“It is no coincidence that many products on Nigeria’s import ban lists are items in which Dangote has major interests. Although an undiluted success in terms of wealth accumulation, Dangote personifies the duality in Nigeria’s economy. On one hand, Dangote imports significant amounts of US produce and equipment for his manufacturing ventures. On the other, he has had success blocking trade and investment that might compete with his enterprises.”
These are some of the words that introduce the American diplomatic cable about the business model of Nigeria’s richest individual. This cable, which was one of the thousands leaked by Wikileaks in 2009 detailed the U.S. government’s position on the source of Dangote’s wealth and its effect on the Nigerian economy. Its assessment was honest, direct and scathing – this guy is bad news for everybody except himself.
In the intervening 12 years, several people have tried at various times to take a cue from the leaked cable and speak up about what they consider to be Dangote’s crippling effect on Nigerian economic growth and dynamism. Typically, they end up either shouted down by people wielding arguments appealing to import substitution or patriotism. More often than not, they are simply ignored out of hand. And thus it falls on Benjamin the Donkey, the cynical intellectual from George Orwell’s ‘Animal Farm’ to once again put out an unpopular message that nobody wants to hear even though it is factual. Or David the donkey, as the case may be.
There is ‘Abnormal Profit’ and then there is this
In my A-Level Economics, my teacher, the late Mr Nwankwo often explained the concept of ‘abnormal profit’ – a state of affairs where a market participant exploits certain inefficiencies or advantages to operate a business running a profit margin that is well in excess of what is typically obtainable for a business in its category. Maybe it was because back in 2006, the concept of Dangote being a monopolistic entity was not that popular, but for some reason, he never referenced Nigeria’s most obvious example of abnormal profit – Dangote Cement.
Whereas organisations like Google, Microsoft and Amazon which have been accused of monopolistic practices achieved their monopoly through superior competition compared to their peers, Dangote achieved monopoly through political connection and patronage
To cut a very long story short, Dangote Cement is the quintessential example of a Price Maker monopoly – a business that sets prices for its smaller competitors due to its enormous size and market share. In other words, a monopoly that merely tolerates the existence of smaller competitors totalling less than 36% of Nigeria’s total cement market share. It is no secret how Dangote obtained this monopoly status but it bears repeating that it happened via President Obasanjo’s executive fiat, which banned cement imports and granted 90-year exclusive limestone mining licenses to Dangote at Nigeria’s richest limestone sites.
Read Also: Dangote Cement considers debt funding options for N300bn Bond
Having artificially created a cement market monopoly using state power instead of competition, Dangote not only charges Nigerians some of the world’s highest cement prices but also makes by far and away from the world’s largest and most obscene profit margins. Don’t believe me? Take a look at the numbers below.
Growing Nigeria’s economy vs Growing Aliko Dangote
The numbers above tell a very clear and unmistakable story about what Dangote’s business practise represents. Whereas organisations like Google, Microsoft and Amazon which have been accused of monopolistic practices achieved their monopoly through superior competition compared to their peers, Dangote achieved monopoly through political connection and patronage.
Where these monopolies actually create value and solve problems for their consumers by offering high quality output at the cheapest prices available on the market, Dangote is very happy to keep sitting atop a pile of the world’s priciest cement in a country with a housing deficit of 17 million and a crisis of sluggish GDP growth below population growth. Whereas countries like China, South Korea and Malaysia have used their construction industries as a lever to hack rapid GDP growth, Nigeria can do no such thing because its cement is simply too costly – and one cannot enter the market and reduce this price through competition because the monopolist entity is a price maker.
In other words, Nigeria’s wealthiest man is not actually a productive capitalist creating value for the Nigerian economy but at best an economic parasite and at worst a direct brake on Nigeria’s economic growth. The Dangote business organisation is not in fact a “business” in the classical sense of the term, but something more akin to a state-backed protection Mafia. It takes everything and gives nothing. To paraphrase the Wikileaks cable, Dangote is an undiluted success only when it comes to personal wealth accumulation.
I will end this article with another direct quote from the U.S. diplomatic cable:
“To supporters, he symbolizes that Nigeria can do more than barter and trade. It can succeed in manufacturing. To detractors, he is a predator using connections in a corrupt political economy to tilt the playing field in his favour and sideline potential competition. Weighing everything in the balance, we believe the Dangote model is harmful to Nigerian and American interests in the long run. Unfortunately, the Dangote model will likely be the one most emulated until its beggar-thy-countrymen contradictions become more apparent.”
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