In late August 2015, Aliko Dangote, Chairman of Dangote Cement , looked out the window of his marble office tower in Ikoyi1, taking in the views of the Lagos Lagoon and Falomo Bridge as he reflected on the press conference he had just attended. Dangote Cement Plc, the leading brand in the Dangote Group, had just signed a contract worth $4.34 billion with China’s Sinoma International Engineering to build cement plants across Africa and expand their frontiers to Asia by building a plant in Nepal.
Dangote Cement Plc was at this point the largest publicly traded company on the Nigerian Stock Exchange with a market capitalization of $15 billion and the leader in cement production in Nigeria with 2014 revenues of over $2billion .
Despite their market leader position, Dangote Cement faced challenges in Nigeria including increasing competition from rivals, industry overcapacity, pressure to lower prices as well as reduced benefits from tax incentives and these factors played a part in the company’s decision to expand from their home territory.4
According to the World Bank’s International Finance Corporation, African cement production capacity will need to increase between 10-15m tonnes per annum over the next decade to meet the continent’s growing demand. Cement consumption per capita in Africa is around 100kg, significantly below the global average of 571kg thus making Africa an attractive region to cement companies seeking to establish first mover advantage in these countries.
Dangote Cement engages Sinoma under an EPC (Engineering, Procurement, Construction) contract whereby Sinoma are just suppliers and all financing and ownership lie exclusively with Dangote Cement. The advantage of an EPC contract is that all risk lies with the supplier. Sinoma employs German materials coupled with Chinese human capital and they are able to build cement plants at cheaper costs and within shorter time frames.
Dangote Cement’s plan was to increase their production capacity to 72.7MTPA (million metric tonnes per annum) by 2019 and become the largest cement producer in continental Africa replacing current leader LafargeHolcim whose African capacity currently stood at 50.0MTPA while Dangote Cement’s current capacity stands at 43.3MTPA.
Dangote Cement is actually the biggest producer in Sub-Saharan Africa (Africa excluding North Africa), the largest African owned cement producer and were the largest producer in Africa prior to Lafarge and Holcim’s merger. But how will Dangote Cement achieve this goal especially in the present climate of falling oil prices, slowdown of the Chinese economy and currency devaluations which have hit African economies? Was the company’s current strategy of building new plants more effective than the acquisition route taken by the cement globalisation poster child – CEMEX of Mexico? How will the incumbent leader, other international cement players or local players in the African market react to Dangote Cement’s aggressive ambitions especially in the wake of rising industry consolidation? Could a successful pan-African strategy just focus on Sub-Saharan Africa and ignore North Africa? As Aliko Dangote pondered these questions, he picked up the leather plaque on his desk. He reflected on his entrepreneurial journey from a cement trader to one of Africa’s leading cement producers and the continent’s richest man as he read the words inscribed on the plaque, “Nothing is Impossible”.
Aliko Dangote is the richest man in Africa and 67th richest person in the world with a net worth of $14.7 Billion according to Forbes Magazine. He was born in 1957 in Kano, a city in Northern Nigeria. His grandfather, Sanusi Dantata, was ranked as one of Kano’s wealthiest citizens and made his fortune by trading commodities such as grain oats and rice. At age 8, the young Aliko Dangote would buy sweets and give to people to sell on his behalf who in turn returned the profits to him. “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 studied Business at Al-Azhar University in Cairo and at age 21, he received a $500,000 loan from his uncle to set up as a trader of rice, cement and sugar.
Dangote Industries (also referred to as Dangote Group or The Group) was founded by Aliko Dangote in 1981 and it is the largest and most diversified industrial conglomerate in West Africa with revenues in excess of $3 bn. The Group was originally established as a trading business with an initial focus on cement and over time, extended into trading cement, sugar, flour, salt and fish. In 1990, the Group had grown into one of the largest trading companies in Nigeria and embarked on an ambitious construction programme, initially focused on the construction of flour mills, a sugar refinery and a pasta factory. The group’s activities now encompass cement manufacturing, agri-business, natural resources, logistics, real estate, telecoms, etc.8
Dangote Industries is also building an oil refinery in the Epe region of Lagos State in Nigeria. In an interview with McKinsey, Aliko Dangote discussed the rationale behind the refinery:
“Nigeria is very dependent on oil – 38% of the country’s imports are petroleum products. We’ve looked at what kind of refinery we would need to meet the local demand and also export to others in West Africa. The refinery, with an output of 650,000 barrels per day, will be the biggest petrochemical complex in the world in one single location. It will cost $12 billion, to build and will generate a turnover of $24 billion per year. This will totally transform the Dangote Group. When a country exports raw materials, it actually doesn’t make much money. So what we are trying to do is change that mind-set: rather than being raw-materials exporters, we’ll now be goods exporters.”
