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(Special Report) Understanding Dangote 101 on ‘Rethinking Manufacturing in Nigeria’

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Last week, the Manufacturers Association of Nigeria (MAN) held its 2024 Manufacturers Summit in Abuja where Africa’s richest man and President Dangote Group, Alhaji Aliko Dangote presented a Keynote Address that centered on Rethinking Manufacturing in Nigeria.

Listening to Dangote, it became clear that his success in manufacturing sector was not based on luck, but intelligence and understanding of the business of investments.

This was why he kept hitting the nail on the head of investment protection by the government as key of success in national industrialization.

In his Keynote address, Dangote kicked off his world class and eye-opening lecture (which we at Business Hilights christened Dangote 101) by feeling honoured to be invited to deliver the first keynote address at the 2024 Nigeria Manufacturers’ Summit.

He was quick to describe the event, attended by who-is-who in Nigeria’s manufacturing sector including the Vice President, Kaseem Shettima as an event organized to proffer solutions to the myriads of challenges plaguing the real sector.

Dangote refinery largest surface tank of 120,000,000 capacity for crude

No doubt, he averred that “I am particularly glad to be participating in the proceedings of the summit given that Dangote Group is a major player in the nation’s manufacturing sector.”

Dangote started cleverly by arguing that “Undoubtedly, a strategic conversation between the Public and Private Sectors which this summit should facilitate has been long overdue. I commend and congratulate His Excellency, the Vice President and the leadership of the Manufacturer’s Association of Nigeria for initiating this, and I hope it will be a continuing platform that will enable a coherent and sustained effort to drive the re-industrialisation of our economy.

“Before I delve into my paper, let me start with some key messages:

  1. Import dependence is equivalent to importing poverty and exporting jobs
  2. No power, no growth, no prosperity
  3. Similarly, no affordable financing, no growth, no prosperity
  4. There is no industrialization without protection Ignoring these facts, is what gives rise to insecurity, banditry, kidnapping and abject poverty.

Now let me dive into the details of my paper

Dangote refinery truck multi loading outlets

INDUSTRIALISATION AND ECONOMIC DEVELOPMENT

It is now an established fact that industrialisation is an inescapable route to sustainable and inclusive economic growth and human development.

I believe we all know the critical role that manufacturing plays in the modern economy, especially its impact on

– Other sectors through various linkages

– Job creation

– Economic Diversification & FX generation

– Government Revenues

– Technology Transfer/Adaptation and Innovation.

Manufacturing remains a key driver in a nation’s quest for economic development and self-sufficiency. It is easy to determine the level ofeconomic development, growth, and wellbeing of a nation by observing its manufacturing sector.

It is evident that the strength of a country’s manufacturing sector determines its capacity to compete in global trade of which 70% is in manufactured goods, according to available statistics. Countries that have industrilised and have a robust manufacturing sector and are able to export manufactured goods are generally able to grow their economies through global trade.

According to Dangote, “A review of the percentage of manufactured goods in the export trade of various countries indicates clearly the relationship between industrialization and the capacity of the manufacturing sector:

Dangote refinery pipelines

– China: 93%

– South Korea: 93%

– European Union: 83%

– Malaysia: 86%

– India: 73%

– USA: 70%

– Egypt: 42%

– South Africa: 37%

Sadly, Nigeria remains far behind with its manufacturing sector accounting for less than 5% of its merchandise export in 2022 (mainly from Urea and Cement). This high level of dependence on commodities export, which Nigeria shares with most African countries, is what Dr. Adeshina Akinwumi described as “The African paradox” – high levels of poverty, unemployment, and low

productivity despite the possession of  enormous natural resources.

  1. TRAJECTORY OF NIGERIA MANUFACTURING SECTOR

Your Excellencies, Ladies and gentlemen, even a cursory review of the Trajectory of our Manufacturing Sector since independence would show clearly that the sector has not always performed poorly.

