarguably affected almost every family in this country in one way or the other, making him a brand in its own right.
There is no gain-saying that Aliko Dangote has become a house hold name in the Nigerian investment world. His growing business concern spreads across the West African sub-region from the Republic of Benin, through Ghana to Cote-d' Ivoire.
The Kano State born sugar merchant got his first breakthrough in 1977 at the age of 21. Today, Dangote has his hand in almost every sphere of human endeavour. He owns six companies including; Dangote Nigerian Ltd, Dangote Textiles Ltd, Dangote Holdings, Blue Star Ltd, Dansa Foods and recently the Dangote Flour Mills Factory that was established in Kano.
Business Scope, Size and Relevance
His business has transformed from its initial commodity trading into banking, agriculture, manufacturing, textile and transportation. Dangote controls 60 percent of sugar market in Nigeria today, given the heavy demand for sugar by Nigerian soft drink industry, breweries and confectionery industries. He is reputed to have good investments even in foreign based sugar refineries that supply him the product. In addition, Dangote also imports and sells rice, vegetable oil and cement.
The group's interest is diverse, but the most pronounced of which are the manufacture of fast-moving consumer foods such as sugar, flour, salt and spaghetti. There is no doubt that the group has made successful in road into the Nigerian cement industry ranging from import terminals with bagging plants to poly propylene sack factory.
Other interests include commercial real estate complexes. Recently, Dangote increased its portfolio of investments with the acquisition of oil blocs No.1, (nine percent) and No.3, (10 percent) in Nigeria/Sao-Tome Joint Development Zone in conjunction with Chevron, Texaco and EXXON-Mobil, Block I. The group purchased six percent of an oil bloc with Stat Oil, Norway and Petrobas, Brazil in the Nigeria deep water. The group has witnessed an unprecedented growth in all its business interests in recent times.
For example, since 1999, the group has moved from a basically trading concern to a manufacturing conglomerate, with over 12,000 workforces in its pay roll. Newsworld study indicates that their current investment programmes are in excess of USD I billion, a significant proportion of which is in two integrated cement plants with a total capacity of eight million metric tons annually.
With the Nigerian business terrain almost under its control, Dangote Group is expectedly getting its fair share of controversy.
“If there is one person whose meteoric forays into the commanding heights of the nation's business and at times, political terrain is stirring a national controversy, it is the shrewd corporate mogul, Aliko Dangote,” that was the view of an unnamed dispassionate commentator.
Perceptions –Government as an Advantage
Dangote has been perceived from many angles, depending on who has what to say about him. To some, he is a business man par excellence. To others especially his critics and rivals, he is merely taking advantage of his closeness to the corridors of power to buy up the nation's economic legacies at give away prices. Believed to be an ardent supporter of former President Olusegun Obasanjo's administration, Dangote has benefited immensely from Obasanjo's economic policy. Not a few are of the opinion that Dangote's bestiality for Nigeria's patrimony was mainly driven by his closeness with the former president.
For instance, it was strongly believed by many Nigerians that Obasanjo facilitated the sale of the nation's two premier refineries at Kaduna and Port Harcourt to Blue Star Consortium at a ridiculous $720 million. However, some analysts believe that the refineries could be valued at $2 billion. Obviously, Dangote has a strong interest in Blue Star with largest share. Others who have interests in Blue Star Consortium are said to be Obasanjo's cronies. They include Chief Femi Otedola's Zenon Oil and Transactional Corporation (Transcorp), where Obasanjo is said to have about 2000 million equity shares.
Again, it took a strong government support for Dangote Group to buy and take over the management of Benue Cement Company, Gboko. Initially, when the group bidded for the purchase of the company, both Benue indigenes and the state government resisted it. Their argument was that the presence of a local management team may undermine the economic interest of the people of Benue State. Also, they argued that such local company did not possess the technical competence to revive and restore the lost glory of the company which was once the pride of the Benue people. But despite the fierce opposition, Dangote succeeded in acquiring the company through the former president's support.
Other government companies that were acquired by Dangote Group include National Sugar Company of Nigeria, NASCON and Oshogbo Steel Rolling Company.
At the last days of his administration, Obasanjo directed the Bureau of Public Enterprises, BPE, to transfer to the Dangote Group, the Federal Government's shareholding in Onigbolo Cement Factory, Benin Republic, where Nigeria has 43 percent share.
Apart from the privatisation policy, Dangote group also benefited from the controversial waiver policy introduced by Obasanjo’s administration to exempt payment of import duties and tariff for some individuals and companies in certain areas. Newsworld investigation shows that companies which got the approval of government to build cement bagging or manufacturing plants during Obasanjo's regime, enjoyed import duty exemption on the machinery imported to set up their plants including waiver on Value Added Tax, VAT. Of course, with the Construction Cement Factory at Obajana, Kogi State, Dangote group also benefited “hugely”, from the waiver policy.
Another policy that gave Dangote Group edge over their competitors was monopoly given to them by Obasanjo's government in certain key areas of the economy. Being the largest importer of the bulk cement, the group boasts of four bagging plants in the country - the Lagos Cement Terminal at Apapa Port, the Aliko Inland Terminal at Lagos, one in Onne/Port Harcourt and one in NPA Area I Port Harcourt, with a combined production of three million metric tons per annum.