Dangote Industries’ refers to their transformation from a trading company to a manufacturer of goods as ‘backward integration’. In Nigeria, the term is used to describe replacing imports with local production and is often accompanied with inducements such as import quotas and tax incentives.
This backward integration was Dangote Cement’s guiding principle in moving from a cement trader to Nigeria’s largest cement producer exploiting the country’s natural advantages of abundant limestone and rich energy reserves which together comprise the raw materials required for cement production.11
Dangote Cement Plc
Aliko Dangote’s first foray as a trader was in importing cement.
“We spent almost two years from 1978 to 1979 importing cement to Nigeria and when the cement climate went bad, we focused on sugar and didn’t revisit cement till 2000”. In 2000, we opened our import terminal in Lagos and we spoke to Lafarge to take over 40% of the terminal as we were scared of the cement import business, Lafarge wanted 51% so we went ahead with our importation plans without them. Our first consignment was a disaster as our specifications were flawed and the vessel incurred heavy demurrage. However, within a year we opened our terminal in Port Harcourt and within two years we had 40% capacity in Nigeria.”
Nigeria’s then president, Olusegun Obasanjo, invited Aliko Dangote to discuss why the country could only import cement and not manufacture.
In an interview with Financial Times, Olusegun Obasanjo commented on his meeting with Aliko Dangote:
“He [Dangote] has been an enterprising man no doubt, but he was always mainly in buying and selling. I got up one day and I was thinking, we [Nigeria] started producing cement in 1956. Egypt started about the same time or ahead of us. Now they are all exporters. So I called Aliko and I said, why are you not producing cement? Why is everyone importing? He gave a straightforward answer – it is more profitable to import and sell than to produce.”
Subsequent to this meeting, a ban was placed on firms importing cement unless they showed plans to also set up manufacturing plants in Nigeria and the aim was to enforce a complete import ban on cement once the country was self-sufficient. This was when Dangote decided to make the move into cement-making.14
Some critics feel that the cement importation ban was implemented to favour Dangote however according to Knut Ulvmoen, a former managing director of Dangote Cement and presently the Sales Director, this is not the case. “All firms were given the same ultimatum but I don’t think a lot of them thought the ban would be enforced or that we (Dangote) would be that successful so they were not prepared to risk the high investment.”
As to why Nigeria was not producing cement up to this point, Onne van der Weijde, the Group Managing Director of Dangote commented “Prior to the Obasanjo government, Nigeria had been under military rule and (cement) companies were not as comfortable with making a big investment to open a plant when a military coup may occur at any time and force the plant to shut down so the international players were importing cement from their other markets and not investing in capacity in Nigeria nor the rest of Africa. When the country moved to a stable democratic rule, it made sense to invest in capacity”.
Dangote entered cement manufacturing by acquiring government owned cement plants through the privatisation exercise. “We first bought Benue Cement Company from the Federal Government of Nigeria and we had issues for about forty months so we moved to acquire Obajana Cement in Kogi and our cost estimate was $480 million and we spent $1.2 billion eventually. We received a loan from the International Finance Corporation (IFC) and it took us 7 years to complete Obajana and we paid the IFC back within 18 months of commencing operations.”
According to Onne van der Weijde, most cement plants take about 25 years to return on the investment but Dangote Cement took under 2 years.18
Now, Dangote Cement has grown to include different types of cement plants as well as import terminals. Integrated Cement Plants make both clinker, the product of limestone, clay and energy, and Cement, which is the product of clinker and gypsum. Grinding plants are usually located in countries with inadequate limestone supply and they use imported clinker and grind it with gypsum at the facility to make cement.
All Dangote Cement is 42.5grade which is better quality (higher clinker proportion) than the 32.5grade offered by their competitors and Dangote Cement is always the best priced in the market hence the company offers high quality, low price cement and that is what differentiates the company from the competition.
