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TimePosted 15/10/2018 00:00:00

Dangote acquisition trail could strengthen group's African network

Dangote Cement's Chairman and CEO, Aliko Dangote, caught our attention this week with his announcement that Dangote Cement will begin preparations for the company's London public listing in 2019, probably after Nigeria's general elections.

Dangote Cement has previously considered an Initial Public Offering (IPO) in London, taking steps in this direction as far back as in 2010. While the company has been one of the fastest-growing cement producers in Africa, this latest development signals a change in direction of how it intends to become a bigger player in the cement industry. It is a further indication that the days for growth via greenfield plant construction in the cement industry are rapidly coming to an end.  

Edwin Devakumar, group executive director at Dangote Industries Ltd, said: "We have grown to this extent mostly via greenfield investments. To grow much more, we'd probably have to do it via acquisition."

While Dangote Cement has given no signal as to where it might be looking to expand its presence, in the past the company has considered entering the markets of Brazil, Peru and Nepal, says Mr Devakumar.

Unlocking African potential
However, Aliko Dangote stated at the 5th annual Financial Times African Summit in London this week that there has to be a conscious effort at deepening Africa's regional market by African investors and governments to aid rapid development of the continent's economy. The key to Africa's economic growth and strength is in the development of regional markets. "Regional markets in Africa must work," said Aliko Dangote. "We need to trade with ourselves," he added.

The failure of Africa to help build its own economies can be seen in the simple example of Dangote's desire to supply the cement market of Benin. Here cement is still imported from China when Dangote's Nigerian factory could easily export to meet the neighbouring country's cement demand with its factory situated 35 miles away on the Nigerian-Benin border.

The cement manufacturer is also facing challenges in Tanzania where Dangote intends to build a jetty to export cement and has failed to reach an agreement over fees for exporting cement from the facility, reports Jonathan Rosenthal, Africa Editor at The Economist.

While Premium Times reports that Dangote Cement has a 66 per cent share of its domestic market in Nigeria, it is still trying to expand its domestic market share. Like Dangote, other Nigerian producers are starting to deliver their products directly to distributors in more remote areas of the country. Dangote is among the manufacturers that has also employed what is called cement distribution management (CDM), an en-route diversion system facilitating third-party orders to reach customers in remote areas.

Vanguard reports that in addition to offering discounts, cement producers are providing incentives such as mini trucks and additional credit for purchases to drive profitability of distributors in outlying regions.

If major company acquisitions in Africa are the way forward for Dangote Cement, it will have to pick its way carefully through potential investments. Several African countries, especially this year, have witnessed cement producers enter administration or suspention of production – on the back of falling cement prices, lack of available power, and growing overcapacity.

Dangote Cement Group's current pan-African portfolio includes cement plants in Cameroon, Republic of Congo, Ghana, Ethiopia, Nigeria, Senegal, Sierra Leone, South Africa, Tanzania and Zambia.

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