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Dangote Suspends Investment in New Plants

Posted by This Day Online on 2008/12/13 | Views: 1752 |

Dangote Suspends Investment in New Plants


The Federal Government's decision to open up the flood gates to the importation of bulk and bagged cement is taking its toll on local manufacturing, following the announcement by a Chinese firm,Sinoma International, that it has reached an agreement with the Dangote Group to suspend the latter's $3.3 billion expansion programme in Nigeria.

The Federal Government's decision to open up the flood gates to the
importation of bulk and bagged cement is taking its toll on local
manufacturing, following the announcement by a Chinese firm,Sinoma
International, that it has reached an agreement with the Dangote Group
to suspend the latter's $3.3 billion expansion programme in Nigeria.
Sinoma in
Shanghai, China, yesterday as stating that it had reached an agreement with the
Dangote Group to suspend a cement project worth $1.45 billion and cut the size
of another by nearly two-thirds -- both in Nigeria. Confirming the development,
the president of the Group, Alhaji Aliko Dangote said that his company took the
decision to cut back on its expansion plans at three of its plants because of
the colossal losses it would have incurred as a result of the importation regime
being pursued by the Federal Government. The government early in the year
licensed several firms to import bulk and bagged cement in order to bring down
the price of the commodity which was at a point selling at over N2,000 a bag.

Since imports started flooding the country, prices have, however, fallen to
between N1,400 and N1,500 per bag. Sinoma had agreed to suspend one project
involving six cement assembly lines, and cut the size of another project
involving seven lines to $689.54 million equivalent from $1.85 billion, it said
in a statement.

But the Chinese company said the adjustments would not have a big impact on its
2008 earnings as Dangote agreed to pay some compensation. Sinoma, a subsidiary
of China National Materials Company said in mid-November that Dangote would
alter the Nigerian cement projects but gave no details at that time.

Throwing more light on decision to cut back on his expansion programme, Dangote
said the compensation that would have to be paid by the Group to Sinoma was
about $65 million, while the total amount in compensations to be paid to the
European firms that formed the consortium, will amount to $200 million.But
Dangote was adamant that it will be a lot cheaper for his company to part with
the $200 million to the consortium than lose some $4 billion that is certain to
occur as a result of the importation scheme."It doesn't make commercial sense
anymore to manufacture cement locally, because any country that fails to protect
local manufacturers through the policy of backward integration, will make it
impossible for them to compete."We have looked at the cost to our business and
have realized that under the prevailing environment, it will be better to cut
down on investing in the country and simply import."It makes more sense to
import because we no longer have to bear all sorts of costs associated with
manufacturing. That way, we cut down on labour costs, energy and other costs,"
he insisted.

Specifically, Dangote disclosed that the decision to cut down on the Group's
investment programme will affect lines three and four at the 5 million metric
ton cement plant at Obajana. "Remember that our plan was to double output at
Obajana with the inclusion of two new cement lines. But we'll no longer go ahead
with that."Also, the Group's president said that the planned 5.5 million metric
ton-plant for Shagamu, Ogun State will be reduced by 50 percent.

However, since construction at the Ibese plant, also in Ogun State, had reached
an advanced stage that will be completed. The Ibese factory is meant to have an
installed capacity of 5.5 million metric tones.Dangote maintained that it is
unfortunate that his company has had to arrive at the decision to cut down on
its investment plans in Nigeria, but he was left with no option."When the
government is ready to provide electricity, water, roads, and other
infrastructure, we'll be more than willing to reconsider our strategy, but right
now it is no longer worth our while to invest in a climate that fails to protect
its manufacturing sector.

"Elaborating on the impact the importation of bulk and bagged cement is having
on local manufacturers, Dangote said Ashaka Cement Plc, has seen it profits
dwindle by 50 percent in one year because of the policy even though cement
prices have been high.However, THISDAY learnt that a downward review of the
tariff regime for imported cement soon to be implemented by the Federal
Government may have also contributed to Dangote's decision to cut back on his
expansion plans.

The development has also cut short plans by the company to generate about
100,000 jobs in the next two years through the expansion.The reduced tariff
structure now makes importation more attractive and profitable than local
manufacturing, and may have forced the business mogul to reconsider his strategy
to import rather than manufacture."If this new tariff sails through, then it
would become impossible for local manufacturers of cement to make any further
investment in actual indigenous manufacturing of the commodity.

Every one would rather bring in most of their stock so as to operate
profitably," an industry source said.

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Fay(Katy, Texas, US)says...

Actually translates to bravehearted.