Nigerian Cement Industry Overview
Nigeria is the biggest and fastest growing economy in Africa and also the continent’s most populous country (~180million). The country is rich in limestone and positioned in a region where most of its neighbours are limestone deficit. It is estimated that Nigeria saved c.$2.24 billion from cement importation in 2013 via import substitution and the country is now self- sufficient in cement .
Dangote Cement has 70% of the Nigerian cement market share and they are able to set the price of cement as they have the capacity to dictate.
Dangote Cement Nigerian Operations
Dangote Cement Plc was incorporated in 2010 as part of the scheme of merger between Dangote Cement and Benue Cement Company. Dangote Cement plants in Nigeria are all integrated plants producing bagged cement and clinker for export to other plants in countries without vast limestone deposits. The three Dangote Cement plants in Nigeria are Obajana, Gboko and Ibese with a total capacity of 29.3 million metric tonnes per annum making Dangote Cement the largest cement producer in Nigeria. There are also upcoming plants in Itori, Nigeria.
In 2002, Dangote Industries Ltd. acquired the Obajana cement plant from Nigeria’s Kogi State Government and construction began in 2004. In 2007, the plant was commissioned with two production lines and capacity of 5MTPA. In 2012, 5MTPA was added and a 3rd production line was commissioned at Obajana also for 5MTPA making Obajana one of the biggest cement plants in Africa.
Dangote Cement’s Gboko plant is located in Benue, Nigeria and its production capacity is 4MTPA. The plant runs on LPFO (kilns) and diesel (power generation) and the feasibility of building a gas pipeline to the plant is being studied.
The Gboko plant was first established in 1975 by the Federal Government of Nigeria as Benue Cement Company and in 2000, Dangote acquired 35% shareholding during a privatisation exercise. At the time the plant had a capacity of 0.9MTPA, but it was subsequently upgraded by Dangote to its present capacity of 4.0MTPA.
In December 2011, Dangote Cement opened a production plant at Ibese in Ogun state, near Lagos. The plant is currently operating 12MTPA.
Dangote Cement has commenced plans to build 2 new lines at a facility in Itori, Ogun State; each line will have a capacity of 3MTPA.
Dangote Cement’s main competitors in Nigeria include Lafarge Africa, BUA and Ibeto Cement.
In 2014, Lafarge SA the French Cement Maker combined their Nigerian and South African assets to form a new company Lafarge Africa Plc29 to compete with Sub-Saharan Africa market leader Dangote Cement Plc. Lafarge Africa’s Nigerian assets include the Ashaka, Atlas and UNICEM plants. Lafarge’s 32.5 grade cement has come under a lot of criticism and hasn’t been deemed high enough quality for building houses compared to Dangote’s 42.5 grade cement and Lafarge Africa have faced issues with Standard Organisation of Nigeria.30 Lafarge has capacity of 8MTPA across all their plants in Nigeria. Plans are underway to increase production capacity at the company’s UNICEM plant through the construction of a new 2.5MTPA line and supply contractor for this is China’s Sinoma.
BUA cement is owned by Abdulsamad Rabiu, a Nigerian billionaire also listed on Fobes as the fourth richest person in Nigeria with a net worth of $1.2 billion and his BUA group has interests in cement, pasta, steel and real estate.
He purchased the Cement Company of Northern Nigeria and Edo Cement Company Ltd during Nigerian government privatisation exercises. In 2015, BUA Cement signed a
$600million supply contract with China’s Sinoma to expand capacity at their flagship cement plant in Obu and the company is also eyeing a continent wide expansion.
Ibeto Cement is based in South Eastern Nigeria. The company took over Nkalago Cement in Enugu and have relied solely on supplying imports. In 2015, Ibeto Cement signed a
$386million contract with Sinoma to build a 6000t/day clinker line and 45MW self- generation power plant in Enugu, Nigeria.
Dangote Cement signed their first deal with Sinoma in 2010 for construction at Ibese, but now that their main rivals have also signed contracts with the same company, what does this mean for Dangote’s first-mover and competitive advantage of working with Sinoma? According to Andy Gboka, a senior investment analyst based in Zurich who has covered blue-chip Nigerian stocks for years including Dangote Cement Plc, this is not an issue. “Dangote has more money and they are building more cement plants so they will have a better deal with Sinoma than the others so they still have a strong advantage.”35
Dangote Cement’s Expansion Strategy
Dangote Cement’s plan is to be the number one cement producer in Africa and a top ten global producer by 2019 with a total capacity of 79.2MTPA . The strategy to achieve this is by building new efficient plants mainly in Sub Saharan Africa.
