Aliko Dangote`s interview with FT

Humble fare that fed trading empireBy William WallisPublished: August 31 2008 21:05 Last updated: August 31 2008 21:05Aliko Dangote cut his teeth in business in Lagos’s infamous “cement armada” of the 1970s. By the middle of the decade, Nigeria was rushing to convert petro- dollars into the building blocks of a new, industrialised economy. The country was importing cement in such quantities that ships, loaded to the gunnels, sank as they awaited berth in Lagos, prey to piracy and the Atlantic swell.
Some 400 vessels were lolling offshore when Mr Dangote got his break in the cement market – thanks to a well-placed uncle with a government import licence, he recalls in a rare interview at his representative office in London.
Unscrupulous officials were squeezing personal fortunes from proliferating construction projects. Yet the bonanza did not last. Nigeria wound up indebted when oil prices fell. It was a cocktail of poor central planning and corruption of a kind that has befuddled Nigeria to varying degrees since then and betrayed its promise as Africa’s largest and most dynamic market.
It also provided a vital earlylesson in diversification for the young merchant, now, at 50, one of Africa’s wealthiest businessmen. On his journey from small-time haulier, shifting five trucks of cement a day, to Nigeria’s largest private sector employer, Mr Dangote has thrived by spreading risk across a range of commodities.
For many in Nigeria’s elite, oil and the opportunity to trade contracts and secure concessions have proved an easy route to riches. Mr Dangote’s fortune is built on more humble fare. When the cement boom stalled, he moved into sugar, flour, salt and, at one point, fish to build the Dangote Group into a trading empire unrivalled in West Africa by the late 1990s.
Optimism among foreign investors about Nigeria’s potential to drive regional growth has been growing, not only because of oil prices but also because more Nigerians have been betting on their country’s future. For Mr Dangote, this has meant ploughing capital from his trading enterprises into fixed asset production, making the transition to industry that the country failed to do when the state ran the economy. He has also raised funds on the Lagos stock market in a partial listing of some of his divisions.
Pioneer aims to make multi-billion dollar markNigerian traders can be found in most corners of Africa. But until recently, formal cross-border investments by Nigerian businesses have been a rarity.
That is changing. Awash with petrodollars and foreign capital, Nigeria’s banks are rapidly extending their reach. Aliko Dangote’s multi-billion dollar plans to expand his cement empire are on a different scale, however. This has made him something of a pioneer as well as an ambassador for a growing trend. He has been restructuring management, bringing in foreign expertise to drive his group’s cement production across the continent to 50m tonnes by 2012. He is investing in new plants in east, west and southern Africa.
Experience in Nigeria must count among the toughest for any industrialist. In some respects it also adds an extra hurdle, concedes Mr Dangote. “In the majority of these African countries, they’ve been used to Europeans or Chinese going in there,” he says.
As a Nigerian it has proved difficult at times to be taken as seriously. “Always they will be looking at you at a distance, saying, ‘Hey, these Nigerians, we don’t know what they’re up to.’”
At the same time, he is confronting dilemmas familiar to any multinational. “We are dealing with 10 different African governments and some of them change their laws midway.”
Forbes this year estimated his fortune conservatively at $3.3bn – above black business people such as US chat show hostess Oprah Winfrey and South African mining magnate Patrice Motsepe. Nigerian estimates, which account for unlisted companies in Mr Dangote’s portfolio, suggest the group president and CEO is already worth at least $10bn.
In person, he does not come across as a member of the super-rich. Mr Dangote hails from an establishment Muslim family in the ancient city of Kano but has assimilated into the torrid city of Lagos, where his headquarters are based. He appears shrewd and ambitious but unassuming.
The decisive moment for his company came a decade ago, he says, when he moved from trading basic commodities to processing them, following an inspiring trip to Brazil. It was then that he began building flour mills, a pasta factory and a sugar refinery, which became the principal supplier to Nigerian beverage groups. Until then, other than family seed capital, the Dangote group had “never taken out a loan”.
The timing of his subsequent multibillion dollar investments in cement production, now his fastest growing business, was bold. Nigeria, with its ailing power grid, sharp bankers and political instability, is a tough environment for manufacturers. It was far from clear that industry on the scale envisaged by the Dangote group would be commercially viable.
Circumstances have turned in the group’s favour. The privatisation of state enterprises allowed it to buy up and turn round cement plants relatively cheaply. At the same time, Nigeria’s banks have been consolidating. Flush with liquidity from the oil boom, they are more willing to lend.
Meanwhile, recent soaring oil prices began driving up freight costs just as global demand for cement was surging. “The only way you can get a very cheap price of cement now is by local production,” Mr Dangote says.
With that in mind, he has been quick to seize on China’s growing engagement with Africa and the low-cost services its companies can provide. This year, he signed a $1.85bn agreement with Sinoma International for the construction of four new cement plants, three in Nigeria and one in Senegal. Ultimately, he envisages reversing the armada to make Nigeria a net cement exporter.
“If you had told me before 2000 that the Dangote group could be valued at more than $1bn, I would have said it was impossible,” Mr Dangote says.
Today his group is expanding production across at least half a dozen African countries, preparing listings for its cement division in Lagos and London, and working with McKinsey, the consultancy, on a strategy to achieve a market capitalisation of $100bn.
It is the scale of his companies, their dominant market share in basic commodities and influence over Nigerian prices that has given Mr Dangote the leverage to invest in manufacturing.
This dominance, however, unsettles some of his compatriots. Mr Dangote’s critics believe his modest manner masks the ruthless instincts of a monopolist, ready to manipulate markets and milk political connections to force out rivals.
Mr Dangote played a prominent role in funding the 1999 and 2003 election campaigns of Olusegun Obasanjo, the former president, who saw the emergence of a handful of “oligarchs” as central to transforming Nigeria’s economy. Policy changes under his government, such as restricting cement imports to companies investing in domestic production, supported Mr Dangote’s rationale for expansion.
Mr Dangote is unapologetic about the close relations he has cultivated with successive military and civilian administrations. Anyone prepared to risk the kind of money he has in an environment where governments can prove so fickle and long-term capital so hard to find is compelled to seek influence over policy, he argues.
“We have been willing to put our money where our mouth is on a significant scale. We have seen the potential in the manufacturing sector in Nigeria, and the rest of Africa and grasped it?.?.?.?when others were unwilling to do so.”
Yet, even for the best-connected tycoon, the state can be an unreliable partner. To supply his latest plant, Mr Dangote had to finance a 180km gas pipeline, an independent power plant and build a dam.
Most analysts believe the group’s control over markets will counter a perceived loss of influence with the current government of Umaru Yar’Adua. Mr Dangote does not mask his frustration, though, at recent moves to license more cement importers in an effort to drive prices down.
He suggests that his planned expansion across Africa – and beyond – is motivated partly by a need to spread his exposure. “The risk of having too many assets in one market is certainly a driver.”