Never make investments trusting govt policy –Edwin Devakumar, GMD, Dangote Cement

For the Group Managing Direc­tor of Dangote Cement, Devaku­mar Edwin, doing business with multiple challenges of power, poor infrastructure and others may not be easy. Not even with inconsistent govern­ment policy. But as an indigenous company, Deva­kumar knows that Dangote Cement, which broke the jinx of Nigeria relying on im­ported cement has no choice but to weather the storm. Over the years, the company has surmounted most of the hurdles to become the number one producer, not only in Nigeria, but exporting the products to other African countries.

In this interview, Devaku­mar reveals how the journey began several years ago, the company’s view on build­ing collapse and why it is producing 42.5 cement grade as well as its expansion in to other African countries and other issues relating to the industry.


Performance as indigenous ce­ment company

The Company is faring well, we first started as a trading company. In those days, we used to import cement from Benin and Togo and that was some decades back. In 2000, we decided to reschedule the cement business with the idea of operating terminals. We started with one terminal in Apapa and later we expanded to other locations in Port-Harcourt, Abule-Oshun in Lagos and Onne in Port Harcourt. After two years, we felt going into full fledged manufacturing would not be a bad idea. On that note, we started identifying the sites, the one in Lagos, Calabar and Kogi states. To begin with, we started with the site in Kogi state, put up the cement plant and then we went into production. Meanwhile, we acquired the one in Benue state and put up a new plant in Ogun State. That was our first phase of expansion. We had doubled the capacity in Ogun state and now doubled the capacity in Kogi state. In fact, the Obajana cement plant is the largest cement plant in the world in one single location today. Now we are planning for the third phase of expansion, we are planning to start cement plants in Sagamu and also in other parts of the country. We are just on the threshold, we have signed the contract for Sagamu.

Challenges of Nigeria’s operat­ing environment

There are lot of challenges doing business in Nigeria. For example, when we went to Kogi State to put up the plant. At that time, there was no mobile telephone facility, we have to resort to prayer. We need to install VSAT communication at the site and because it was in the bush, we have to put up more than 500 houses for our staff to stay. There was no adequate water facility, so we have to construct a dam. We have to invest on a 90 kilometer gas pipeline to meet up with the demand on power. We also have to construct about 5 kilometers of double road, as there was no road network.

We set up our own telecommu­nication facility and others, as there was no infrastructure facility. But in other countries you get so much en­couragement, whereas here you have to go and do everything for yourself. There was no power, we have to go and invest on our own power plant. Unless you are willing to be self-sufficient and dependent on yourself and unless you are willing to spend much on capital expenses, you will not be able to survive in business. Expressly, cement business is a busi­ness within business, mining itself is a huge activity involving so much of capital expenditure. Power plant because it is a power intensive busi­ness. It’s another huge business apart from cement. So there are three busi­nesses within one, some people may want to have a rethink on investing that much on capital expenses.

We commenced the manufac­turing during President Olusegun Obasanjo administration. Before we started the businesses, he invited all the cement terminal operators and charged us to go into manufactur­ing. He noted that the major raw materials which is limestone is available locally, while gas is also available, noting that with those basic raw materials, it doesn’t make sense operating terminals for cement imports. He charged us that we can save a lot of foreign exchange through manufacturing and generate employment. It was a very good policy which made a drastic change in the country. Before then Nigeria and United State used to compete for the number one position as importer of cement in the world, sometimes it would be US, sometimes it would be Nigeria. Today we have become exporter of cement. So the whole scenario has changed. Apart from generating so much employment and wealth creation, government has equally benefited a lot through tax. Then Flour Mills was also importing cement and went ahead to com­mence investment, BUA also bought Sokoto Cement and they have been trying to revamp and add capacity to the industry. Lafarge who was having Atlas importing terminal also went on expansion in capacity. For President Musa Yar’dua, the scope should not be only the manufac­turing, but trading as well. So he opened the market to encourage any­body interested in importing cement, to bring it into the country.

The first phase of Obajana, the two lines of production cost us $1.2 billion, which is not a small investment. Now by the time we commenced production, government came up with another policy encour­aging anybody to bring in cement into the country. If our investment has been totally hinged on the gov­ernment policy, we would have just gone down. Every investors would have gone down. That is one of the basic lessons we have learnt always, never make an investment in the country trusting government policy. If the business is self-sustainable, go ahead with it, otherwise don’t dabble into it. We have massive challenges, though it took a long time before the government believe there is enough capacity in the country, to discour­age importation, though there are still some coming in, but at least the industry has come a long way. There is huge manufacturing going on and everybody is expanding capacity. They have been able to overcome the challenges. One of the reasons for our success is the distinction in our business model as an indigenous firm and the foreign firm. For an overseas operator, they have differ­ent business interest. They would look at the country as being risky to invest because of the government policy and other problems and chal­lenges in terms of power, security, infrastructure. For example some months back it was hectic getting fuel, because the gas pressure went down, even the alternative, the black oil from the refinery was not avail­able too. So we have to buy a ship load, which we cannot even bring into Port of Lagos because it is not possible to bring a large vessel into it. So we have to bring it in through Togo and from there get it into small vessel for Port-Harcourt and Lagos. The overseas investors are hesitant to invest, whereas the indigenous investors know the challenges and how to overcome the challenges and also have confidence in the country. If a Nigerian doesn’t have confidence in his country, where else would he go.

