Dangote Cement: Taking the Lead in Import Substitution Drive

One of Dangote cement factories

On the heels of the commencement of work on the $1 billion Dangote Cement’s Okpella plant, Olaseni Durojaiye looks at the potential of the group’s investments in cement manufacturing to boost diversification, export and generation of foreign exchange for the country

Several operators and analysts in the country’s economic space have continued to clamour for diversification of the economy from oil to other sectors including agriculture and mining contending that the two sectors among others hold huge potential that are capable of boosting the economy and grow its revenue base and ultimately it’s Gross Domestic Product (GDP). The call no doubt became most strident in the past couple of months in the wake of the country’s latest round of economic challenges escalated by the southward movement of crude oil prices in recent times.

Calls for diversification were closely followed by that of import substitution. Many speakers drawn from different economic sectors, while lending their voices to the call added that faced with the forex crisis the nation was contending with, it was expedient to look inward if many manufacturing businesses must remain in business even as players in the real sector lament that many businesses in the sector have closed shop. Two of the proponents of looking inward are Segun Agbaje and Herbert Wigwe, Managing Directors of GTBank and Access Bank respectively.

Agbaje lent his voice to the import substitution debate recently when during an interactive session with the media, prior to the bank’s last Annual General Meeting, while Wigwe did same at a summit organised by The Economist magazine. Besides, several analysts have echoed the argument in different interviews with THISDAY.

The calls for diversification and import substitution have been closely followed by arguments that the country needs to shift from an import-dependent economy to one that is export dependent. Proponents of the argument maintained that it is the solution to the country’s foreign exchange challenge and dwindling foreign reserves.

Analysts who reviewed Dangote’s $1billion investment in the six million metric tonnes per annum (mmtpa) cement plant in Okpella, Edo State with THISDAY insisted that it aligns with the call to diversify the economy and that of import substitution. One of them, Rotimi Oyelere, said besides representing a shift away from oil, it promises Nigeria’s export and foreign exchange on the long run.

Dangote Cement Okpella Plant

The plant ground breaking, which held last Sunday to coincide with the group’s president’s 59th birthday, when completed will further increase the $3 billion that the country currently saves annually from import substitution. Analysts that spoke to THISDAY agreed that the investment was strategic in many fronts and comes with multiplier effects apart from being a practical step at diversifying the economy and the drive for an export-led economy.

The new six million metric tonnes per annum (mtpa) capacity Okpella cement plant is coming ahead of plans for another six million mtpa cement plant to be sited in Itori, Ogun state. The Itori plant is an addition to another one in Ibeshe, in the same Ogun State, which is currently producing 12 million mtpa.

“By this investment, Dangote’s production capacity will go up further to 41m mtpa, in Nigeria alone,” a statement from the company affirmed.

Meanwhile, the disclosure by Alhaji Dangote that “We have also committed to investing in a 100MW Power Generation Plant for both Itori and Okpella” is seen as part of the multiplier effects he referred to when he stated in his speech that “anywhere we operate, there is a multiplier effect as job creation and more entrepreneurs will be created as ancillary services providers, suppliers, mechanics, hoteliers, restaurants, etc. “

Another analysts who spoke to THISDAY from Port Harcourt, Ezeh Wordu, noted that “however small, when that plant becomes operational it will reduce the urge to migrate to the city among youths in the area. Why would anybody travel to Lagos for a nonexistent job when there is one right in his community?, ” he reasoned.

Boost to Government’s Plan to Diversifying Economy

Both Oyelere and Wordu contended that the plant was a big leap forward in the effort to diversify the economy and reorient it from its dependence on oil. Many commentators before now agreed that it is over reliance on oil and the neglect of other sectors including agriculture and mining that has led the economy to its current state.

“This is a major leap forward in the call for diversification and export-led economy,” Makinde stated, adding that, “when completed, it will increase availability of cement locally which will in turn help to reduce housing deficit considering that cement is a major component of building homes. But more importantly, cement exportation especially to West African countries will receive a big boost which will in turn generate much-needed foreign exchange for the country. This is the direction to go if we’re serious about diversifying the economy and building an export, rather than import-based economy,” he argued.

