Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited
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Subjects of Interest
- Financial Market
- Fiscal Policy
Dangote and Nigeria’s economic, social and environmental sustainability 06 May 2021
There was a fresh discussion last month on the famed anti-competitive stratagem of the country’s top entrepreneur and Africa’s richest individual, Aliko Dangote. A petition he jointly signed with the Chairman of Flour Mills of Nigeria Plc, John Coumantaros, urged the federal government to stop BUA Group’s new sugar refinery project located in Port Harcourt, for allegedly violating the country’s National Sugar Master Plan. But the petition was greeted with cynicism by the public.
Dangote likes to dominate the industries he operates in. His eponymous Dangote Cement is Africa’s and Nigeria’s largest producer of the product. Dangote’s sugar business controlled over 70% share of the Nigerian market for the product in 2018. His integrated petroleum refinery, which has been under construction and scheduled to commence operations in 2022, has the capacity to refine 650,000 barrels of crude oil per day, more than the combined capacity of the four major, but moribund, Nigerian state-owned refineries.
Without a doubt, Dangote’s successful and growing businesses have been making significant contributions to Nigeria’s economic growth. His investments in the productive sectors have also served to create high numbers of direct and indirect jobs while reducing the dependency of the nation on the importation of consumer products to meet local demand. Given its excess production capacity relative to local demand, Dangote Refinery could help the country save the billions of dollars used for the importation of petroleum products annually and improve foreign exchange inflows to the economy.
But there are economic costs to the dominance of one or a few producers in an industry. The major concern is the damage that could be caused by anti-competitive practices, including limiting innovation and, inevitably, aggregate production and job creation in the industry. Monopolistic or oligopolistic markets also stifle effective market regulation. In such situations, the consumers may have fewer choices of products and pay unfair prices, despite the economies of scale that may be applicable to the cartel that controls the market.
Nigerians believe they are paying excessively high prices for cement because of the dominance of Dangote Cement. If true, such market abuse is hardly easily addressed by policymakers, given the ability of the billionaire entrepreneurs involved to lobby state officials for the continuation of the status quo. Unsurprisingly, therefore, the conflict among the oligopolist sugar producers last month was in part resolved in their collective favour as the Central Bank of Nigeria (CBN) decided to add sugar to the list of products banned from assessing foreign exchange in the official market. In nominal democracies, such few producers tend to be more powerful than the collectivity of the people.
Dangote is also a metaphor for the environmental unsustainability of the Nigerian economy. According to Carbon Brief, cement would be the third-highest contributor of CO2 emissions in the world, after China and the United States, if it were a country. With Dangote Cement accounting for nearly 20% of equities market capitalisation of the Nigerian Stock Exchange, the cement behemoth is one of the largest CO2 emitters in Nigeria.
After his prior investments in high emissions industries like cement and sugar production and the transport logistics for distributing the products, it is disconcerting that Dangote’s new major investment would be in another area associated with environmental degradation: petroleum and fertiliser. The reputational risk to the group could crystallise now or later, possibly limiting its capital raising potentials, or investors looking for ESG-compliant assets may start to sidestep its stocks.
Dangote, who is known for making ground-breaking investments, could as well be Nigeria’s leading impact investor by investing in renewable and clean energy assets. Perhaps he will do this later, but that would only be consistent with the delay of action and investment in green development across Africa. A study conducted by Standard Chartered Bank in September – October 2020 on financing a net-zero emissions world, tagged “Zeronomics,” found that many companies based in Africa are postponing significant actions on the environment until after 2030, making the 2020s a lost decade for climate action on the continent. In the meantime, the businesses are engaged in “greenwashing” and “SDGs-washing,” prioritising appearance over substance.
There is a conspiracy theory that the so-called low-carbon development, ostensibly being advocated to limit climate change, is contrived to stifle the developing economies. This argument is unhelpful considering the evidence on the ground. Many advanced and emerging market economies are already transitioning to carbon neutrality by 2050. Besides, poor people, most of whom live in developing countries, are more vulnerable to climate change. By insisting on assets that are becoming obsolete, such countries are undercutting their ability to trade with the rest of the world in the future that is already here.
It is time to shift the policy and financing support enjoyed by Nigerian big businesses towards incentivising them to invest in the country’s sustainable development.