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Wednesday, March 22, 2023

From Backwards Integration to Export Led Growth: Dangote Industries Leads the Way

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Since oil wells were discovered in commercial quantities in Oloibiri in 1956 and subsequent oil boom in 1970, Nigeria has not been the same.

It is disheartening that the country became a monolithic economy, and the black gold is so insidiously addictive that Agriculture and services were jettisoned to the detriment, leaving the vast majority to bear the brunt as 39 percent of the population now live below the poverty line.

Don’t risk everything on the success of one venture, and do not put all your eggs in one basket. Because when the basket crashes to the ground, a man loses everything, and he has nothing to fall back on.

The aforementioned proverb can be likened to Nigeria, whose economy always slips into a recession whenever crude oil prices slump, a problem both the military and the civilian governments have been variously grappling with since 1980 during the first shock.

Unemployment rate has risen to 33.33 percent, the second highest on the global list, according to the National Bureau of Statistics (NBS).

Regrettably, the copious importation has hemorrhaged the exchange reserve, resulted in loss of foreign exchange earnings, stolen jobs, and of course, leaves the central bank with fewer options than to devalue the currency.

Nigerians’ spending on food rose to N22.78 trillion in 2019, up from the N12.77 trillion recorded in 2010, according to data from the National Bureau of Statistics (NBS).

Despite the border closure imposed by the government to curb the influx of cheap and substandard products into the country, the government spent N1.85 trillion on food import in 2021, according to The Chairman of the Presidential economic advisory council, Doyin Salami.

Nigeria Imports of Fertilizers was $38.7 million during 2019, according to the United Nations COMTRADE database on international trade.

Despite efforts by the government to curb the importation of sugar, Nigeria spent N57.20 billion on the importation of sugar in 2019 and N97.30 billion in 2012, resulting in loss of foreign exchange earnings.

To help the country surmount its economic woes, create jobs, and accelerate industrialization, Dangote Industries Limited is in the forefront of the government’s backward integration policy.

The Dangote Group, is a multinational conglomerate industry, founded by Africa’s richest man, Aliko Dangote.

Interestingly, the company has been generating foreign exchange earnings for the country, thanks to copious investment in Sugar, fertilizer, and oil and gas.

For instance, Dangote Dangote Sugar Refinery (DSR) has spent N41.57 billion in pursuit of backward integration programmes.

Dangote Sugar, the largest producer of the sweetener in Africa’s largest economy with 70 percent share of the market, was commissioned in 2000, with an initial refining capacity of 600,000 MTPA.

It is actively investing in its operations; Savannah Sugar Company, its integrated production facility at Numan (Adamawa state) counts with installed factory capacity of 50,000 MT, covering 32,000 hectares with room for expansion.

Another backward integration project, Nasarawa Sugar Company Limited, located at Tunga, Awe Local Government Area, of Nasarawa State, along River Benue in Nigeria, has 78,000 hectares.

Cement Company saves Nigeria $3 billion annually

A few years ago, Nigeria was a bulk importer of cement in the world, but today it is self-sufficient in the production of the building materials, thanks to Dangote Cement, who is at the forefront of backward integration.

Dangote Cement Plc, the most capitalized company and largest producer of the building materials in the country, with production capacity of 29.24 Mta, has metamorphosed from backward integration to net exporter of the product, helping the government to save scarce foreign exchange.

As a result of the company’s consistent aggressive investments such as opening of factories across the country, Nigeria is saving $3billion annually for not importing cement.

Analysts and industry players have unanimously agreed that the huge investment by Aliko Dangote will help shrink the infrastructure deficit, bolster foreign exchange earnings, and reduce unemployment in the country.

The company has signaled the commencement of the construction of $1billion investment in cement plants with potentials for 6,000 new jobs in Opella, Edo State.

Despite a slowdown in construction activities due to Covid-19 crisis that paralyzed business activities, Dangote Cement was able to record stellar performance.

For instance, revenue increased by 15.40 percent to N1.03 trillion in December 2020 from N891.67 billion the previous year.

A breakdown of the financial statement shows sales volume for Nigeria operation was up 12.90 percent to 15.93 million tones in December 2020, while Pan Africa’s sales was up 4.40 percent to 9.98 million tones.

Dangote $15 billion oil refinery is a game changer

The $15 billion oil refinery, which is 3.34 percent of national output, and with capacity to process 650,000 barrels of crude daily, will be the largest single train in the world when it is completed in 2021.

Indeed, the project is a game changer as it is expected to create jobs for not less than 250,000 Nigerians, according to sources close to the company.

The Federal Government is spending huge amounts of money on petroleum importation as local refineries are moribund, and turnaround maintenance is gulping lots of money.

The value of petroleum imports into Nigeria exceeded the value of exports by $58.5 billion within a five-year period, the latest figures from the Organisation of Petroleum Exporting Countries have shown.

In its 2020 OPEC Annual Statistical Bulletin, the oil cartel said Nigeria’s petroleum imports from 2015 to 2019 was valued at $264.57 billion, while its exports during the same period was $206.07 billion.

In the first nine months of 2020, the country spent a total of N1.62 trillion on the importation of Premium Motor Spirit, according to data from the National Bureau of Statistics.

The Federal Government is saying that the current subsidy regime is unstainable, and that is increasingly undermining its balance sheet.

Analysts have called for the removal of subsidies and the liberalization and deregulation of the downstream stream oil and gas industry; and bemoaned money being spent by the government on the deteriorating inactive four refineries.

They added the funds should be used to fund the country’s huge infrastructure deficit and that policy makers are not nimble enough to formulate policies that will help attract foreign direct investment and accelerate economic growth.

Fertilizer Plant to bolster Agriculture

Dangote’s $2 billion Fertilizer plant, which has a name-plate capacity of 3 million tons a year of urea and ammonia, will be the largest in the world.

The President of Dangote Group, Aliko Dangote, told journalists during a tour of the facility that the plant will boost Nigeria’s economy by over $2.5 billion annually through foreign exchange savings and exports from the group’s petrochemical and fertilizer plants.

The figure is a fraction of the over $9 billion estimated to be saved for Nigeria annually from the Dangote refinery, petrochemical, and fertiliser plants by way of reduction in foreign exchange spending and other import-related costs.

To make the country self-reliant in the production of the product and create jobs, president Muhammadu Buhari told the central bank governor to ease giving foreign exchange to the importers of fertilizer.

In 2018, the apex bank added fertilizer to the lists of 41 items ineligible for foreign exchange. In November the same year, the federal government banned the import of NPK fertilizers in an effort to support the domestic NPK production base and save foreign currency reserves.

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