Close
Dangote vs Rabiu: Clash of the Titans

Nigeria at 60

Dangote vs Rabiu: Clash of the Titans

It seems the gloves are off between Nigeria’s two most celebrated entrepreneurs. Mfonobong Nsehe and Seun Adegoke Oyeniyi report on the growing business rivalry between Aliko Dangote and Abdulsamad Rabiu

On 1 September, Abdulsamad Rabiu, chairman of one of Nigeria’s (and Africa’s) biggest conglomerates, BUA was all smiles in Paris as he signed a technology licensing deal with Jean Sentenac, CEO of Axens, France’s largest hydrocarbons group.

The agreement is that Axens will supply process technologies for BUA’s upcoming integrated refinery and petrochemical facility in Akwa Ibom. The greenfield project, which is expected to be operational by 2024, is the latest in the Nigerian billionaire’s audacious moves to stamp the BUA brand as an exceptional regional force.

When completed, the facility will refine 200,000 barrels per day (bpd) of hydrocarbons – a ninth of Nigeria’s 1.8m bpd oil production– and help reduce the country’s unacceptable dependence on imported fuels. It will also export high-quality gasoline, diesel, kerosene, jet fuel and propylene to neighbouring markets. 

To succeed, Rabiu will have to source and develop technical expertise, build at least a 100MW generating plant to power the facility, and construct roads wide and strong enough to carry imported refinery structures and parts.

BUA secured a large and strategic port on the Atlantic Ocean coast from the Akwa Ibom government, thereby easing its logistics. The epoch-making project will swallow billions of dollars and a number of development and commercial banks have stood in line offering to finance the operation via debt and equity.

If this sounds like deja vu, it is because this bold move mirrors a move by another Nigerian tycoon, Aliko Dangote, who himself decided to diversify into petrochemicals.

Rabiu’s bold entry into the refinery business expands the decades-long competition for market dominance between his conglomerate and the Dangote Group, into new territory.

His predecessor in the venture, Aliko Dangote’s highly anticipated $12bn refinery, will produce 650,000 bpd and is expected to begin operations in 2021. Business pundits have long pontificated that there seems to be bad blood between the two men.

If anything, this battle or clash of the titans can only be a good thing for the country, and indeed the continent. America was built by bold industrialists, each vying for dominance. The Korean chaebols (large, conglomerate family-controlled firms) which are now global giants, grew huge thanks to fierce competition amongst themselves that pushed them to innovate, be lean and become globally competitive.

The cynics might ask, why is Rabiu trying to get a finger into yet another Dangote pie? Rabiu  explains that the move represents diversification, especially given the pressure on commodities related to FX and the dollar crunch. But it’s fascinating to understand the two men and their businesses.

In the beginning

The clash in business interests between Dangote and Rabiu has its roots in traditions pre-dating both men’s business careers. Alhaji Aliko Dangote comes from a celebrated lineage of wealthy merchants from the northern commercial capital of Kano.

His famed maternal great and grand relatives made fortunes importing and exporting edible commodities. Upon completing his studies at Egypt’s Al-Azhar University, the young Dangote in 1977 naturally picked up trading commodities in which he had amassed generational knowledge and a network by proxy.

Abdulsamad Rabiu also has a heritage in commodities trading. His late father, Isyaku Rabiu, was a renowned merchant and industrialist in Kano State in the 1970s and 80s.

But a 1983 military coup under Major-General Muhammadu Buhari overturned the fortunes of the senior Rabiu for his failure to pay for rice imports. In 1988, eleven years after Dangote struck out in business, the young Rabiu made up his mind to change his family fortunes and founded BUA International. 

Over 30 years later, the Dangote Group stands out as a leading pan-African brand with interests in commodities, energy and logistics. Its companies have over 30,000 employees and his group represents nearly a quarter of the Nigerian Stock Exchange’s N28 trillion ($75bn) value. Its crown jewel, Dangote Cement, single-handedly boasts a market cap of $14bn and controls 60% of the market. 

The ‘challenger’, BUA Group, has interests in cement production, sugar refining, real estate, logistics and port operation. Its largest operation and only publicly listed company, BUA Cement, which came to market earlier this year, has a $3bn market capitalisation and 17.6% market share.

Though BUA subsidiaries have often trailed Dangote’s, the Rabiu-led group’s market recognition has come by deploying strategy and doggedness to break through tough market entry barriers and assume leadership positions.

Price wars, legal battles and criticisms

Leveraging its dominance in the market, the Dangote Group has always responded by weaponising pricing to put its competitors out of business.