With its overriding influence on the Obasanjo regime, Dangote cement always managed to attract cement import quotas of between 6.5 and nine million metric tone per annum. Keeping hold of so much import quota enabled Dangote Group to limit what was available to other operators.
Critics and Competition
Critics of Dangote's business approach have argued that the group employs bonus claims to scare new entrants and buys the government favour in order to maintain monopoly in its areas of interests.
The Director of Project, Ibeto Cement Company Ltd, Dr. Ben Aghazu captured Dangote's alleged penchance for emasculating competitors thus: “Dangote Cement did not only tyrannize other producers but also succeeded in frightening away would be new entrants into the cement industry with bogus claims. These claims included production and expansion figures that were never met but were accepted by the Obasanjo government as a basis for the issuance of import quota.”
Dangote is one of the select business cliques, directly linked with the former President. It is believed that he contributed handsomely to the political projects of the Obasanjo administration especially as a major financier of the 2003 re-election of “Baba”. He also donated huge amount towards the controversial library project built by Obasanjo while in office, and was a regular member of the president's entourage. Dangote however, gained handsomely from his investment in his friend.
But the man at the centre of the controversy, Alhaji Dangote does not see anything wrong in using government link to advance business interest. Hear him:
“Do people who accuse me of being close to the government of Obasanjo expect me to say my N0 1 enemy is government? It is not possible. There is no business that has no link with politics, none. And I challenge anybody to contradict me. Because you either say to a government in power, 'ok, fine, I am for you', or 'I am against you', obviously a right thinking business person would say, I am for you.
“Every company is government friendly, let Jim Ovia go and be the enemy of government and you see where Zenith Bank would go,” he quipped.
Dangote said that he was moved to draw closer to Obasanjo because of his business interest. He does not make pretence about that. And of course, the former President undoubtedly assisted him to attain the certain level he is operating now. “Eighty-five percent of my relationship with Obasanjo has to do with the economy of the country. Even when we sit down, 85 percent of the time is spent discussing the economy. How do we move the economy forward? And I think I have to be really grateful,” he added.
Dangote also disclosed that Obasanjo's encouragement spurred him to invest in building one of the biggest cement factories in Nigeria at Obajana, Kogi State. He argued that the decision to build the cement company at Obajana was really in national interest and the credit according to him, should go to Obasanjo.
“But for Obasanjo's encouragement and push, there is no way Obajana would have been possible at all. It was his push that made the difference. I would have made more money importing cement, because I know by cost, I would pass my cost on to the consumers. And today, freight rates from Asia are so high that it is unbelievable. People would have been paying more than N2000 per bag of cement if we were importing.”
Changing Tides or Adjustment Blues
Indications are that Dangote may not enjoy the kind of privileges, he had under Obasanjo from the new administration. In fact, the controversy which has trailed some of the companies he acquired under Obasanjo has made Dangote see the other side of government.
Although President Umaru Musa Yar'Adua has insisted that his government would not deviate from the reforms initiated by his predecessor, he however said he would follow due process and rule of law in the conduct of government business. This means, no more “business as usual” for business cronies of the government in power. That also implies end of the road for those, joining personal relationship with state policy and business opportunities.
The government’s overrule of the purchase of the Kaduna and Port Harcourt Refineries by the Blue Star Consortium, was a pointer that Yar'Adua means business. The President apparently succumbed to mounting pressure of Nigerians, especially the Nigeria Labour Congress, who cried foul over the manner in which Obasanjo hastily sold the companies to his cronies. The government has also refunded to the group, the $720 million dollars they paid for the purchase of the two refineries.
Owei Lakemfa, head of Information of the Nigeria Labour Congress, NLC, said “Dangote and Co. were invited to buy the refineries at any amount,” adding that the sale of the two refineries was done without evaluation. Surprisingly, what was a loss to the Dangote Group became a gain for Ibeto Group. Recently, the government of Yar'Adua reopened the Ibeto Cement Company Ltd, which is operating a bagging plant in Port Harcourt.
Ibeto is also developing a five million metric tons per annum cement factory in Ebonyi State, in partnership with the government of the state. These two projects were grounded in November 2005, after only four months of operation of the bagging plants. An order by former President Obasanjo, through executive fiat on trumped-up charge of lack of proven investment in local manufacturing of cement, obviously orchestrated to favour Obasanjo's business cronies, nailed Ibeto Cement.
But the story is now different; the new government has also granted a waiver to Ibeto conglomerate to import cement.
This new development definitely is breaking the monopoly of Dangote in certain key areas of the economy. Though the group is not resting on its oars, this magazine was told that an orchestrated campaign was already on to sway the government. The presidency has, however, remained resolute.
It is not certain whether the Dangote Group would enjoy special treatment under the Yar'Adua administration.- Newsworld … By Onu Okorie with additional reports from Sunday Ogli (Makurdi) and Labaran Tijani (Lokoja)
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