Focus on Sub-Saharan Africa
Sub-Saharan Africa(SSA) is characterised by cement demand growth, infrastructure deficits and limestone availability ironically coupled with obsolete cement production capacity, import dependence and poor electricity supply.
When asked why DCP focused on SSA, Aliko Dangote commented:
“We looked at geographic distribution of our cement. SSA is where future growth is happening and there are rising infrastructure needs. Most of the major cement producers were not doing much so we decided to stay in SSA. We understand the culture, we understand the environment. In our country selection process, we look at population, demand, supply, GDP and future growth. Government interactions are also very important in manufacturing.”
“We studied what happened to previous companies that made them fail at producing cement and the two main issues were lack of power/energy as well as policy somersaults which are constant policy changes from the government. So, all Dangote Cement Plants apart from South Africa and Ethiopia are not on the power grid and we continuously engage the respective governments in all that we do to resolve issues that cripple manufacturing. The key is to respect different cultures and keep our ears to the ground and so for us, forming strategies for new destinations is not too difficult.”
Developed countries have saturated markets and Dangote Cement have diversified their risks by entering different African countries; they are able to offset flattening cement demand in Nigeria and South Africa with high growth in the Senegal and Ethiopia cement markets.38
Andy Gboka, a senior investment analyst, also weighed in on why the company decided to embark on a pan-African expansion process
“A lot still needs to be built in SSA including roads, ports, rail and housing with the rising urbanisation and majority of the countries rely on import. The international players were leveraged, had debt, had their monopolies and didn’t want to invest in the region. Dangote decided to commit and he moved fast.”
“He had the money and connections and once Nigeria stopped importing and became self-sufficient, he leveraged his cash flow in Nigeria to expand outside the country. Lafarge, Heidelberg and PPC were the main players at the time and were not doing much. Dangote entering these markets in SSA has forced historical leaders to wake up and invest in capacity and inefficiencies. Tax barriers and import quotas are also keys to development; in the South African market, prices are too high so consumers can’t stop buying imports so barriers need to be put in place. The focus has to be SSA, in the key North African markets of Egypt and Morocco, there is oversupply. Egyptian authorities are currently processing new licenses however prices are coming down in Egypt. The fundamentals are not good for Dangote to come in; they will have more opportunities for growth in SSA.”
Building new plants
With regards to why they have chosen to build new plants rather than acquire, Aliko Dangote responded “We go to countries where there is no capacity and we don’t mind waiting two years for a plant to be operational.”
Dangote Cement’s building contractor for their new plants is China’s Sinoma and they were able to negotiate favourable rates with the contractor due to the volume of their expansion, first-mover advantage (DCP was the first to sign with Sinoma before its competitors) and the slowdown of the Chinese economy. With newer and more efficient plants, DCP is able to produce 42.5grade cement at a much lower price than its competitors using obsolete facilities to produce lower quality 32.5grade and continuous improvement in the plant leads to reductions in production costs year on year.
Apart from building cement plants, Sinoma also produces cement and is the 3rd largest producer in the world and China is the world’s largest cement producer at 2500MTPA (India is second with 280MTPA) however Sinoma’s model in Africa is to build rather than compete.
In countries with limestone reserves, Dangote Cement builds integrated facilities whereas in those lacking limestone, the strategy involves building import terminals to which they import bagged cement from Nigeria or other destinations or building grinding plants which use imported clinker from their integrated plants in neighbouring countries.
Cement grades depend on the percentage of clinker used. 32.5 was the norm when construction in Africa was mainly one-storey buildings but the trend towards more sophisticated infrastructure calls for 42.5grades as the standard. A 42.5plant can also make 32.5grade however the reverse calls for expensive facility upgrades and will result in lower capacity as more clinker will be used and less cement produced.
New plants are given pioneer tax holidays of up to ten years in most African countries and it is less expensive to build lines of additional capacity at newer plants.
