Aliko Dangote, the richest man in Africa, is a product of the Nigerian state. By deliberate policy choices, the state made Dangote what he is: Nigeria’s foremost oligarch. However, recent rifts between Dangote’s oil refinery and the Nigerian National Petroleum Company (NNPC), as well as the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), not to mention the raid on his headquarters by the Economic and Financial Crimes Commission (EFCC), suggest that all is not well with the long-running relationship between Dangote and the state. Yet, as a state-made commercial Leviathan, Dangote should serve the public good. Indeed, it is in Dangote’s own interests and those of the Nigerian state that their decades-old relationship is now properly recalibrated.
To be sure, Dangote was not born poor. He was born into wealth and became a millionaire very early in life. However, his transition from a millionaire to Africa’s richest man would not have happened without a leg-up from the state, without special favours and preferential treatment from the Nigerian state. To this credit, Dangote himself admits the origin of his stupendous wealth. It is a fascinating story. Before we come to the refinery saga, let’s tell the origin story, as Dangote himself narrated it.
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In 2018, Dangote granted an interview with the Financial Times in which he laid bare how he hit the jackpot and got his break. Dangote had part-funded General Olusegun Obasanjo’s campaign for the presidency in 1999. And when Obasanjo became president, he decided to return the favour. One day, Obasanjo called Dangote and said: “Can we meet today?” Dangote went to meet Obasanjo who asked him how Nigeria could become self-sufficient in cement production. Well, Dangote told him that only if imports of cement were banned would it be worthwhile to produce it in Nigeria. Pronto, with presidential diktat and the simple squiggle of his executive pen, Obasanjo banned the importation of cement and handed a monopoly licence for the critical material to one man. As the FT put it, Dangote “has never looked back”, and cement became the crown jewel of his empire.
Of course, it was an utterly misguided and shortsighted decision, a point later acknowledged by the Jonathan administration in the Nigeria Industrial Revolution Plan (NIRP), published in 2014. The NIRP said that “the Nigerian cement industry is heavily concentrated,” adding that “strong regulation is needed to ensure the industry adequately promotes competition.” The NIRP went on to say that “Nigerian cement prices are among the highest globally” despite the products being of “low finished standards”. It was a damning indictment of Obasanjo’s patronage politics. Here’s a country with an estimated housing shortage of 20 million units, the main cause being the high costs of building materials, particularly cement.
Throughout history, cement has improved people’s health and wellbeing. In many countries, paving dirt floors with cement and replacing dirt tracks with paved roads significantly reduced parasitic infections and boosted living standards. What about shelter, one of humanity’s primary needs? Few things matter more than having a decent roof over one’s head. The new Labour government in the UK promised to build 1.5million homes, and Kamala Harris, the US Democratic presidential candidate, promised to build 3 million homes, if elected. That’s because housing contributes to economic growth and improves people’s lives. But at its heart is cement!
“It is a fascinating story. Before we come to the refinery saga, let’s tell the origin story, as Dangote himself narrated it.”
In his fascinating new book titled ‘Material World: A Substantial Story of our Past and Future’, the economist Ed Conway said: “The reason cement has changed the world is not merely because it has magical qualities but because it is cheap, and it is everywhere.” Sadly, that’s not so in Nigeria. Cement is not affordable in Nigeria. There’s hardly anyone on a middle-income in Nigeria today who can build a house. Nigeria is not a property-owning democracy, it is not a property-owning economy, largely thanks to the high costs of cement. Despite the promise in the NIRP to regulate and make the cement industry competitive, it is still dominated by a cartel, by politically connected oligopolists, shielded by import bans.
Which brings us to the Dangote refinery. The $20bn refinery was hailed as a “game changer”, a private initiative that will meet Nigeria’s refined petroleum needs by producing 650,000 barrels of refined fuel a day. But the refinery’s entire business model is built around special favours from the state. It is not intended to operate as a true private entity in a free market economy. For instance, it was largely funded with concessionary loans from the Central Bank of Nigeria (CBN), while the NNPC made a downpayment of $2.7bn for a 20 per cent stake in the refinery, although it later whittled it down to 7.2 per cent. More importantly, the refinery depends on NNPC selling it crude on preferential terms and won’t survive unless the government stops importing refined products, thereby giving it a monopoly in the market.
Elsewhere, citizens would ask why a government that cannot revive four moribund state-owned refineries, despite spending billions of dollars on so-called turnaround maintenance, and that refuses to privatise the refineries, would put its political and financial weights behind one privately-owned refinery. Rationally, the government should privatise the state-owned refineries, which would foster competition in the domestic market for refined petroleum. The market should be fully liberalised to engender genuine competition. It would be irrational to tie the supply of refined petroleum products in Nigeria to one privately-owned refinery.
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Think about it, Farouk Ahmed, chief executive of NMDPRA, said that Dangote’s refined products are “inferior” to imported ones. He also said that Dangote wanted the government to stop importing refined products to give his refinery a monopolistic advantage. These claims by the oil sector’s statutory regulator should be investigated. Instead, there is a cacophony of criticisms by those who want to politicise the issue, while the Tinubu administration undermines NNPC and NMDPRA by ordering them to bend over backwards to give the Dangote refinery a lifeline.
Truth is, the special tie-in between Dangote and the state can harm both. According to a recent FT report, many businesses view Dangote as a “ruthless government-favoured monopolist.” Such sentiments could create a damaging resentment towards him. Besides, too much cosiness with the government and dependence on political favours can backfire because the political landscape may change, and a new government may not be as friendly as a previous one. As for Nigeria, foreign investors may shun the country if there is no level-playing field, because politically connected local businesses are accorded undue advantages.
To be clear, this is not an anti-Dangote intervention. Far from it. Rather, it’s a piece in support of a free and competitive market, where there are many buyers and sellers and no barriers to entry or exit. But Dangote’s instincts are protectionist. In the FT interview, Dangote, who also produces salt, sugar and flour, said the government should introduce “draconian policy” to ban food imports “just like they did with cement.” The FT said he was “defending the thinking that has made him rich.” But that thinking is bad for the economy, and bad for consumers.
Adam Smith said in The Wealth of Nations: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.” Put simply, if cement is of low quality and expensive, if refined petroleum is of low quality and expensive, the state must not put the interests of producers above those of consumers and the economy. That’s why Nigeria must banish all forms of protectionism, monopoly and oligopoly. They are enemies of society!