For example, when BUA Cement started production and reduced prices by about $20/tonne to attract customers, one of the Dangote strategies was to temporarily beat down their prices. Rabiu was unperturbed and instead, focused on meeting the demands of underserved markets in the Northern region, which eventually earned BUA the title ‘King of the North’. 

Their rivalry really intensified under the administration of ex-president Olusegun Obasanjo. Many (falsely) attribute Dangote’s success to favouritism by Obasanjo. It’s true that Dangote benefited from favourable government policy towards certain goods to encourage import substitution, but he was already powerful and his success can be attributed to excellent execution.

Still, accusations are directed towards what is claimed as favouritism towards him – to the detriment of his major rivals – regarding preferential access to foreign exchange and preferential tax arrangements. Between 2010 and 2015, Dangote Cement paid N12bn in taxes, an effective tax rate of just 1%, it is alleged by some.

The BUA chief allegedly wrote a petition to the current President Muhammadu Buhari, detailing how policies of successive governments over the last two decades have “unduly” favoured his kinsman.

But it now seems the gloves are off as the rivalry heats up and the battle for cement supremacy intensifies.

Both companies are currently locked in a bitter dispute over mining rights in Obu-Okpella in Edo State. BUA has its highest-producing cement plant in the area and has accused Dangote of blocking access to the mines – which are a rich source of essential material in the manufacture of cement.

Dangote, on the other hand, claims ownership of the mines. The complicated case was still before the courts at the time of going to press.

Good vibes despite rivalry

Apart from the generational business interests of both men, favourable government policies have often determined the direction and expansion of their businesses. A backward integration policy introduced under the Obasanjo Administration to reduce over dependence on imports created opportunities for each of them to establish operations in key industries – cement, sugar and flour.

Dangote Sugar has a 70% market share. The subsidiary possesses an 800,000 tonnes annual production capacity plant which is the largest sugar refinery in Africa and the third-largest in the world. It is the main supplier to the country’s soft drinks companies, breweries, and confectioners.

But BUA puts up an impressive fight. It broke Dangote’s total grip on the market in 2008 by establishing a plant with an annual capacity of 720,000 tonnes. The facility remains the second-largest in West Africa after the Dangote Sugar Refinery.

Cement has helped place the two northern business moguls among Africa’s wealthiest. Forbes estimates the net worth of Rabiu and Dangote at $3.2bn and $8.3bn respectively as of July 2020. Despite Nigeria being the continent’s largest cement exporter, Rabiu says output is still not enough to satisfy local demand given its huge population. 

As at 2018, the country had an annual production of 35m MT but needs to produce up to 50m MT of cement for its 200m population.

Both BUA and Dangote have exited the flour market, where Flour Mills of Nigeria wields a 55% market share, to concentrate on cement, which delivers higher returns.

In 2016, BUA Flour was bought by Olam for $275m. Three years later, Dangote sold its loss-making mill to Olam for $361m. Now they have their eyes on much higher returns in the costly game of petroleum refining.

Interestingly, outside of business, the two men appear to be friends. Rabiu was invited to Dangote’s daughter’s wedding in 2018. “I don’t think there’s any animosity between the two industrialists though,” says Feyi Fawehinmi, a UK-based economic commentator.

Both men are in their sixties and have hinted that their supposed rivalry is nothing personal. Earlier in the year, Aliko Dangote visited Abdulsamad Rabiu at his BUA headquarters, on Victoria Island, Lagos.

Wearing a light grey indigenous babariga outfit, instead of his signature two-piece suit, he looked in the mood for casual chat. Both men laughed and smiled for the camera in what was their longest public appearance since Dangote’s birthday, three years earlier.

“It was an honour for me to receive my friend and brother, Alhaji, in my office today. I share his vision and aspirations in transforming and industrialisng our beloved country, Nigeria,” Rabiu shared on social media.

For any outsider, greater competition can only be beneficial. Dangote and Rabiu’s combined 850,000 bpd oil refinery ambitions offer Nigeria’s economy much to hope for. The Department of Petroleum Resources has said that the country expects to become a net exporter of fuel and other petroleum products within the next two years. Consequently, this would increase foreign reserves and help strengthen the frequently weakened naira.

As Nigeria marks its 60th independence and its 20m citizens reflect on the gains of democracy, Aliko Dangote and Abdulsamad Rabiu’s rise is evidence that national champions are critical to truly transforming economies…even if that means creating an enabling environment for such groups to grow properly. 

 

Related articles

‘BUA will save Nigeria hundreds of millions of dollars’

The Big Interview: Aliko Dangote – In for the long haul

Related Posts

Unmissable Past Stories