Most of Dangote Cement’s expansion is done with equity. The group raised US$ 3 billion at 4.5% against LIBOR and are able to access international finance to fund their expansion so they have an advantage over most of their competition that cannot access such capital. The size of Dangote Group and its cash flow means that banks generally run after Dangote not the other way around.48
Acquisition vs Greenfield
Rather than build a new plant, Dangote Cement chose another entry route in South Africa when they acquired 64% of Sephaku in 2010. Challenges have included a more difficult decision making process when compared to plants 100% owned by DCP, cement dumping in South Africa from Pakistan, incorporating black empowerment schemes and a high cost structure compared to Dangote’s newer plants that are continuously optimised every year to reduce production costs. DCP acquired Sephaku at a good price and the deal provided access to limestone and a well-established distribution channel and in cement, distribution is key.49
According to Dangote’s Group Strategy Lead, Aliyu Suleiman,
“Generally, when you acquire, you pay a premium as you pay for inefficiencies in building and companies tend to overvalue.”
When asked whether Dangote Cement’s strategy of building new plants was better than the acquisition strategy used by CEMEX (a Mexican cement company whose ‘successful’ globalisation strategy has been written about extensively with case studies from leading business schools including Harvard, Darden and MIT), Carl Franklin Dangote’s Investor Relations head responded.
“There is a need to update those CEMEX cases with a ‘what happened next?’. They acquired Rinker at a heady multiple of $15bn and loaded up with debt that affected them in the 2008 global financial crisis and they had a 7x net-debt to EBITDA and are currently still leveraged and trying to recover. We (Dangote Cement) have 0.76x net-debt to EBITDA due to our strong cash flows and we are able to expand rapidly in fast-growing Sub-Saharan Africa. By the time CEMEX de-levers, it may be too late for them to enter the region.”51
Some challenges that have faced DCP’s expansion include government permits, mining licenses, land issues, ownership, employment of government workers and plant delays. However, Dangote Cement typically has good government relationships and cement substitutes such as wood and steel are not widely used in Africa. In new markets, Dangote Cement have to rely on distributors who are not exclusive and have to be convinced to hold the company’s product, DCP also responds to local competition by studying if the market channel follows fragmented or consolidated pricing and they adapt their delivery modes for different countries – In Senegal customers pick up product from the plant whereas in Zambia, trucks are needed to deliver cement to customers.
A major reason for Dangote Cement expanding to other markets was the issue of overcapacity in their home market Nigeria which could lead to a price war with other competitors. Dangote Cement is tackling this overcapacity threat by also investing in import terminals in Nigeria that will export their products to other African countries. Their Lagos terminal will export bagged cement to Ghana and West African countries whereas the Onne terminal in southern Nigeria will export clinker to neighbouring Cameroon.53
African Cement Industry Overview
Global cement demand is 571kg and in Africa it is about 100kg per capita. Prices are averaged at $100/tonne globally and $180/tonne in Africa so prices can still come down. Demand in Africa is still growing and demand drivers include increasing political and economic stability, robust GDP growth across Africa, emerging middle class and consumerism, steady population growth with a younger profile, rapid urbanisation, serious housing deficits (e.g. Nigeria: 18m shortage, at estimated $375bn building cost), massive drive for infrastructure investment, increasing inward investment, rapid technological adoption, unlocking natural resources and increased manufacturing for export.
Focus is on Sub-Saharan Africa and the main players include LafargeHocim, Heidelberg Cement and PPC
The merger between Lafarge of France and Holcim of Switzerland in July 2015 created the leading cement producer in continental Africa with a capacity of about 53Mtpa and operates in 16 countries in Africa including Algeria, Benin, Cameroon, Egypt, Guinea, Ivory Coast, Kenya, La reunion, Madagascar, Malawi, Morocco, Nigeria, South Africa, Tanzania, Zambia and Zimbabwe. LafargeHolcim’s Africa capacity is 50MTPA.55
Heidelberg is one of the world’s largest manufacturers of building materials and it was formed in Germany in 1873 and it has been in Africa since the 1960s and the company operates cement plants in 8 African countries including Benin, Burkina Faso, DRC, Ghana, Liberia, Sierra Leone, Tanzania and Togo. HeidlbergCement’s total capacity for Africa- Mediterranean basin (including Israel, Spain and Turkey) is 13.3MTPA.56 In July 2015, Heidelberg purchased a 45% stake in Italy’s Italcementi and the deal created the world’s biggest player in aggregates, the No. 2 in cement and the third-biggest in ready mix concrete. It was reported that HeidelbergCement actually rushed to make the deal because Nigeria’s Dangote Cement had been circling Italcementi but did not make a formal offer.57
Pretoria Portland Cement was formed in Pretoria in 1888 and is one of South Africa’s leading cement manufacturers. The company has operations in Botswana, Ethiopia, Mozambique, South Africa and Zimbabwe, and PPC is currently investing in production capacity in DRC. PPC’s Africa capacity is 8MTPA.58
Dangote Cement current and future plants outside Nigeria
Dangote Cement is presently operating in 6 African countries apart from Nigeria and these include – Senegal, Cameroon, Ghana, South Africa, Zambia and Ethiopia with a total capacity outside Nigeria of 11.3MTPA. Deal signed with Sinoma in August 2015 was to expand to 13 new countries. Senior roles at Dangote Cement are divided according to region with a Group CEO and regional CEOs for Nigeria, West & Central Africa and South & East Africa . Dangote Cement has different strategies for their West & Central Africa operations and for their South & East Africa operations.
