Imports of cement are banned to protect local manufacturers. Dangote Cement, the biggest producer, makes a whopping 62% margin on sales in Nigeria.- The Economist, 23rd August 2014
This is just my two cents on the issue of Dangote aka Alhaji Putin. FF has spoken out about it again and again on his blog, but sometimes, it helps for more than one person to lend their voice so it won’t look like a personal matter.
The immediate past president, Goodluck Jonathan once hailed Alhaji Aliko Dangote as one of the positives for the Nigerian economy. And on the surface of it, it looks like it is true. But the truth is not always immediately apparent, because very many people have lent themselves to the task of obscuring what would have been grasped intuitively, and making what is bad seem good.
I’m only going to make some short observations about Dangote’s business methods and how they do not help the country, as has been claimed by many, and how in many ways they actually hurt the country. No one is saying business is not good. Or that the profits he’s made has not done any good. However, we have to ask ourselves what costs we are paying as a country for all this good we say he’s doing. The short answer is: entirely too much. If you want a more detailed articulation of the subject, skip over to aguntasolo.com.
But let me remind us of a few facts.
#1 GDP growth is a function of an increase in production. To put it differently, the economic formula for calculating GDP is Consumption + Investments + Government Spending + Net Exports (Exports-Imports). To grow your economy, a country produces more than it used to, which leads to an increase in either consumption or exports (or both). Before Dangote Cement, Nigerians didn’t produce enough cement, so we imported them at world prices to build houses, and roads and bridges. Dangote came along, and decided to start manufacturing right here, in our domot as we say. Obasanjo’s government promptly shut down all cement imports. Well, and good. Dangote was now making enough cement to meet our internal demand. Did we then start buying at the lower than world market prices since we’re now making the stuff at home? No. Instead, prices climbed, touching at one point 10x the world market price, while Dangote Cement enjoyed 60% margins (6% is typical for cement) vaulting to the upper ends of Forbes list. The country paid costs that go beyond the immediate high price of Dangote’s cement. With cheaper cement prices, our construction sector would have kicked off, with more people building many more houses for the millions of homeless slum dwellers and struggling renters around the country, roads, bridges , leading to infrastructure expansion, construction employment for young able bodied people, who in turn will spend money boosting income for stores, malls, computer village sellers, market women, whomever. Some slums would have been rebuilt by now. Instead, other than expensive developments for people who have all the money in the world, low cost housing development in Nigeria has been dead for years. Yet Dangote is winning. So we closed importation for him so he could charge us blind and make margins even Apple doesn’t make. Has our consumption of cement increased? No. The average Nigerian consumes 120 kg of cement a year, compared to the world average of 500 kg a year. If you remove China’s monstrous cement consumption, the world average is still 450 kg a year. Okay, let’s forget the world, let’s focus on Africa, the average is still 300 kg a year. Ghana, which by the way is still an importer, has consumption per capita of 250kg a year. Ordinary Ghana. So why in the world is cement in Nigeria still the most expensive in the world? Who is driving the price up? Certainly not us. Has our export of cement increased? Not at all. Which leads me to the second point.
#2 Dangote is divesting from Nigeria. He is setting up factories to produce cement around other African countries and even Nepal and potentially India. Many of them have even gone into production. Which is great, for Dangote. But if we closed importation for him, shouldn’t he at least drive exports from our shores so we can at least get money from other countries and get some increase in our GDP? Remember the formula above. If our production is high, we don’t have to consume all we make ourselves, we can expand our market by selling to other countries, enrichening our own. Yes, much of the money will still go to Dangote but Nigeria gets much needed positive trade, support for jobs here at home, export duties and what have you. So why isn’t he shipping cement to other countries, and instead is building factories all over the place? First because he knows at some point, he will rob the country enough that someone will finally have enough, and he needs to harvest the money he can now, and push it into other things and other places. More importantly though, it is clear that no other country will buy cement from us at the ridiculous prices we buy them at. That we have washed our country and laid it out for Dangote to eat does not mean other countries are going to do the same. Already there is evidence that they are selling in other countries at far lower prices and for far smaller margins, than they’re selling to us. Naturally. Because as Ben Carson so rightly pointed out yesterday? People are not stupid.
Certainly, in a country like ours where the government can be bought, you cannot blame Dangote for being the highest bidder. Neither can you fault him for buying it. If he didn’t someone else would have.
However, he has gotten more than his money’s worth. It’s not funny anymore. Whatever he wanted to prove, he’s had enough years of this unfair deal to prove it. He’s made enough money to enter any market he wants to enter, and make any killing he wants to make. He’s not helping to grow our GDP, if anything, he’s starving the economy both of a construction boom and investments in other sectors. Let him, and many others like him, come and be going.