So my President has confidence in Nigeria and his investments in the country. Also he has gotten to a stage that his focus is not on making mon­ey from the business, but what kind of a legacy, what kind of a name he wants to leave behind. What he can do for the people. That is why his entire focus, his style of business is changing. The more reason he could also succeed.

Our Obajana and Ibese plants are the most modern cement plants in the world. Nobody from the US, Europe can come and say, I have a more modern plant. We have the latest technology right from mining, up to the power plant. It helps us to ensure very high level of operation efficiency. It also ensures that we have the best of the quality. Every plant we have, the quality control lab is managed by a robot, so it’s a completely circuited where a robot automatically controls the quality of the materials. So we have the best in the quality materials, hence it is very easy to sell the products.

Substandard cement

There are various grades or quality of cement which are approved internationally no doubt. But they are all approved for specific purposes. For example some of the multinational companies have been saying that 32.5 is approved in Europe, yes it is approved in Europe. But they also accepted that in Europe 32.5 is consumed only to the tune of 20 per cent of the consumption. That’s number one, number two, there is a very highly educated market. So they know a cement meant for plastering will only be used for plastering. The third point is, the business is highly regulated. They know that they could be punished for error, hence they are very conscious in terms of quality and application. But here as well as other third world countries the level of education of the people supervising projects at the sites is different. In Europe nobody would go and mix concrete at the site, but will order ready-made concrete. That the fully automated plant checks the quality of the water, the quality of the sand, the quality of the stone, mixes everything precisely and deliver concrete at the site. Here it is difficult, because there is no big demand for it here. They do not know that 32.5 should not be used for most of the construction works. That is the primary issue. Also apart from the application, people also try to stretch what they can do. They try to maximize profit by mixing more sand into the concrete, even when they mix for plastering, they try to mix more sands. This is because some contractors believe they can make more money by using less cement.

The house owners who directly built also cut cost by adding more sands. So the tendency of the people is to maximize the available cement by adding more sands. Hence nobody test the quality of sand as well as water. But it is necessary before mixing to put sand through series of analysis. It has to be tested and approved. That’s what we do in our cement plants, but who is doing that out there. I also put up my own house as a small boy, when I go for supervision, nobody test the water and the sand at our sites. So if we allow all kinds of products into the market, buyers that have no clarity of what products to apply, they will use cement meant for plastering for housing construction and they will usually add more sand and it is going to lead to collapse of building. It is a very critical factor and you won’t be surprised, when I started the construction of Obajana Cement, I told Julius Berger, you have to use this specific grade of cement. Then various grades of cement were being imported into the country, but when I told them what I wanted and they cross check in the standard book, they complied. One can imagine building for people who knows nothing about specification. That is why in many of the countries, those that approve standard, don’t allow manufacture of certain cement. Like in Indian some certain grade are banned. Because they know it’s a risk to allow the use of those cement due to the level of awareness in the construction industry. That is why the issue has come up, we expect the Standard Organisation of Nigeria (SON) to make a decision to ban certain cement grade or at least make a very wide publicity that people would be alerted than taking a big risk using such cement.

Eradicating building collapse

Cement production starts from limestone and go to a stage called clinker, which is essentially cement stone, which is now grounded into cement. All the manufacturers make the same type of good quality clinker. But what other people do is that after grind­ing the clinker into cement, they add more than enough limestone, and this affect the quality. They do this to maximize profit. Cement comes through a whole process of production. We took a look at this and the controversy, and we decided that one single life is much more important than profit. So we decided as a policy that we will never make 32.5. So to begin with actually, we started with 42.5 in Ibeshe, same in Obajana, but in Gboko, because of the plant, we had kept 32.5 for our plastering market. So cement from there was meant exclusively for the plastering market. But when we real­ized that those who buy the cement may go ahead to build house, make pillar, slab, and that is the truth. So even before the controversy started, we’ve stopped producing 32.5. And now we are producing only 42.5 in all the plants. All the plants are also capable, we have graded them into producing 42.5. So in some major construction companies handling a bridge, fly over project, they want 52.5, and it’s available. But for every body it’s 42.5. All our competitors were producing 32.5 and maximis­ing their profits by adding more limestone. So am minimizing my profit by producing 42.5. So why should we not sell at a higher price? But the President said we should not due to economy reason, which he said was not so sound. He noted that many in the country are living from hands to mouth and would rather go for a cheaper product, and invariably encouraging the consumer to go and use the inferior product. He believed that we would be held responsible for any shortcomings. To the Presi­dent, he also believed that it was a sacrifice to the country of his birth to ensure safety of lives. So we put the price of 42.5 at the same rate as 32.5.

