Aliko Dangote, Africa’s richest businessman, is increasing the size of his investment in an oil refinery, petrochemical and fertiliser plant in Nigeria by more than a fifth to $11bn despite a looming slowdown in Africa’s biggest economy.
The project could eventually revolutionise Nigeria’s energy sector by slashing fuel imports, eliminating costly rackets associated with subsidies and crude oil swaps, and adding billions of dollars in value to petroleum exports.
Mismanaged for years, Nigeria’s state-owned refineries work at a fraction of installed capacity. Therefore the country, Africa’s leading oil producer, imports most of its petrol and diesel.
Mr Dangote has deep pockets and a long record as an industrialist, having converted his trading empire into a vast conglomerate, which produces cement, sugar, flour and other basic commodities and is estimated to be worth more than $22bn.
Speaking to the Financial Times at his headquarters in Lagos, he said the refinery and petrochemicals project should be completed by the end of 2017 and thereafter have a lifespan of decades.
He is planning an additional $2bn of investment, he said, on top of the $9bn he announced just over a year ago, to double production of polypropylene and to add production of polyethylene, two raw materials used to make plastics.
Nigeria’s economy has diversified over the past 15 years thanks to the rapid growth of services. But it still depends on oil for more than 90 per cent of export earnings, and 70 per cent of state revenues.
The country has been hit hard by the drop in oil prices, with the central bank haemorrhaging foreign reserves before devaluing the official exchange rate for the naira by 8 per cent last month. Ngozi Okonjo-Iweala, the finance and economy minister, has forecast a percentage point slowdown in growth to below 6 per cent.
But the economic turmoil in Africa’s leading oil producer has in no way undermined the case for the investment, said Mr Dangote. “Nigeria needs it and Africa needs it.”
He said his company, the Dangote Group, had already begun laying foundations outside Lagos, the commercial capital, and had raised nearly two-thirds of the initial foreign currency requirement needed before the naira began to slide on weaker world oil prices.
“The devaluation will increase our dollar costs. But most people in the oil business have slowed down or suspended projects. So I think we will get very good deals in terms of building. That will compensate,” he said.
He acknowledged that the broader economic impact of the falling oil price was a concern. “But it may also be a blessing in disguise because Nigeria will have to work harder to diversify the economy, especially when it comes to foreign exchange earnings,” he said.
“We as a group have seen this coming,” he said, adding that by the time the plant, which is partly being financed with a loan from the central bank, is up and running “we won’t require a single dollar from the Central Bank of Nigeria. . . . With our export-orientated goods including cement, fertiliser and petrochemicals, we will be earning as much as $9bn annually.”
Mr Dangote drew inspiration for the project from India’s Ambani family, whose Reliance Industries faced down sceptics to build the largest refinery in the world at Jamnagar in the late 1990s, giving it a dominant position in the Indian market.
“We won’t make our money back for five to six years. If I deploy that capital in buying blocks to sell oil even with the falling oil price, we could recover the money in three to four years. So the real beneficiary is the government,” Mr Dangote said.