Today, Mr. Aliko Dangote spoke in the Tony Elumelu Foundation Entrepreneurship Forum which brings thousands of entrepreneurs, policymakers and corporate entities together for a shared vision of empowering and institutionalizing luck through entrepreneurship in Africa. Mr Tony Elumelu had committed $100 million over ten years to seed a new generation of 10,000 African entrepreneurs. Today’s event was graced by governors, investment bankers, ministers and the Vice President of Nigeria. The Founder and Chairman of Dangote Group, Aliko Dangote spoke. In this piece, I will summarize his presentation which I listened live in the Nigerian Law School auditorium, Victoria Island, Lagos.
Mr Dangote explained that he began his business as a trader. Then he moved upscale becoming a bulk trader. From the inception at 1978 to around 1997, he was largely an importer, trading commodities. Then from 1997, he began the push into redesigning the business by making it an industrialized conglomerate. Simply, Dangote over time moved his business from the downstream commodity operation into an upstream business: he went from trading into manufacturing.
Aliko Dangote began with a N500,000 loan from his grandfather. To give a perspective on the value of this money around 1980, his first Mercedes Benz cost him N5,100. If an average Mercedes Benz (he did not specify if he bought it new or old) goes for $40,000, that loan should be in the region of $4 million today. But he did note that he returned the money to his grandfather as he felt that he did not need the money. He was contented with the N5,000 he was generating per day from the four trucks of cement he was managing. (You can also use this to ascertain the value of the loan. Around 1980, Nigerian naira was stronger than the US dollar. So, even if you make it 1:1 then, and have to multiple by today’s ratio of 350, you will get N175 million. But even today’s dollar has lost value to the dollar of 1980. The implication is that N500,000 was a lot of money in 1978).
The Discovery Process
Dangote made a very important comment during his presentation. He did note that he tried many businesses but some did not work out. He tried building a bank but was not successful in it. His words” “I tried banking but was not as lucky as Oba Otudeko”. Oba is the Chairman of FBN Holdings Plc, the major owner of First Bank of Nigeria Plc. He is one of the most respected bankers in Nigeria. During the presentation, Dangote noted that “there was nothing we did not try”. In other words, Dangote had come a long way, learning along the way and figuring out what worked and what was not working. I knew the day they launched his failed bank in Port Harcourt. I was an intern and I represented the company I was doing internship. The bank was named Liberty Merchant Bank. It has since folded.
When Dangote could not find success in banking and some other areas he journeyed, he returned back to building industrialized conglomerate which according to him was “what we know best”. He quickly figured out that he could succeed by expanding the industrials over competing in banking and other sectors he was not doing well. One of those key areas he focused was cement production. Today, Dangote Group has totally transformed Nigeria’s cement sector.
The Dangote Group Evolution
Upon the realization that industrials were going to anchor his vision, he pursued it with vigor. From 2007 till now, he moved into the phase of consolidation and diversification. Essentially, he deepened his capabilities by expanding his empire while consolidating to make it nearly impossible for competitors to challenge him through strategic moats. He also diversified and then began the modern Dangote business. Today, Dangote Group plays in agriculture, petrochemicals, agro processing, and many other sectors.
The evolutionary process also saw enormous strategic vision. This is part of the accumulation of capabilities and building moats which make it harder for competitors. By improving efficiency across all segments of its operations, even in a region where there are challenges with infrastructure, a competitor cannot easily find things to improve upon. With its scale, you cannot find any area to improve and have lower cost advantage. In other words, if Dangote Group can efficiently move items, you cannot come in and use that element to compete because the efficiency attributed to transportation in the conglomerate has been built into product costing. Dangote listed some areas he deepened capabilities to improve his business processes as follows:
- Building a strong transportation network: A conglomerate makes items and building a strong transportation business is a key part of the Group. So Dangote invested heavily in that space.
- Local sourcing of raw materials: The company invested in sourcing materials locally. That helped it to reduce cost as well as preserve foreign exchange
- Partnership with GE and Saipen: He worked with the best possible partners as he built different parts of his business.
- In-house academy (now turning it into a university): The Group invests in developing local talent it needs to run its business. This is a very critical part of its success in a region with challenged educational programs.
The Industrialization Challenges
During his presentation, Dangote noted two things which he observed were affecting industrialization in Nigeria. He listed the following:
- Inadequate electricity: He did note that lack of adequate electricity in Nigeria is a major problem in the nation’s quest to industrialize. He has a solution to that problem. (I have noted that building such structures is one of the reasons why Dangote is successful)
- Government Policy: He did note that government does not create jobs. Rather, government only facilitates jobs by providing enabling environment. He did note that working with government to improve some of its policies to advance the capacity of businesses to drive job creation and industrialization is one of the things he does. Dangote understand the importance of working with government.