This regional aggregation makes sense due to the regional trading blocs in Africa that can be used to take advantage of export potential. Dangote Cement also has a cost-effective fuel strategy favouring coal in their plants over LPFO (low-pour fuel oil) as coal is substantially cheaper than LPFO, even when imported. Gas is the most cost-effective fuel and DCP use this source in gas-rich countries.60
In 2014, Dangote Cement opened its 1.5MTPA integrated plant in Senegal. Senegal’s population is 15million and per-capita cement consumption is 202kg. Before Dangote’s entry, the Senegalese market already had two incumbents with a combined capacity of 6.7MTPA and many observers believed that the market could not sustain a third manufacturer however the market was receptive to Dangote Cement and the company achieved more than 40% market share in Senegal within months of opening the factory and this success was due to selling their high quality 42.5-grade product at the same price as other manufacturers’ less strong 32.5-grade product. Senegal is very rich in limestone and the country is positioned in a region where most coastal countries are devoid of this essential raw material making the Dangote Cement factory, which uses coal as the energy source and has about 300 million tonnes of limestone available in its quarry, an excellent base from which to export to Mali, Sierra Leone, Liberia and others.
Dangote Cement has announced their intention to build a second 1.5Mtpa line at Pout, Senegal to supply export to Mali, Sierra Leone, Liberia and other neighbouring markets.
Dangote Cement opened their 1.5MTPA grinding plant in Douala, Cameroun in March 2015. Cameroon’s population is 22.8million and per-capita cement consumption is 83kg. Cameroon has no limestone reserves and is mostly an importer of clinker and cement from the Far East, however the country has taken the bold step to suspend the importation of bulk and bagged cement from 2016 which represents an opportunity for Dangote Cement to substitute the imported cement that will be no longer available with locally-ground cement made from imported clinker at their facility. Dangote Cement produces bagged 42.5-grade cement in Douala using clinker from the Far East and the plan is to start using clinker made from their factories in Nigeria. Most of Dangote Cement’s sales in Cameroon are to the domestic market and there are major infrastructure projects planned in the country including a National Ports Master plan. Dangote Cement has also announced their intention to build a second facility at Yaounde, Cameroon by 2018.
Dangote Cement has operated a 1.0 Mtpa import terminal at Tema, Ghana for years. Ghana has no limestone deposits and the market is reliant on imports. Per capita consumption of Cement in Ghana is very high at 212Kg, making it perhaps West Africa’s most important market after Nigeria. Dangote Cement used to import bagged cement to Ghana from the Far East but now exports cement from their Ibese plant in Nigeria.
In South Africa, Dangote Cement opened a 1.8Mtpa integrated facility at Aganang and a 1.5Mtpa at Delmas in 2014 and these plants which use coal as their primary fuel operate under the brand Sephaku Cement. Dangote Cement acquired a 64% stake in South Africa,s Sephaku cement for R1.129 billion and this was the largest foreign direct investment into South Africa by an African company, the remaining 36% is held by Sephaku. Per capita cement consumption in South Africa is high for Sub-Saharan Africa at 230kg. The market had a number of long established incumbents including PPC, Afrisam and Lafarge Africa, with some importation from Pakistan. However, a lot of the capacity in South Africa was outdated and inefficient hence Dangote Cement was able to enter with new, highly efficient plants that were able to compete with older facilities on lower production and maintenance costs, lower power consumption and higher cement output.
