Saturday, March 21, 2015

Know your enemy

Aliko Dangote lives as you might expect, given he’s the richest person in Africa and resides in the same country being bullied by the insidious Boko Haram terrorist group, which finds something noble in kidnapping village girls. Located on Victoria Island, a wealthy Lagos enclave that has a moat in the form of a lagoon and the far eastern shores of the Atlantic Ocean, his mansion comes with all the trimmings: massive black gate, bulletproof windows, Big Brother video surveillance, guards and a secret entryway. Dangote is rsanked No. 67 rank on the World’s Billionaires List and his $14.7 billion fortune is mostly from three majority stakes cement, sugar and flour companies.

THE ROOTS OF DANGOTE’S rise lie 150 miles south of the Sahara in his hometown of Kano, Nigeria’s second-largest city. A dusty metropolis, Kano has been a trade center and commercial hub since its establishment in the 10th century, thanks to its strategic location on the edge of the vast desert. Egyptian perfumes, incense, inks and mirrors dominated at first, then leather goods. The camel caravans became lucrative enough to fight over; wars broke out with neighboring kingdoms. When the British arrived in the late 1800s, Kano was West Africa’s most important business center.

Under British rule, Sanusi Dantata, Dangote’s grandfather, grew rich trading commodities like grain oats and rice, and ranked as one of Kano’s wealthiest citizens. Dantata insisted on personally raising his grandson–not an unusual arrangement in northern Nigerian culture–and instilled a businessman’s mind-set in Dangote at a young age. At 8, he turned allowance into startup capital. “I would use it to buy sweets, and I would give them to some people to sell, and they would bring me the profit,” Dangote says. “When you are raised by an entrepreneurial parent or grandparent you pick that aspiration. It makes you be much more aggressive–to think anything is possible.”

Dangote, a Muslim, attended AlAzhar University in Cairo and studied business. After graduation, he asked his grandfather for permission to move to Lagos. A $500,000 loan from his uncle set up 21-year-old Dangote as a trader of rice, sugar and cement. He was well capitalized. He imported sugar from Brazil and rice from Thailand and sold them locally at a huge markup. At his height, he says, he was pocketing $10,000 in profit a day. “Things were quite good,” he says. “It allowed us to create an awful lot of cash.”

A 1994 US diplomatic cable singled him out as a businessman to know in Nigeria and drew attention to his clan’s homes in Kano, Lagos, London and Atlanta. The State Department report also highlighted the annual family vacation to the States. A 1995 trip to Brazil convinced him to shift from trading to manufacturing. Why continue to play middleman when he could make the stuff in Nigeria instead and pocket even more profit? Dangote Sugar started in 2000 and quickly expanded the annual production capacity of its refinery at Lagos’ Apapa Port to 1.44 million tons, enough to satisfy 90% of national demand. By the time Dangote Sugar debuted on the Nigerian Stock Exchange in 2007, sales had quadrupled to $450 million. The flour firm, which began in 1999 and also produces pasta and noodles, followed a similar trajectory. It began with a single mill, tripled revenue to $270 million, increased capacity eightfold to 1.5 million tons–then joined Dangote Sugar on the NSE in 2008, the same year Dangote became the first Nigerian on FORBES’ World’s Billionaires list, at No. 334. In 2005 Dangote secured a $479 million loan led by the World Bank’s International Finance Corporation–Nigerian banks didn’t have the ability, or the stomach, to put up the cash alone–and agreed to plunk down $319 million of his own money to build a cement factory. Dangote Cement listed on the NSE in 2010 as a $1.3 billion-in-sales company. The three companies today do a combined $3 billion in revenue; while Dangote Flour operates at a loss and Dangote Sugar’s net margin falls in line with Brazilian peer Cosan, the cement company is wildly profitable, with a margin of 52%–about double that of close competitor LaFarge Africa. The companies retain a vice-like grip on their industries today, controlling at least half of the cement and sugar markets and about 25% of flour.

Oil now represents another big play for him, and he’s busy building a refinery some 40 minutes by car outside central Lagos. Dangote explains with uncharacteristic glee that the recent drop in prices will actually make construction easier. His suppliers will be desperate … and easy pickings. “We will be the only ones around,” he says. “We will carry a big knife and cut them on prices.”

The refinery, Dangote says, can be profitable even at $50 to $70 a barrel. Raw crude for the refinery will come from multiple suppliers. If all goes according to plan, it’ll produce 650,000 barrels a day–a variety of gas, diesel and jet fuel–and Dangote would basically walk away with a monopoly on refined oil in the country. The four Nigerian National Petroleum refineries are viewed as corrupt to the point of nonfunctioning.

To make it happen, Dangote plans to invest some $10 billion to $11 billion in the project and an adjacent petrochemical plant, with at least $6.75 billion in debt financing.

He’s a Davos regular, and appeared with Goodluck Jonathan, Nigeria’s current president, on a panel about investment potential in Africa at the 2014 World Economic Forum. Even four years ago, he was there making a familiar pitch: “Don’t give any more aid to Africa,” he said. Invest with local partners instead. “You will make money, and we’ll make money, and it’s better for everyone.”

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