As Dangote Group accumulated capabilities in the industrials, he quickly became an industry-leader in each of the sectors where he operated. As he gained from the strength and economies of scale, he began massive consolidation in the industrials. In cement for example, from the numbers Dangote recited, there is no way any competitor can break in easily. The consolidation is massive as he built a vertically integrated business with top-grade operational quality.
The Emerging Dangote, Totally Diversifying
From 2013, I will think that is when we have a new Dangote Group from the presentation. With the consolidation of the sectors where he has won, he then began a push to diversification. This diversification goes beyond sectors to geographical diversification. At the moment, the Group is working to invest billions of dollars in U.S. and EU markets to give it geographical spread from Africa. Today, the firm is totally diversified with sectors that include the following among others:
- Petrochemicals / Refinery: Dangote believes that his refinery will fix Nigeria’s gas shortage problem. That will ensure that power plants get the gas they need to operate. His sub-sea gas pipeline provides a perfect solution to the incessant destruction of energy infrastructure by militants in the Niger Delta
- Agriculture/Agro Processing: The Group is committing at least a billion dollars to invest in rice and other crop production
- Fertilizer production: Dangote will commission its fertilizer plant next year. The good thing about this plant is that Dangote Group will be its biggest customer since the company is investing heavily in farming. So, it will be buying its fertilizer. That reduces any investment risk therein.
- Sugar processing: The Group runs the second largest refinery in the world
- Coal mining: The firm is investing in mining
- Cement production: Dangote is an African leader in this business.
- Power generation: Dangote Group generates at least 1,300MW of power mainly for its business operations (Nigeria’s total distribution capacity is around 4,000MW). He did note though that he sells power to the government of Senegal
Message to African Entrepreneurs
Dangote noted that “Africa is a land of opportunity” and “any resilient investor can overcome African challenges”. He did note that he survived the time when banks could only give him a 90-day loan at nearly 40% interest rate. He urged African entrepreneurs to make products which customers will need. In other words, entrepreneurs need to setup companies that make products that many people will need to use. He noted that those that think big, even when starting small will win. He challenged the entrepreneurs to be prudent and wise in their spending. Also, they should not be afraid to fail. In that failure one, he listed names of some very prominent global business leaders like Bill Gates, Jeff Bezos (Amazon), and Henry Ford on how their initial business attempts ended in disappointments. For Ford, he noted that the man nearly ruined his reputation with failures with his automobile passion until he got it right.
As part of motivating African entrepreneurs, he dropped some hints on what he reads: China now controls about 36% of global billionaires and plans to get to 50% in the near future. Mr. Dangote does hope Africa will have more players like him in that list very soon.
The Tenets of Dangote Success
Throughout the 15-minute presentation, I picked the following as some of the major pillars of Dangote success:
- Quality partnership: He really invested in getting the best possible partners around him. By partnering with elite brands at the beginning, he was able to establish a mark of quality in the market
- Downstream to Upstream: You need to accumulate capabilities in your business and use them to transition from the downstream to the upstream level where you can find more value. He began at the downstream, trading, but quickly built capabilities and moved to the upstream. That upstream provides him more margins as there are fewer players. Also, upstream is where governments supports can be easily obtained. Besides, that is where influence on government policy can be more effectively exerted. Dangote Group can push for help in a refinery business but fuel stations may not necessarily get such supports because the biggest pain points are in the upstream level. Governments understand that and offer support to companies that fix market frictions inherent in the upstream.
- Define Your Battle: It is always easy to think that you can take any fight you want. But Dangote shows that it may be smarter to define your battles. He did poorly in banking and exited because it was not working. The lesson is that you need to quickly understand what you do best and focus on that.
- Dominate Your Domain: Once you have noticed what you do well, the key is dominating that sector. That means, using resources, process quality and excellence in execution to become the industry-king. Dangote came into sugar and quickly won. He did the same in cement, and other sectors. That dominance is how he gets great margins. By dominating, he takes over territories, and competitors exit. Then, he defines the new rules of the markets.
- Customer-Centricity: The big lesson is to identify what customers want. He noted that he was always looking for opportunities where many people would buy the products. People will always need cement, sugar, flour and fuel. That is how he defines the battles and markets he wants to participate
The Dangote Way
I summarize by noting the following as the core elements of Dangote business philosophy and operational capabilities.
- Take Action: You need to find a way to begin, even if small. But make sure, you are always planning big.
- Market Scanning: Scan markets by exploring opportunities. See the ones that are picking up and then massively scale those promising ones. Dangote tried banking, noodle making and other things but gave up to focus on things that were working
- Accumulate Capabilities: The value is always at the top. Find ways to accumulate skills and competence to compete and win at the top. Dangote moved from trading to manufacturing. That was possible because he had amassed so many capabilities in his business
- Consolidation: Consolidate on the areas where you are winning. This is the typical Art of War principles. Fight and take over a territory, consolidate your win, then move to another territory to conquer
- Diversification: That another territory is diversification. You need to keep diversifying in sectors and geography. Where possible, win the new areas as you diversify. If you do that, the empire continues to grow.