Development and private sector infrastructure investments

By Vincent O. Akinyosoye  

The current wave of investments on the standard gauge rail line that is designed to connect all state capitals and the FCT, the massive road construction efforts to dualise all federal roads and the large investments in electricity generation and transmission lines to move the national capacity to 15 -20 megawatts (MW) in the near future as well as the building of the Second Niger Bridge coupled with some private sector investments in some key sub-sectors, notably by Dangote, signify an avant-garde turn in the take-off of our economic development process.

The principal investments of Dangote are legendary in their depths and scope from building a number of large cement factories in Ogun and Kogi states with those in other 14 African countries; to currently constructing the largest crude oil refinery in the world in the Lekki area of Lagos plus massive investments in some selected industries such as fertilizers, raw materials for petrochemicals for producing plastics, soaps and detergents, explosives, synthetic fibres for the textile industry, artificial rubbers, paints, resins,  flooring and insulating materials as well as the production of 200,000 tons of clean, stone-free and nutritious rice grains from one million hectares of rice farms with thousands of modern-farming and technology, farms for the production of fruits for making tomato paste, and production of industrial and table salts, etc.  The unique features of Dangote’s investments are numerous.  They are designed to meet most domestic demands for the products manufactured and have enough for exports, thereby generating substantial foreign exchange, create employment opportunities of direct and indirect labour in their thousands, if not millions and conserve our foreign exchange earnings for other uses.  In addition to the foregoing, Dangote goods are necessities which makes their demands sustainable with positive attendant effect on inflation by stabilizing the supply of these essential commodities produced essentially from domestic raw materials.  Technically, the overall macro-economic benefits from Dangote’s wide range of investments come from significant upscaling of the national output and income multipliers, thereby creating an upward trend in our GDP in the near future, and minimizing the leakage multiplier that will substantially reduce our imports, reduce our reliance of foreign goods, and demand for foreign currencies which will boost our foreign exchange reserve and make us thoroughly independent.

Furthermore, our government will have more money to pursue the key infrastructure development in rail, roads, electricity, and other projects which are germane to economic take-off and state Governments will boost their Internally Generated Revenue (IGR) from personal income taxes from Dangote workers and land taxes.

One other unique feature of Dangote investment style is the sustainability built into the business model of the operations, especially the choice of the management personnel and ownership pattern.  The Dangote Group members are all in the Stock Exchange with diverse ownership through the sales of stocks.  This will enable the group of companies to outlive him, unlike the typical Nigerian private companies which are chiefly family owned.   His companies’ management teams do not consist of persons from Dangote’s ethnic group alone, unlike what operates in many companies owned by the typical Nigerian businessmen and women.  A further unique feature is that Dangote locates his investments on pure comparative advantage basis, choosing to invest where there is high local content and in locations far away and have large market other than his base in Kano to places like Lagos and Ogun in Southwest, where there are such raw materials as crude oil and limestone and Obajana in Kogi State because of the large limestone deposit.

This take-off stage now being planted by the present administration and the government’s support to Dangote’s investments are similar to what happened in Germany’s and Japan’s economic revolutions of the mid-1800s.  The economic change in Indian’s economy after independence in the late 1940s;  the rethinking of China’s communist leaders that communism can only thrive through economic development through massive investments in economic social and institutional items of infrastructure and economic changes that came to the likes of Singapore and Malaysia in the 1950s, are cases in point.  But the case of South Korea is worth examining in detail in relation to the Dangote model.  From the 1950s, after the bitter Korean war that pitted America and China and resulted in a “draw” leading to the splitting of Korea into the North Communist Korea and the Western capitalist and democratic South Korea. While China allowed communism to luxuriate in the North, America brought her liberalism and capitalism to South Korea.  The resultant effect is a rich South Korea, with one of the highest per capita incomes in the world coexisting with a relatively poor North Korea that is only happy with amassing massive war arsenals.  The Americans educated the South Korea government and she willingly accepted to invest massively on rail, roads, electricity, public institutions, security, schools and health institutions as well as support for private investments to promote their take-off under a guarantee of security from the USA.

The ultimate impact on our economy of Dangote’s investments and few others look similar to what Samsung’s range of investments which started in 1938 did and is still doing to the South Korean economy over the years.  Samsung’s investments started as a family business in 1938 but grew into a giant corporation with massive support from the government in terms of generous tax rebates, opening of international markets through trade deals and creating relevant enabling environment through massive public investment in numerous items of economic and social infrastructure.  This explains the ubiquitous presence of Samsung products all over Asia and every nation of the world today.

Samsung investments, like Dangote’s, transcend beyond the manufacturing of such products as processed foods, textile, electronic goods, mobile phones, semi-conductor and chips into insurance, security services, retail trade, construction, ship building, information technology, heavy industry, Samsung engineering, overland resort, advertising and public works.  Samsung’s investments are estimated to be about 20% of South Korea’s GDP fuelled mainly by her exports.  This explains why Samsung has a powerful influence on South Korea’s economic development policies, politics, media and culture has been a major force behind the “miracle of the Han River” as the Korean economic phenomenon is often called.

On Dangote’s impact, there is no direct measure of the impact on the economy except of the myriad of employment opportunities created.  But we can visualize its magnitude from the fact that the foreign exchange we would save from the domestic production of Dangote’s products could reach about $10 billion if we measure it with the opportunity cost from the value of imports of similar products Dangote will now be producing namely, PMS ($5b), Diesel, Kerosene and Aviation fuel ($2b), Cement and Fertilizers ($10m), Plastic and raw materials for plastics, soaps, detergent and explosives ($2b) paints, resins and flooring materials ($500m) when we use 2019 NBS figures obtained from Nigeria Custom Service.

A final point to note, the stimulus per se does not provoke take-off but the apriori conditions needed to make it to be possible.  An economy ready to take-off must have all items of infrastructure in top form.  In this case, in terms of institutional infrastructure, the political environment must be stable with the public service and all public institutions including the Ministries, Agencies and Departments (MDAs) and security agencies functioning in top forms.  The perfect political environment must also be fully democratic and there must be a large pool of middle class with persons that are sufficiently educated with technological know-how and management abilities to manage the stimulus.  This was the situation in Europe, North America, Canada, Japan, South Korea, Malaysia, Singapore, Indonesia, Thailand and Taiwan before their take-off and accounts for their being in the top 20 brackets of the United Nations Human Development Index (HDI) in the last 10 years. Which is unlike most African countries, including Nigeria that belong to the Low Human Development brackets of 41 poorest countries of the world with a position of 145 – 185 out of the 185 countries surveyed.

Nigeria therefore needs more Dangotes.

• Professor Akinyosoye is former Statistician – General of the Federation and CEO of the National Bureau of Statistics (NBS).