The Minister of Solid Minerals, Dr. Kayode Fayemi, who spoke during the ceremony, described the investment as consistent with the policy drive of the federal government, targeted at the diversification of the economy from crude oil. According to him, the mining sector has the potential to contribute over $25 billion to the national economy, creating huge revenue flows to drive it in the face of rapidly declining crude oil prices.

“The mining sector has the capacity to contribute over $25 billion to the national economy by 2025, creating new employment opportunities, developing local content and increasing tax revenue for the state and the federal governments,” Fayemi said.

Boosting Forex Earnings Through Investments in Cement

While analysts continue to posit that an export-led economy would increase the country’s foreign exchange earnings, help to shore up its foreign reserve with a corresponding positive impact on the value of the naira, not many Nigerian companies currently play big in that space. Operators in the sector insisted that infrastructure deficit in the country disadvantaged them from being able to competitively play in the sector leading to their call on government to bring back the export Expansion Grant. But the Dangote group is not deterred.

“We are looking at a situation that by 2020, we will be the one selling FX to the CBN. Our projects are mainly import substitution. We are working to be self sufficient to grow about 1 million tonnes of rice in the next five years.” Alhaji Dangote told guests at the Economist summit.

“Continuing, he harped on the need to diversify and embrace export saying “We have 15 countries in the ECOWAS country that are duty free. The export market is big and profitable if you have the capacity. Players in the manufacturing sector must be encouraged to export if they have the capacity. We must also meet local consumption.

In June 2015, the group commissioned its cement plants in Ethiopia, Zambia and Cameroun. THISDAY checks also revealed that there are plans to commission other plants in Senegal and South Africa very soon with plans to also build another cement plant in Nepal. With these investments, analysts insisted that Dangote cement’s investment in cement across Africa is positioned to significantly contribute to the country’s forex earnings adding that it is easy to discern the group’s strategic investment drive and how it will favour the country on the long run.

Speaking at the ground breaking ceremony, Africa’s wealthiest man stated that Nigeria is a growing economy. Our developmental challenges are quite enormous and will require the combined efforts of government and private sector to overcome them. It is in this light that we are here to contribute our own quota to transforming the economy of Edo State as we have done elsewhere.

“This project is only one of our several successful projects presently ongoing in parts of the country and outside in more than 15 other locations in African countries, in line with our Pan African investment strategy. Last year June, we commissioned our cement plant in Ethiopia, and in August of same year in Zambia and Cameroon. We commissioned our plant in Tanzania in October. We plan to commission very soon, some of our other African plants in Senegal and South Africa,” he added.

Personality Endorsements

While analysts stressed that the investment will greatly impact the economy of Edo State as it will create over 24,000 jobs excluding the multiplier effects and increase the state’s internally generated revenue (IGR), Governor Adams Oshiomhole best captured the importance of the plant to the economy of the state when he disclosed that “Dangote Cement, Okpella is the most potent vote of confidence on the developmental intitiative of the Edo State government. I have come to realize that government is better off at providing infrastructure, inherent policies and the conducive environment to attract private businesses,” he stated adding that the investment was equivalent of the total capital expenditure of the state since he assumed office.

However, a further attestation to the importance of the project to the state and the nation as a whole was best captured by the array of captains of industry, chief executives of financial institutions, investment fund managers, government ministers, first class traditional rulers and top politicians that graced the groundbreaking ceremony.

They include Governor Adams Oshiomhole of Edo State; Minister of Solid Minerals Resources, Dr. Kayode Fayemi and Minister for State, Industry, Trade and Investments, Mrs. Aisha Abubakar.

Others include Chairman of THISDAY Newspaper Nduka Obaigbena, Chairman of Forte Oil, Mr. Femi Otedola; former minister of industry, Chief Kola Jamodu; former CBN deputy governor, Tunde Lemo; Chief Executive Officer of Nigerian Stock Exchange, Oscar Onyema; former governors Niyi Adebayo of Ekiti and Chief Segun Osoba of Ogun State; Publisher of Ovation Magazine Chief Dele Momodu. From the traditional institution were a former CBN governor and Emir of Kano, Sanusi Lamido, Otaru of Auchi, Alhaji Aliru Momoh, Okuopellagbe of Okpella, Dr. Andrew Dirisu, among others.