The Population of Ethiopia is 97million and per-capita cement consumption is low at 61kg, however the country has a strong commitment to infrastructure development and Ethiopia alongside South Africa is one of the countries where Dangote Cement has a reliable supply of electricity from the national grid. Dangote Cement opened their 2.5Mtpa integrated facility at Mugher in May 2015. The plant, which runs on coal, ramped up to almost full capacity within a matter of months and is the largest plant in Ethiopia. Dangote Cement’s strategy in Ethiopia was to offer a better product at the same price as lesser-quality cements in the market and this has paid off. Dangote Cement plans to double the size of the plant at Mugher with a second line to open by the end of 2017 or early 2018.
Dangote Cement opened a 1.5Mtpa integrated plant at Ndola in June 2015 and the plant is now the largest in Zambia. Their key market is Zambia as well as export to the Katanga region of DRC. Dangote Cement plans to double their capacity in Zambia by 2018. In Zambia, Dangote sells 32.5grade cement as well as their standard 42.5grade brand.
Cement prices in Zambia have fallen by about 20% as a result of Dangote’s push against LafargeHolcim. In an interview with Bloomberg, Sipho Phiri, who chairs a company planning to build a $180 million hydro–power project in west Zambia says his project will need about 20,000 tonnes of cement and the price drop will make a significant reduction to his capital investment and none of the cement he uses will come from LafargeHolcim:
“They [LafargeHolcim] were taking advantage of their monopoly. People including myself, as a matter of principle, will only buy Dangote cement. I’m emotional about it.”
In 2015, Dangote Cement opened a 3.0MTPA integrated plant in Mtwara and it is the largest and most efficient facility in Tanzania. Gas is a more cost-effective fuel than coal and is readily available in the region however Dangote Cement decided on a dual-fuel strategy (coal and gas) to ensure the security and stability of their supplies. Dangote sells both 32.5 and 42.5grade cement in Tanzania.
Dangote Cement plans to open a grinding plant in Mali and clinker to the plant will be supplied by the second line of 1.5MTpa at Pout, Senegal. The Mali cement market is reliant on imports and there’s no limestone availability in the country.
Dangote Cement plans to open a 1.5Mtpa grinding facility in Takoradi using clinker from their Nigerian operations.
A 1.5Mtpa grinding facility is planned for Abidjan and clinker will be supplied from Nigerian and Senegalese operations. Per capita cement consumption in Ivory Coast is low at 64kg and the population is about 21million however the government offers 5-year tax incentives and the country has strong potential for economic growth. The capex cost is $100million and Dangote Cement’s target market will be mostly domestic.
Dangote Cement plans to open a 0.5Mtpa grinding facility in Monrovia in 2017 and estimated Capex cost is $77million. The population of Liberia at 4.2million is relatively small compared to other Sub-Saharan African countries however the country is experiencing increasing stability and growth as well as a slight deficit market and rapid increase in cement sales. The country has no limestone and no import tariffs on cement and Dangote plans to supply clinker from Senegal.
Sierra Leone has no native limestone and the population is 6.1million and per-capita cement consumption is 56kg. However the country has 40% urbanisation and there is high foreign investment in infrastructure, particularly to support mining. Dangote Cement planned to open a 0.7Mtpa Import & bagging facility in Freetown in 2015 and the opening was delayed due to the Ebola virus outbreak in the country. Plans are still underway and the Capex cost for this plant is $40million.74
Dangote Cement plans to spend up to $350million to build a 1.5Mtpa facility in Niger. The new venture is expected to create 6,000 to 7,000 jobs in the country. Niger relies heavily on imports from Nigeria and the present capacity is outdated; there is only one cement plant built in 1964 producing 0.04MTPA.75
Republic of Congo
Dangote Cement plans to open a 1.5Mtpa integrated plant in Madingou in 2016. Per-capita consumption of Cement in Republic of Congo is 159kg and the population is 4.2million. The Capex cost for this plant is $301million and the target markets are domestic and export to Kinshasa in DRC and Cabinda in Angola.76
Dangote Cement has plans to open two integrated facilities of 1.5Mtpa each near Nairobi using coal as the primary fuel. The capacity, Capex cost and operational dates are yet to be confirmed however despite Kenya’s per capita consumption of 80kg and its perception as a closed economy, there is a large housing deficit and potentially large infrastructure spend including major energy projects.77
Dangote Cement plans to open a 1.5Mtpa Integrated plant in Zimbabwe however full details are yet to be confirmed.78
Similar to Nigeria, Nepal has had its share of coups. Dangote Cement studied most Asian countries and found there was generally cement oversupply except in Nepal which depended on imports from India despite the country’s limestone reserves.79 They plan to open a 3.0MTPA cement plant in Nepal by 2018 with Capex of $550million and this is the company’s first foray outside Africa.
