The Dangote Paradox By Moses E. Ochonu

Two years ago, I wrote a brief update on my social media page to praise the business ingenuity and nationalist economic instinct of Africa’s richest man, Aliko Dangote. The recent revelations of how the Dangote Group has enjoyed privileged, almost exclusive access to government-subsidized foreign exchange to the tune of hundreds of millions of dollars has compelled me to take a second look at my previous endorsement of the Dangote business model.

Dangote is a reflection of a deeper political and economic dysfunction in Nigeria. This foundational dysfunction makes it possible for oligarchic wealth accumulation to occur, creates a fait accompli of indispensable, monopolistic oligarchs, and then compels a pragmatic observer like me to choose the least objectionable oligarch.


Dangote’s Unfair Advantage

There is no sugarcoating it: Dangote is the poster child for patrimonial monopoly capitalism in Nigeria. Whether you favor or oppose a capitalist trajectory for Nigeria and Africa, patronage capitalism should offend your sensibilities. It is morally, economically, and legally wrong. It distorts Nigeria’s financial and economic terrains. More devastatingly, it amounts to a huge transfer of public wealth to favored businessmen. It is an insidious form of corruption.
Dangote gets unfettered, guaranteed access to dollars, any amount of dollars he claims he needs to finance the importation of industrial inputs or the expansion of his operations, at the official exchange rate from the Nigerian Central Bank. The Nigerian people basically sell him their oil revenue dollars at the heavily subsidized rate of 199 Naira, taking an instant loss of at least 100 Naira for every dollar they sell to him. It is undeserved instant profit at the expense of Nigeria. To compound this skewed deal, other businessmen with equally legitimate business needs do not enjoy this guaranteed Forex access.

This is not the first revelation of Dangote being embedded in a cocoon of governmental favors. During the Obasanjo administration, the former president granted a series of import duty waivers and subsidies to the businessman as the latter expanded his investment repertoire into cement production. Under Obasanjo, Dangote’s quest to buy up poorly performing competitors such as Benue Cement was made easy by a friendly government peopled by allies in power.

The businessman’s desire to establish a virtual monopoly in the cement sector became a reality under that government. His competitors, such as Ibeto Cement, which lacked access to power, languished and hibernated under the weight of the competitive edge granted Dangote by subsidies, waivers, and cheap acquisitions facilitated by his friends in government.

Dangote lubricated his privileged access to power by donating lavishly to the campaign funds of the then ruling party, the PDP. By so doing, he secured and expanded his access to concessions and breaks that his competitors and business peers could only dream of. He remained in government’s favor for three successive PDP administrations and he continues to enjoy special access to taxpayer subsidized Forex to the detriment of other businessmen and to the peril of Nigeria.

Apart from distorting the market, stacking the playing field in Dangote’s favor, these government favors reduce competition. Competition is critical to efficiency, innovation, and consumer-friendly product pricing.


Competitors Kick

Dangote’s long period of leveraging political access to win monopolistic concessions and protections from government has drawn protests from some of his competitors. None of these protests is more pointed than the one published last month as a newspaper advertorial by Abdulsamad Rabiu, the billionaire chairman of BUA Group, a cement manufacturer and commodity trading firm. Rabiu was unsparing in going after Dangote in the wake of recently published documents detailing the sweet Forex deal the Dangote Group enjoys. Here is Rabiu in his own words:

It is rather ironic that a similar competitor in the same industry, who incidentally is the market leader, is allocated huge amount of Nigeria’s hard earned and scarce FX from the official market for its operation in Congo. I do not know if there is an official policy to that effect but I was baffled, as were numerous Nigerians, to learn through a publication of FX allocation returns by First Bank of Nigeria in Thisday Newspaper of Tuesday, February 16, 2016 (page 11) of that allocation whilst other operators in the industry have received far less or nothing at all during the same period for verifiable and viable investments within Nigeria. It begs the question, “were other plants by that operator across Africa built with Nigeria’s money?

Rabiu is of course a competitor to Dangote and probably covets the government-bestowed privileges that Dangote enjoys. But let’s separate the message from the messenger and the motive from the points raised. Rabiu raises several weighty issues regarding the wider implications of the Dangote business model.

There is nothing wrong with government offering strategic concessions and breaks to certain players in certain strategic sectors of the national economy — sectors with the capacity to solve a strategic or pressing national infrastructural problem or sectors critical to a strategic national product or industry. Incentives of this kind are sometimes necessary to lure risk-taking, well-financed investors into sectors that require significant capital outlays and initial infrastructure beyond the financial ability of the government and other investors.

Such concessions are usually given to pioneers in a strategic sector, and smart governments do this all the time. I would rather see local investors like Dangote, Rabiu, Femi Otedola, Mike Adenuga, or Tony Elumelu get these kinds of concessions and strategic breaks than expatriate firms. There is nothing wrong with a little economic patriotism. Even in the United States, “buy local” laws and “local contractors” provisions have proliferated across many states as a way of domesticating returns on investment (ROI) and increasing returned value (RV).