Sustaining market leadership

To be a market leader, we have to ensure that all our stake holders are happy. To start with, the community where we are operating should be happy. Otherwise it is not a sustainable operation. Primarily, number one, is by ensuring that the plant does not pollute. Recently I saw in one of the local television station, they showed details of one of our competitors’ plant piling so much of cement into their backyard. We ensure that our plants does not bring out gas. Nigeria standard is fantastic. It is 250 mgm. European standard used to be 50m. Before construction in Obajana, we analyze the two, and decided that we will go far below the European standard. So we chose15, against European stan­dard of 50. A year after, we finished our plant and had then brought the standard to 30. We are below the European standard and far below Nigeria’s standard, which is 250. So our cement factory do not pollute the environment. We have ensured that the noise level, and others are below the European standard. So we make the community happy, by being their ideal producer. But we need massive investment. To ensure that we produce cement that doesn’t emit gas require huge investment. We need to have pollution control system. We have to invested heavily on technology and equipment. It means a lot of money would go into the investment. We believe this is a business, it is a massive investment, which we can keep operating for the next 40 years, it is worthwhile to put money into the company. Number two we want to relate well with the communities, so we put up schools, hospitals, we bring power to the communities. We provide water, through sinking bore-hole, we provide scholarship. We indeed relate with the community very well, we ensure that all the stake holders are happy.

Number two, our workers are another key stake holders, so we ensure that their salary are compa­rable with what obtain in the market. We also spend a lot of money on training. We sent people overseas for in-house training. We ensure that a lot of key stake holders are happy. When we started the Obajana’s plant, seven of my Nigeria workers had no orientation inside the cement plant, everybody was brand new. Likewise in the power plant, only one person had experience working in a power plant. We spent a lot of money on research. Before then it was an old technology that was in place. A technology used in the aircraft to demo jet. But we sent our people on training.

For the power plant, we sent people to the United States for training, and for the cement plant, we sent people to India for training. For mining, we sent people to South Africa. So we ensure that those stake holders are happy. A lot of these key stake holders are customers. So un­less we are able to maintain the quality of cement, at the right price, they will not be happy. That is one of the reasons, for the 3x launch. We spent a lot of money on research. The 3x is not just the normal 42.5, but a special quality cement. As we said during the launch, anybody can come to our Obajana cement plant, there we have a modern labora­tory that we can make block and cement straight. There we can make up to 50 blocks of cement of good quality. So it gives extra yield. Then it is also extra strong because the block sets faster.

One can quickly mold and take it out. Then we also said the quality of the cement is not just extra strong, extra yield, but extra length, a house is not something you just build, but it must be for generation. There is this opinion that if 42.5 is used in the North, the houses will crack, so it’s better to use 32.5 because of the tem­perature. That is unfortunate, such a people holding such view should go for a course on cement technology. Normally if you use strong cement, if after putting in the concrete, you don’t cure it properly, it can crack. But that is because of what we call a hydration. But in this 3x, the heat of hydration is low and it can be used in the North, or anywhere in any temperature, it would not crack. This is a very special product. It’s not just 42.5. Unfortunately many people seems to say it’s just 42.5 we are re-launching, because of the controversy, No! What we have is a very superior product than the nor­mal 42.5. So when you come to the customers with this kind of product, obviously you must see that it is sus­tainable. Because they know that our product can give them extra yield, it can give them extra strength, extra life. So the customer will be happy, and when the customer is happy the business is sustainable.

Hiring P.HD holders as truck drivers

There was a little bit of misun­derstanding. What we did was in order to bring down the level of accident, we need to have somebody at the wheel of the truck or a bus who is level headed. Apart from the people on the road, they are also car­rying some passengers. They carry heavy loads, if they are careless or reckless, they can endanger so many people. So we realize that what we need to do is to get many educated people to operate the truck. So most of our drivers are graduate, so we decided to go a step higher, that is what we did and we advertise. It is true that about seven P.hd holders applied, there are several and MBA holders who applied as well. What we are just trying to highlight is how bad the unemployment situ­ation in the country is. But we took most of them and use them in other vital areas of our operations. Some as transport officers, fleet officers. It’s not that we just took them as drivers, we’ve taken much higher qualified people in the past as driv­ers, people who are more educated to drive. In this instance, though many qualified and MBA and doctorate holders responded but we took them to better positions because our company is expanding and there are other roles available. But we also took qualified people to ensure that our trucks are durable.

Apart from the fact that we want­ed the drivers to be more conscious and to drive safely, a graduate would be more conscious and would not just put his life on the line through careless driving. Unlike somebody who attends primary school, who would not mind smoking indian hemp and drinking ‘ogogoro’ and still drive on the roads. Those things would not be there. Apart from that, now we have started exporting cements to the outside Nigeria, we have over 300 pilot trucks, just to take cement outside Nigeria, in such a case, graduate drivers will be in the better position to driver across the countries to reflect the company’s image and also manage the custom­ers across the border.

Source : SunOnline

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