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Policy consistency crucial for foreign investment – Devakumar Edwin

Devakumar Edwin, Group Executive Director, Business Development of Dangote Group, in this interview with Emeka Anaeto, Business Editor and Peter Egwuatu, spoke on a lot issues bothering on policy inconsistency, the recent award of road construction contract by the federal government to Dangote Group, ease of doing business in Nigeria, cement production among others.
Excerpts

How is the ease of doing business in Nigeria?

Nigeria has all the potentials to do exceedingly well and the opportunities are very good. But then why are investments not coming in? Like they say water finds its level. You pour water and it will automatically flow down to a place, which is at the lowest level. In the same way, money flows to where there are better opportunities. So, without that opportunity, money will not come in. So why do we lack adequate foreign direct investment in Nigeria? Good governance will automatically attract the right investment for economic progress.

Devakumar Edwin

However, we are still exporting all our commodities, including crude oil. We are so proud about NLNG exporting gas, but there is no difference between exporting crude oil and natural gas. Natural gas is a precious commodity with a huge potential. You can generate power and you can manufacture an entire range of petrochemicals, whereas we are just exporting the raw material instead of the manufactured goods! China, Japan, India and Korea are all importing the natural gas and exporting the finished products with huge added value, including substantial generation of employment. The reverse is the case in Nigeria; we end up exporting the gas and importing the finished products, just as we do with crude oil.

Do we have a problem of population or consumption?

In the past decades, people regarded high population as a curse but now everyone has realised that now it is not a curse, but a blessing in disguise. The reason is that wehave massive local consumption. This is what is driving China and India. Nigeria has the market and consumption potentials but investment is not coming into manufacturing. Why?  This is because of lack of enabling operating environment.

STATE INTERFERENCE

There are quite a number of issues affecting the manufacturing industry in this country, resulting in investment not coming into manufacturing. We have two plants in Ogun State and we are paying N400million every year just because our trucks are using the roads for evacuating our manufactured products. One day, the State Government said we should start repairing their roads, which would cost us a huge amount of money. But we pay our taxes, and we arealso paying an additional N400 million every year, just to use their roads. And yet, they want us to build new roads!

Some state governments and parastatals could be major drags to investment in the country. I am just giving another example. When we wanted to build our fertiliser plant, petroleum refinery and a cement plantinOgun state, the State Government was dragging its feet and the project kept delaying until we finally moved them to Lagos State, except the cement plant, which was moved to Edo State and Kogi State.

Even in our coal mining drive, the Customs Departmentasked us to pay a large amount towards customs duty. When we imported our Mining Equipment, the Customs Department classified the huge 100 tonnes dumpers as trucks and charged a heavy duty.We said no, and we went to the Ministry of Mines and the Ministry of Finance to seek clarifications and we got the clearance based on the laws of the Federal Republic of Nigeria. Yet, the Customs Department refused and the equipment were held in the port for more than six months and we had to pay huge demurrage for the goods. We eventually paid to get the goods out but we have tonow go to court in order to get back our money.

INFRASTRUCTURE

When you invest here, it is expectedthat the investor should provide virtually all the infrastructure!This is an impediment to manufacturing. How many companies can survive in such an environment? When you invest in most of the other countries, you will get continuous power and water supply as well as good roads and rail network to bring in the raw materials and evacuate the finished products. Government should try to encourage the industrialists in their businesses by investing heavily in roads, railways, parts, power generation and distribution, transportation, gas pipelines, etc.

STATE PROTECTION

It is not about creating free trade; that is why the textile industry failed because there was no form of protection to the local manufacturers. There was massive smuggling, which killed the entire textile industry. At some point in time, we were into textile business as well. But because there was no protection and no enabling environment we started seeing importation of inferior materials. We had to stop the production, and the textile industry, which was the second largest employer after the government, is deadtoday.

Even now, the government’s Agricultural Policy to encourage growing rice, sugar milling and growing sugar cane within the country, is being seriously affected by the rampant smuggling of rice and sugar into the country. How do you expect the investors to invest, when your project will be dead on arrival? And, how do you expect the farmers to survive, when the smuggled goods are competing against their farm produce?

You can see core conservatives who advocate Free Trade fighting to protect their economy. You can see President Trump imposing huge duties and protecting his borders not only against China but also Canada and his European allies! President George Bush Jr. did the same thing against Germany to protect his steel industry. And these are Republicans who hold Free Trade in high esteem! Hence, our country should come first, before any such Free Trade.

