VICTOR OGIEMWONYI
Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com
In recent times, oil and its politics has dominated discussions in Nigeria.
The Dangote Group, NNPC Limited and Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the regulator, have been engaging each other in contentious exchanges, which has resulted in some interesting revelations.
Dangote revealed that the allocated 20 percent ownership in Dangote Refinery to the NNPC, has not been paid for, and has therefore reduced NNPC shareholding to just seven percent (7%).
This drew reaction from NNPC, which has now just told us that they review their investment decisions from time to time. How this directly addresses the issue of the 20 percent proposed ownership that has now changed is yet to be known.
The NMDPRA, Dangote Refinery’s regulator, on the other hand, addressed a press conference to say that the Dangote Refinery has not been licensed fully and its diesel product was of inferior quality. They also accused Dangote of wanting to be a monopolist who wants to compromise Nigeria’s energy security. This specific claim has drawn the most comments.
What this obviously de-marketing ploy was meant to achieve is not exactly clear. No matter what you make of it, it was in bad taste, and some have said it is tantamount to economic sabotage to be advocating petroleum products importation at this time.
The claims that Dangote has monopolistic tendencies that is often mouthed, but without proof, has been so overstated that people tend to believe it on face value, without examining it. When you ask those who push this monopoly claim, they will tell you Dangote gets government favours; that he gets tax holidays and concessions. When you ask them to tell us whether those who compete with him have been denied these same tax holidays/concessions, etc, they can not say.
It is strange that those who make these claims don’t know that almost all the big companies doing business in Nigeria, including local and foreign ones, all use these tax holidays, waivers and concessions, if they qualify. It will be interesting to see a list of all the companies that have used these tax holidays, waivers and concessions in the past.
The helmsman of the Dangote Group has been in business for the past 40 years. You can not say he has found unusual favours with all the governments of the day, military and civilian in these 40 years. Those close to him say he is a very hard working man and very competitive, and wants to have the largest market share of any business he is in. This is not a crime. There is a very significant difference between a dominant player and a monopolist.
To the best of my knowledge, Nigeria is open for business to anyone. Take his dominance of the cement industry in Nigeria, for instance. He has earned the market share he controls. This is because as the largest producer of cement in Nigeria, with the most capacity, he is the dominant player. That does not make him a monopolist. Ask BUA the next largest producer of cement in Nigeria, he sells everything he produces. In-fact, there are at least four more producers and they all have a market for their products. The top two producers are the latest to come to the industry. The oldest of the cement producers, the Lafarge/Elephant Cement Group, has not been able to build the capacity built by Dangote in 20 years, in their 50 plus years in Nigeria. By the way, is Dangote Cement, also a monopolist in Ethiopia, Tanzania and other African countries where he operates?
His foray into the refinery business is a testament to a dogged fighter. No one remembers now that he bid for the Port Harcourt Refinery and won it, only to be cancelled by the then new administration of president Yar’adua. Anyone seeing what has happened to the unending turnaround maintenance of the PH Refinery in the last 20 years without results and the billions of dollars that have been sunk in, will agree it was a mistake to have cancelled that concession. To prove that he has seen what opportunities there are in the business, he kept his dream alive, pouring $20 billion into a new refinery that took seven years to build, in a hazardous Nigeria economic environment.
If he was in for just the quick money, he would not have bothered to do a brand new refinery. Let’s give honour to whom honour is due. Mr Aliko Dangote has been a force for good in Nigeria. He has been in the forefront of contributing his quota to developing Nigeria.
No one remembers now that Mr Dangote got into the cement business when it was a pain point for Nigeria. Nigeria was spending a significant portion of its FX in importing cement. It was also causing other problems. Imported cement sometimes clogged our ports and created problems for other critical imports and exports – coming in and going; in fact, increasing inefficiency at the ports, and causing other consequential economic costs. He has now solved that problem. Nigeria today exports cement, and earns FX from cement, instead of spending FX to import cement.
Petroleum product imports in recent years have also become another pain point for Nigeria and a drain on our FX resources. Some say over 50 percent of our FX earnings go back to import petroleum products.
We have all also experienced the long petrol lines and attendant road congestion, when the NNPC sometimes fail to properly measure our petrol needs, or import too little, and there is scarcity. Sometimes, they even import bad fuel.
These shortages that occur from time to time also have other hidden costs. When there is fuel shortage and it affects all economic activities, and sometimes threatening security, there is then an emergency, which requires emergency measures. This sometimes means buying products at whatever price to ensure swift importation and delivery. This extra cost is avoidable, if you ask me. This then leads to another not so apparent cost, the cost of forward buying in anticipation of demand to avoid the next scarcity. This is very costly, whether you pay cash forward or you do it with credit.
Given that the output of the Dangote Refinery is local production, the pay off to the sector is shorting supply lead times, and energy security, with the potential to end fuel queues in Nigeria. This also eliminates forward buying, and also yields major savings.
The FX allocation to petroleum product imports will be saved, and FX saved can go to other critical areas.
We have heard arguments that because Dangote is producing locally, he should sell his products cheaper and in naira. What those advocating this do not know is that oil is an international product sold all over the world in FX. The same way Dangote cannot also buy our oil in naira.
Let’s be a little charitable and let Dangote be. Not only is he born into an aristocratic family of the Dantatas of Kano, he has worked hard enough and earned enough to take care of his next two generations. It will be foolhardy if money alone is his motivation.
He has worked hard to reduce some of our development pain points in Nigeria. The least we can do is encourage him.
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