Crony Capitalist or Strategic Pioneer
The problem is, Dangote’s government privileges in the cement sector were not a reward for being a risk-taking pioneer. Nigeria already had a fairly vibrant cement sector before Dangote swooped in and secured a virtual monopoly in a short time, aided by government protection and patronage. The government’s indirect investment in Dangote’s cement monopoly left his competitors reeling and enabled him to control supply and thus pricing, hurting consumers.

While Dangote’s refinery project qualifies as a strategic investment critical to our economic recovery and growth and would thus be a good candidate for certain government breaks, Nigerians are yet to be told the terms, if any, or extent of the government’s commitment to Dangote in exchange for setting up a refinery that would transform the downstream sector of the Nigerian oil industry.

The project meets the condition for government breaks under the “pioneer status” and “strategic investment” logics. However, secrecy and the failure to disclose what, if any, government waivers, Forex access, and other breaks it enjoys has given birth to a cottage speculation industry centering on the many ways in which Mr. Dangote is purportedly being coddled and pampered with largesse in order to complete the project and save the government from the perennial embarrassment of fuel scarcity.

If the project is being given government support because of its strategic importance to the economy, a simple, honest, and compelling explanation will assuage the criticism. There is as yet no official response to the mounting criticisms of the subsidies allegedly offered to the Dangote Group. In the absence of such transparency, some people have gone so far as to suggest that Dangote is leveraging his refinery project to blackmail and wrangle subsidies from a government desperate to end fuel shortages. Who can blame such cynics?

The published documents regarding Dangote’s access to subsidized Forex, moreover, do not mention his refinery project. Instead, they specify a routine business expansion to the Democratic Republic of Congo, a project that the Nigerian people should not be subsidizing for Mr. Dangote.

There is another reason why Dangote’s situation may be a reflection of a culture of corrupt entanglement between political actors and a few favored allies in the private sector. When smart governments dole out breaks to attract investors into particular sectors, they usually do it on a case-by-case basis, as occasion demands, and as a one-off incentive package, not as a never-ending gravy train of government-funded largesse and advantages. Mr. Dangote has enjoyed an unbroken stream of government patronage for at least 16 years. To the extent that these breaks are not extended to other intending investors and to Dangote’s competitors, it lacks the incentivizing capacity to produce the kinds of strategic outcomes that targeted and finite breaks, waivers, and subsidies are usually designed to achieve.


The Paradox

Dangote is a paradox. Having written in the past to eulogize his entrepreneurial genius and his economic patriotism and pan-Africanism, the truth of Dangote’s centrality to Nigeria’s sinewy circuits of cronyism, corruption, and patronage capitalism leaves me in a dilemma.

Most of Dangote's investments reflect the spirit of Afrocapitalism and entrepreneurial pan-Nigerianism that I fully endorse. He raises most of the capital for his projects from Nigerian and African financial sources. An Afrocapitalist and pan-Nigerian investment model disavows Euro-America as the only source of large investment capital. It departs from the dominant narrative of “attracting” Foreign Direct Investment (FDI), a euphemism for letting expatriate investors flex their financial muscle to dictate the terms of investment on the continent. This model leverages Africa’s own resources and funds to make investments by outsiders supplementary, and marginal to outcomes.

Africa needs more indigenous entrepreneurs, big and small, and such business innovators, regardless of which country they are based, should see Africa as their natural business habitat and field of play — this is the spirit of Afrocapitalism.

I was one of the participants in a scholars’ retreat organized by the Tony Elumelu Foundation to harmer out the guiding principles of the Foundation’s business philosophy called Africapitalism. I can say that there is or should be a consensus that African investors enjoy certain cultural and comparative advantages when they invest in their own countries and in other parts of the continent. There is also what one might call an economy of emotional commitment that produces a uniquely empathetic business ethic, making African investors on the continent unique critical partners in solving Africa’s economic and infrastructural problems.

I believe that if some members of Nigeria's notoriously complacent wealthy class had emulated Dangote's investing methodology Nigeria would be in much better shape today, her economic prospects much brighter.
Nigerian’s looting class is defined more by mindless political corruption; packing stolen state funds in foreign banks; unimaginative investing; and investing in isolated provincial markets than by any meaningful form of national investment.

In Nigeria, the wealthy are notorious for parking their wealth in unproductive and in many cases unused properties. They hardly put their money to use to innovatively disrupt an industry, to use a Schumpeterian idiom, or to solve a critical problem in a value-creating manner. When they invest, they do so in a predictably vulgar manner with an emphasis on showy, conspicuous consumption rather than on intelligent profit-making and multiplier social benefits.

That Dangote appears, at the present moment, to plunder Nigeria's precious resources and opportunities less does not mean that the Dangote Group should continue to enjoy a Forex largesse financed by Nigerians’ hard earned oil revenue. That anomaly should cease right away. However laudable Dangote's successes may be, his excesses should not be tolerated in a country seeking to encourage entrepreneurship while instituting a fair and competitive business culture.


Professor Ochonu can be reached atmeochonu@gmail.com