POLICY CONSISTENCY

We have to also look into inconsistencies in government policies. When investors come in, they expect the Government’s policies to be steady and consistent over a period of time. If the Government keeps changing their policies, no investor will invest his/her money in a long term project! We don’t need to go and publicise for people to come and invest in our market. People with money will definitely come into the country when there are opportunities because they want to multiply their money. We have seen hot money coming in and going out of the financial markets butthat is not investment.

So, the Government should try to create anenabling environment so that businesses can survive and also create employment. Otherwise, there will continue to be huge unemployment; Crimes, Boko-Haram, Niger Delta unrest, armed robbery,kidnapping, etc. These become rampant and the sufferings will continue. The man who is sitting idle without job has no life, no future and is getting frustrated. Although the Government is trying, they have to do more to prevent serious increase in the level of crimes and violence in the country. Employment generation is the primary solution to these problems – especially a country with a high population of young people. And, it is the private sector which can drive this process. When businesses are closed due to unfavourable economic climate, where State Governments are unable to pay salaries on time and parents are unable to pay the school fees of their children, and the children are sitting at home without being able to complete their schooling and not being able to get a job, common sense tells us that it will build up into an explosive situation!

 

What does it cost the businesses in Apapa to survive the gridlock?

Because we could not get our goods out of Apapa port in time, we have paida demurrage of about N15 billion so far. We are taking our goods through roads, by barges throughthe lagoon and sea routes by using big barges that pass through the sea to evacuate the goods. For marine barges, we are paying nearly N700 million, just to take one set of our goods out. Just some days back, we had a meeting with NRC to use the rail to evacuate the goods from the port.

You are putting money on the Apapa roads, when will that begin to help you?

We are doing 32 kilometresof road in the thick of the city; we have to handle it in such a way that we will not disturb the traffic. We can’t even easily create a bypass lane. We cannot just close the road and we are going to even expand it to six lanes from Oworonshoki to Apapa. Once we do the road, you will see how it will be. The road is expected to last for decades. Normally, this kind of road construction would take three years. But our personal target is 15 months.You know it is a very tough target but we will always do our best.

You said a state government wanted you to pay so much for road usage and you abandoned it. But now you are doing thisin Apapa, what is the economic or business sense in this?

When the proposal came that we have to fully fund the project and we are going to get the money back over a period of time against our futuretaxes, I was shocked. I have been here in this country for 27 years and I have seen how the Naira has been sliding. And between the time I came and now, the Naira has gone down by 35 times, from N10.50 to $1, to where we are now.

Furthermore, we are spending the money in bulk, while we will be recovering the money piecemeal. If we put the bulk money in a factory,we will be making more money. If I borrow from you a million Naira today and then I say, okay tomorrow I will give you N10,000, next month I will give you N5,000, and the other month N20,000 and so on, that money, first of all, will be of no use to you because it is not paid back in bulk. If you had the money in bulk you would have made better use of it but when they are giving to you piecemeal, you will be spending it on something that will not yield better returns.

So, first of all, the implication is that we won’t get back the money in bulk and by the time the money is returned, Naira may have gone down against the dollar. In reality, we would completely lose the money.

So, economically, it does not really make sense to us. But my Group President (AlhajiAliko Dangote) said look, I have to do it for the country as this is crippling the economy of the country.

We are a fully import-dependent country and if you go to Onne in Rivers State you will see no activity there. In Calabar port, the channel depth is so shallow so you cannot really bring in goods. Apapa and Tin Can Island are the heart of the country’s import activities. About 90 percent of our imported goods, including liquid cargoes, come through this place and if this place is crippled, the country will suffer much more. The businesses will be collapsing because we can’t bring in the goods; the cost of the products will increase and manufacturers will pass the demurrage cost onto consumers. No one would subsidise the market. So these are all increasing the cost of the goods. So it will really have a serious impact on the country if we do not intervene.

How much are you putting into the road construction?

The road is going to cost about N72billion. It is going to be a six-lane fully concrete road. In fact,the design we got through the Ministry said we have to dig the ground up to one and a half metres depth, do soil replacement, while the concrete alone is going to be about half a metre thick. The design standards are very high and the Ministry saidwe have to make the criteria high since, in the past, the road got damaged quickly and so, let us just change the design this time around, and we agreed.

How long will it take you to fully recover the tax rebate?

It depends on the profits we generate in future and our potential tax liability. As our businesses grow, the tax level will also increase. Actually, it will take quite some time to recover our money but like I said before, it is not makingeconomic sense and not viable. But Aliko Dangote wantsto do whatever he can to mitigate these serious problems being faced by the country.

Concerning ease of doing business in Nigeria, you are in other countries in Africa. Can you give us comparisons in terms of ease of doing business in Africa?