Nepal was hit by two devastating earthquakes in 2015 and estimates to rebuild this damage are at about $10-$15billion and Dangote Foundation, the philanthropic arm of Dangote Industries, donated $1billion to humanitarian efforts after the quakes. There is great potential for export sales from Nepal.80
Dangote Cement plans to go global and expand to Brazil, Myanmar and Colombia. However focus in the short to medium term remains on Sub-Saharan Africa.81
Dangote Cement – Finance
Ownership of Dangote Cement is 90.9% Dangote Industries, 1.5% PIC82, 1.4% ICD83 and
~6% is listed on the Nigerian Stock Exchange (market cap $15bn).
Dangote has invested about $6.2 billion of his own money between 2007 and 2015 and was able to grow rapidly during the period when most cement makers were facing recessions in their home countries.85
According to Andy Gboka “Dangote has invested his own cash and a lot of banks run after him to give him low rates because they know his business will deliver. He doesn’t need to borrow but using only his own money to fund the expansion will be at a slower pace of growth. You cannot compare Dangote Cement’s Capex to any of the other players.”
Dangote Cement – Human Capital
In February 2015, Onne van der Weijde joined Dangote Cement as the Group Managing Director. He was formerly the Area Manager for Holcim India from 2008 and he brings 20+ years of industry experience to his role at Dangote. He oversees all aspects of Dangote Cement and leads a very experienced team .
Knowledge transfer is a very key part of Dangote Cement’s operations. For example, in Ghana they chose to enter the market by importing cement from the Far East although their Nigerian plants were closer. They chose this strategy to first learn the market before importing their own products. With managers of plants, they also take a similar approach.
Before a plant is operational, building may take up to two years and during that time the future manager of the plant will be stationed at the head office in Lagos to learn the ropes; all our managers can speak English including those in non-Anglophone countries. This is the case with the manager of the Republic of Congo plant who is currently working at the Lagos office of Dangote Cement till the Congo plant opens in 2017.
Dangote Cement is one of the largest private sector employers in Nigeria and training is a focus. Dangote Academy established in 2010 provides technical skills training to current employees and people wishing to join Dangote Group. The main schemes include Graduate Engineers Training Scheme (GETS), Vocational Training Scheme (VTS) and Junior Technician Scheme (JTS). The future plan is to transform Dangote Academy into a University of Technology & Management.
Dangote Cement is also very aware of the importance of their distributors and they organise an Annual Distributor Awards, a customer appreciation ceremony with the theme ‘Cementing Partnerships’ whereby distributors are awarded with cash sums according to the cement they sold in the previous year. 80 In 2015, Dangote Cement also gave distributors in Nigeria 150 free trucks to boost cement distribution in a move aimed to help distributors serve their customers more efficiently and improve their business.90
What does the future hold for Dangote Cement? Will the company become the number one cement producer in continental Africa by 2019? According to Aliko Dangote:
“Our next step is to list Dangote Cement on the London Stock Exchange in the next two to three years. We are also working with KPMG on succession plans for the company and we already have training and understudies for every role.”
Andy Gboka also discusses Dangote Cement’s future:
“They will definitely get to number one in Africa, I can’t say by what date or at what capacity but at the rate they are expanding, this will happen very soon. They need to move to the London Stock Exchange; the Nigerian Stock Exchange is too small for a company like Dangote Cement. We need more people like Dangote; Africa will be in a better shape if we had more businesspeople like him. He made his money in Nigeria by going into the right business at the right time and he keeps investing his money in his country and his continent. He’s smart and knows how to deal with the government and his planning is great”
A possible listing on London Stock Exchange will likely force Dangote Cement to transform from an entrepreneurial driven company to a professionally driven company with a more bureaucratic decision making process. One important question is will Dangote Cement successfully continue on its unprecedented growth streak without its visionary founder at the helm? How has a relatively young company, compared to other cement majors, been able to grow so big so quickly? Can this strategy be successfully replicated by another company or another founder?
- Adaeze Ekwueme
- University of Oxford