He added that “Post-independence and indeed until the late 1980’s we had a thriving and consistently growing and increasingly diversifying manufacturing industry. Our industrialization policies were well thought out and diligently implemented. There was a determined effort to promote investment in manufacturing value addition to local Agricultural products such as Cocoa, Rubber, Cotton, Groundnuts etc, across the country. We had robust industries in Kano, Kaduna, Lagos and Asaba employing thousands of workers across the Cotton Textiles value chain, from ginneries to spinning, weaving and finishing processes. These supported extensive cotton farming in areas such as Katsina, Zamfara, Kano and Kaduna States. We had various Oil Mills converting palm kernel, groundnuts and others into pure vegetable oils. Two of the largest Tyre makers in Europe – Michelin and Dunlop established large Tyre factories in Port Harcourt and Lagos respectively, using natural Rubber from vastRubber plantations across Rivers, Ogun and Edo States. Even in the Petroleum Industry, the policy of value addition to local raw materials was actively pursued during this period. In fact, the main thrust of Nigeria’s Third National Development Plan 1975 – 80 was the elimination of fuel scarcity. The first Crude Oil Refinery was established in Port Harcourt in 1965, followed by Warri in 1978 and Kaduna in 1980. A second Refinery was commissioned in Port Harcourt in 1989. Since then, no further capacity was added.

Dangote refinery

Dangote said “On the contrary, all the three plants were allowed to steadily decline, forcing the country to resort to embarrassing import dependency. Apart from a focus on local value addition, the earlier industrial policies also encouraged and supported local entrepreneurs to go into manufacturing leading to the emergence of our trail blazers in the sector such as the Odutolas, the Adebowales, the Adedoyins, the Aminu Dantatas, the Isyaka Rabius, the Chin Okekes, Razak Okoyas, the Onafowokans of Ladgroup and others. In the Mid 70’s, following the end of civil war, and encouraged by the massive inflow of oil revenues, Government also adopted a policy of import substitution, promoting industries such as Automobile Assembly, Flour Milling, and many ‘fill and finish’ pharmaceutical industries. While many of these were private investments, others were set up as Joint Ventures with the Federal Government (such as the Assembly Plants).

These industries of the 70’s and 80’s grew and thrived, creating thousands of jobs for Nigerians and also enabling the development of the MSME sectors, further boosting job creation and growth. The Assembly Plants, for instance encrouraged and supported many local content MSME including Batteries and Plastic products. As a result, the Manufacturing sector sustained steady growth in the 70’s and early 80’s despite the impact of the civil war and global economic crisis of the 1980’s.

“But as all of us can testify, our manufacturing sector has declined over the years, and has largely failed to provide the jobs it was expected to create for our teaming youths. It has also increasingly lost the strong linkages it once had with our agricultural and mining sectors which, if it had continued would have resulted in increasing food security, and energy self-sufficiency.

We may all recall thriving manufacturing concerns across the country like Steyr in Bauchi, Leyland in Ibadan, Anamco in Enugu, Fiat in Kano, Volkswagen in Lagos, Peugeot in Kaduna, Osogbo, Delta, Jos & Katsina steel mills, Jebba paper mill, etc. These and many more have since joined the graveyard of dead manufacturing concerns. Clearly, therefore there is an urgent and imperative need for us to re-think our manufacturing.

 

RE-THINKING MANUFACTURING

There are, no doubt, many causes for the failure of our manufacturing sector to meet the expectations of our people. Let me use a personal example to illustrate… I trust this Summit will identify all the critical issues, deliberate on the challenges and propose how to reverse the trend. 8 For me, the most critical issue to address is Government Policy and Government attitude to investments and investors in the sector. I intend to focus on this in the rest of my Keynote Address.

Dangote Refienry eqpt
Atmospheric Tower for Dangote refinery sailing from China to berth in Lekki next month

PROTECTING AND SUPPORTING INDUSTRIES

I believe a primary role and responsibility of Government is not only to promote investment and encourage investors in Manufacturing, but also to ensure that those investments are nurtured and

protected to grow and thrive. Industrial/Manufacturing entities are not like Trading entities. In every economic regime, including the most advanced, investment projects in manufacturing and industrial sectors need time, and a conducive environment for them to mature, build capacity and scale, to become competitive against those in older and more mature markets. But since the Mid 1980’s nonindustrialized countries and their leaders have been discouraged from protecting and supporting such investment and forced to expose them to unfair competition from stronger, older competitors in their own internal market, even before the newcomers are commissioned. Yet these same older/bigger players are well supported in their home markets. Let me give a few examples:

  1. The blocked sale of US steel to Nippon Steel of Japan.
  2. The blocked sale of six US port management companies to Dubai Ports World
  3. The restriction of Chinese Cranes at Ports in the US.
  4. The US imposition of 100% tariff on Chinese EVs, 50% tariff on semiconductors, medical products, solar panels, etc.
  5. The restriction of Russian Gas supply to Europe compelling European countries to turn to coal despite very loud voices against fossil fuel.
  6. The distribution of $39 billion in subsidies by the US government as an incentive for companies to produce microchips locally Asia achieved their significant level of industrialization by pursuing industrial policies where the government played an active role in nurturing and supporting local companies. They then subsequently leveraged this success to attract FDI into Free Trade Zones. Let me clearly state that by “Government Protection” of the industry, I do not mean short to medium term Regulatory Mechanism such as Tax Holidays and other incentives which have their place in industrial policy and should be applied when necessary to mitigate investment challenges. I am concerned with a long term policy framework which ensures that investors can invest with the understanding that the industry will in the long run be regarded as a

national asset and not just investor’s assets, so that when it isthreatened, either by external forces or by changes in the environment beyond the control of individual operators, Government will take appropriate action to protect investors and support them to survive the threat. Almost all countries did this in

response to the COVID threat. Those in the pharmaceutical industry may well remember how India protected and supported its pharmaceutical industry. If we had adopted such a policy and

Government attitude to the Textile Industry and tyre industry in the 80’s and early 90’s, perhaps our economy today will still be benefitting from the job creation capacities of these industries. Or if we had adopted this attitude to our Refining industry, Nigerians would not today be too anxious about Dangote Refinery. I am aware that the Bretton Woods Institutions have confused some of our economists about the word “protection” to the extent that some of them think it is a blasphemy – a word that should not be uttered in good company. But how did China, Korea, India and several other Asian countries emerge as strong economies and a threat to the existing world economic order? We are often told that protecting your industries makes your country uncompetitive! This is pure fiction. It is quite the reverse. I say you cannot be competitive until you protect and support your own industry. In the past, Nigeria was not competitive in cement production. Up to 2007, Nigeria produced less than 2m tons of cement per annum. Today we have about 60m tons of production capacity and another 9m under construction. The foundation for this success story was laid by an administration which decided to extend full support and protection to Nigeria’s cement industry. Today we are among the 10 most competitive cement producers in the world and the biggest cement producer and cement exporter in Africa. In 2023, Dangote Cement alone paid more taxes into the coffers of the government than the entire banking industry.

“It is also often suggested that protecting your industries leads to monopoly!! Again, this is false. You create the environment for monopoly when new investors are not willing or not allowed to invest in the industry. In asking for protection, I am NOT asking Government to prevent others from investing in the sector or industry. Quite the opposite, I am recommending that Government Policy should support and protect existing industries so that others will know that their investment will also be protected. Is there a better incentive than that? I humbly submit that an industrial policy that assures investors of support and protection is the greatest incentive for all investors both local and foreign. It is common knowledge that foreign investors only come when they see that local investors are also doing well. What attracts foreign investors, is successful domestic investors.

 

“Furthermore, I am convinced that when Government Policy becomes more supportive and protective, investors will be more willing to collaborate and partner with Government in resolving other challenges such as infrastructure deficits, market instabilities and macro-economic issues such as inflation and foreign exchange volatilities.

 

CONCLUSION

Dangote noted while concluding his Keynote address that “reiterating that Nigeria has all it takes to develop and sustain a globally competitive manufacturing sector, but to do so we must re-think our industrialization policy. We must look to leading countries in the West and the East who are actively protecting their domestic industries. We must similarly enact policies to protect our domestic industries and nurture them into home grown champions that will create the jobs and prosperity we desperately need.

“The time to RE-THINK OUR INDUSTRIAL POLICY IS NOW!” Dangote summed.

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