They do have some challenges; such as radical change in government policies and infrastructural issues, especially in sub-Saharan Africa. They do have some problems as well. But, issues like state government interventions and negative attitude of parastatal agencies to investmentsare peculiar to Nigeria. We don’t see it in most of the African countries.

In terms of infrastructure, in Ethiopia, for example, we don’t need to have a power plant. In South Africa, we don’t need to have a power plant since power is available. But, in the rest of sub-Saharan Africa, we have power plants.

Road infrastructures are far better in most of the countries and some of them like Ethiopia, Tanzania and Zambia have reasonably good rail infrastructure too.

Also, in some of the African countries, they provide lot of incentives for new investments. Here in Nigeria, you know when you do investments, you have a tax holiday for 3 years. If you go to Senegal, it is 10 to 15 years. In Zambia, Congo and other some other countries, they have extended periods of tax holidays and these are the benefits people have been enjoying when they go to those countries. Nigeria too should look at the tax incentives provided by some of these countries and probably provide same.

What is the contribution of Nigeria’s businesses in terms of revenue to your Group and what is your target in the next two to five years?

In cement, Nigeria accounts for 65 percent of the total revenue, while 35 percent comes from across Africa. Currently, we have not beenexpanding rapidly in the cement sector like before. We have ongoing cement projects, in Nigeria (6 million tonnes), in Niger (one and a half million tonnes), 3 million tonnes in Cote-d’Ivoire, half a million tonnes in Ghana, half a million tonnes in Cameroon, and half a million tonnes in Liberia. Even after the expansion, the contribution percentage of revenue might still remain the same. You know that we have not done any acquisition, except the very first one (Benue Cement), and our growth has been organic.

The Kenyan acquisition is just a rumour. We have noteven done any due diligence. However, if we venture into acquisitions in the future, we might see the contribution ratios changing. You know we have been distributing a lot of money to the shareholders and we have also been ploughing back the earnings heavily into new projects. But if investments in the Greenfield projects come down, obviously, the cash will be building up and there would be either an increased distribution of dividends to the shareholders or we can go for acquisitions.

We spoke to some stakeholders in cement recently and they said the price of cement is still going up. What is Dangote Cement doing to reduce the price of cement? Or is it possible for it to go down?

If you look at the price of cement today in dollar terms, compared to the price that it was when we first entered the cement industry in the year 2000 i.e. about 18 years back, you will see that the price of cement today is far lower. In dollar terms,the prices are almost half theprice; compared to what it was 18 years back! You know, one day, I was on a television interview and the gentleman asked me “when are you going to bring the cement price to N1,000 per bag? I told him the N1,000 per bag was 20 years back. So if you start charging all your customers for their advertisements whatever price it was 20 years ago, will you be able to survive? Then he laughed. I said you can see that it is the same practical reasoning that also applies to us.

Prices of everything including pure water and toothpick are going up and so, how do you expect us to be selling at a price lower than it was 20 years back? We are surviving today at half the price of what it was 18 years back in dollar terms, since we are producing the cement locally, from local limestone, local coal and local gas. This is the major benefit everyone will get when the local manufacturing capacity develops.

Today, we have surplus capacity in the market. So everybody is trying to compete to sell their products. Everyone is trying to see how much more they can sell, by driving down the prices. You saw Lafarge Africa’s last year’s account; they declared loss. This year too,for the first nine months’ account, they declared loss. So, it means that, if they have to go down on the price further, it will affect them seriously and if we try to push the price down,everyone will say we are driving outthe competition. So there is a limit to which each company can bring down the price.

Even when there is a possible glut in the market, do you say the price cannot go down?

There is a glut at the moment because everyone is trying to maximise their production. Go to the warehouses of cement manufacturers and there is cement piled up. But, some companies have reached a price level below which they will have to rather shut down the business.

We are building new plants and some of our competitors are also building new plants just preparing for the future, because we expect cement consumption to increase as the population increases.

We learnt that Dangote Cement is planning to list on the London Stock Exchange(LSE). Can you confirm this and do you also have plan to float a cross-border IPO, and at what value?

Yes, my President (Aliko Dangote) has said so. We have to go through the process of listing. We would be listing on the LSE. But I cannot say precisely when it will be. We have to follow the regulatory requirements. So we cannot disclose anything about the listing now until all arrangements are concluded, otherwise the regulatory authorities will penalise us.

What is your market share in your key commodities?

For cement, we are close to 60 percent; salt we have a little bit above 50 percent; for sugar, we are also about 50 percent; flour is a very fragmented market, we are at about 25 percent.

It appears you have a monopoly in the cement market with this high market share? 

Nobody has stopped anyone from investing in any of these businesses we are into. Lafarge has been there for 60 years. When we started constructing our cement plants, the policies were the same for all the investors in that industry. Everyone had the same opportunity to invest. So, is it a crime that we invested in the country, created employment, developed subsidiary industries (haulage, coal mining, packaging materials manufacturing, tyre retreading, warehousing, etc.), pay taxes and also reduced the price of cement by half in dollar terms? For investing in the country, should we be called monopolist? For turning the largest cement importing country in the world into a cement exporter, should we be called monopolists?Or, instead of constructing the 10 cement lines that we have, should we have built just 2 lines and stopped investing further?

We started the first sugar refinery in Nigeria and, obviously, we had 100% of the market share before Flour Mills of Nigeria and BUA entered into the business. So, are we monopolists? We are investing in a petroleum refinery and we will have a huge market share. So, are we going to be called monopolists? We are selling up to one million tonnes of rice milling capacity in the country, to help the farmers and the agricultural industry. So we would be called monopolists again!

Is it wrong on our part to make these investments? So,we can do only one thing. We shouldn’t be putting up any more cement plants or any large manufacturing industry for that matter! But, then,the country would be losing the opportunity if we take that decision because the country would be losing investments and employment opportunities. The country loses economic opportunities because, when we produce cement for example, it goes to the construction industry, the distribution industry, haulage industry, etc. Everybody gets the benefit.

Nigeria used to be either the first or second largest importer of cement in the world (the position used to switch between Nigeria and USA), frittering away scarce foreign exchange. Today, we have made Nigeria an exporter of cement, earning foreign exchange. So, Aliko Dangote is investing his money in the country in the construction of large industries, when most of the others are not doing so. Should his faith, trust and confidence in the country and his courage in investing in the country, be penalised? Should he be rewarded by being called a monopolist?

Nobody is preventing our competitors from investing; nobody is preventing any investor, either from Nigeria or from abroad, from coming in to invest. We are not gaining a single kobo benefit over any of our competitors. Like I already said, the investment benefit that they have is what we have. We don’t have any special concessions!

The nation and the international community are waiting for result on the refineries, would it come up in 2019 as planned?

I have been with the company for 27 years. We were a trading company but we went into manufacturing, starting with textiles,then packaging materials, flour, pasta, noodles, sugar refinery, cement plants, and now, petroleum refinery, petrochemicals, sub-sea gas pipeline, fertiliser and agriculture. If you see our projects, we have mostly met our targets – even though our targets were very stiff. We are targeting mechanical completionof the refinery by the end of December 2019 and we should be able to deliver it.

Right now, Nigeria has a challenge of pipeline vandalism which may hinder the movement of crude oil from the Niger Delta to the refinery in Lagos. How do you intend to get crude oil for the refinery after completion? Have you concluded on how to get crude?

There are different ways people do this business.We always say “Customer is our boss”. Globally, those selling crude oil are finding how best to please their customers. Companies in the Middle East are trying to go and set up refineries in India, Malaysia and other countries, just to sell their crude oil. They are even talking to South Africa to set up refinery.So everyone who wants to sell their crude would be coming to us to say I have these crudes to offer.

Here, there isgovernment legislation in Nigeria. The law states that they are supposed to sell crude for a minimum of 30 percent of the production capacity of every local refinery. U.S.A was the largest buyer of Nigerian crude but now they are producing their own crude. Hence, Nigeria may be willing to sell more crude to our refinery than the minimum stipulated quantity. Three of the major IOCs (International Oil Companies)are even approaching us to sell crude oil to us. Some of the international traders have also approached us.

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In Nigeria we have a dilemma, when crude price goes up we have more revenue to the government, but for the local refineries, wouldn’t they rather want the crude price to be lower?

If we go and buy crude oil at one cent lower price than the market, they will say that we are getting a concession! We have challenged them repeatedly, publicly, to show one concession or one benefit or one waiver our company has got, which is not available to all our competitors.Hence, we will not seek any concessional price. We will buy the crude and sell the products at the market price.

Are you going to list these refineries?

As you can see, we have listed every single business, but what we do not want is anybody blaming us that we pushed the risk onto them. We always invest, build,commission and operate the business for a couple of years and bring the business to good profitability before we list, so that anybody who is buying the shares would be getting dividend from the profits the company is making. We pass on the benefits and not the major risks to the shareholders.

How do you intend to fixthe price for finished product in a regulated environment like Nigeria?

Today, some of the imported products (petrol and kerosene) are subsidised by the Government. In the future, the products will be manufactured locally and the Government can subsidise it to any level they wish to. The mechanisms will remain the same. The only difference would be that, the goods would come from within Nigeria instead of coming from outside Nigeria.

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