How Dangote Sugar Refinery Is Using Backward Integration To Create Wealth For Nigerians

Posted on March 19, 2021

Diversifying the economy away from dependence on petroleum products has been on the lips of every president since the crude oil crash of 1980, a year that marked the beginning of an economic downturn that is taking forever to fix while millions of people are entrapped in poverty.

Yet the country relies on crude oil for 90 percent of foreign exchange earnings and two-thirds of government revenue, which exposes it to the vagary or volatility in oil price to the extent that a recession looms whenever the price of black gold nose dives.

It is disappointingly regrettably that Nigeria remains an import dependent country despite its immense human and natural resources, which is why its external reserves are continually being overwhelmed, forcing the central bank most times to impose stringent policies (devaluation of the currency and capital controls) to stem the tide.

Despite efforts by the government to curb the importation of sugar, Nigeria spent N57.20 billion on the importation of sugar in 2019 and N97.30 billion in 2012, resulting in loss of foreign exchange earnings.

The United States Department of Agriculture (USAD) forecast Nigeria’s domestic cane sugar production in the marketing year (MY) 2019/20 (May-April) to reach 75,000 metric tons (MT) (raw value), down about 6 percent compared to the MY 2018/19 figure of 80,000 metric tons.

Interestingly, the agency added that the country’s sugar consumption in MY 2019/20 at 1.62 MMT, up less than 1 percent from the 1.61 MMT recorded in the marketing year 2018/19. FAS Lagos forecasts Nigeria’s raw sugar imports in MY 2019/20 at 1.76 MMT, up over 1 percent from the 1.74 MMT volume reported in the marketing year 2018/19.

Nigeria’s per capita sugar consumption in 2019 is about eight kilograms, lower than the global average of roughly 36 kilograms per person.

To help bolster local sugar production, meet the demands of consumers, and actualize government’s vision on self-reliance sugar production, Dangote Sugar Refinery (DSR) Plc, has been spending massively in the sugar sector of Nigeria’s economy, in line with the country’s Backward Integration Policy.

Dangote Sugar Refinery or DSR, owned by billionaire gentleman and Africa’s richest man, Aliko Dangote, has spent N121 billion on a backward integration programme in 2017, as it has many plantations across the country.

Dangote Sugar is a world class 1.44MT/PA facility located at Shed 20 NPA Apapa Wharf Complex, at Apapa Wharf Lagos. The facility, commissioned in 2000, was the first sugar refinery built in Nigeria, with an initial refining capacity of 600,000MTPA.

The Dangote Sugar refinery, produces 45 ICUMSA Vitamin A Fortified refined granulated free flowing crystal white sugar, packaged and distributed in 50kg, 1kg, 500g, 250g and non-fortified granulated sugar in 50kg bags. The sugar sold under the brand name Dangote Sugar is loved and preferred over any other sugar brand in Nigeria by consumers.

Of course, the Dangote Group is the largest sugar processor, controlling over 70 percent market share.

It is actively investing in its operations; Savannah Sugar Company, its integrated production facility at Numan (Adamawa state) counts with installed factory capacity of 50,000 MT, covering 32,000 hectares with room for expansion.

The company’s backward integration project located at Numan, Adamawa State, Nigeria is a sugar production operation on 32,000 hectares of land, with a milling capacity of 50,000 tonnes of sugar per annum.

At present, DSR Numan produces refined sugar from just 6,750 hectares of sugar cane cultivated on its sugarcane fields; with over 700 full-time staff, and over 5,000 part-time staff, with seasonal workers during the harvest season.

Another backward integration project, Nasarawa Sugar Company Limited, located at Tunga, Awe Local Government Area, of Nasarawa State, along River Benue in Nigeria, has 78,000 hectares.

 Little wonder the company got a pat at the back from the Government over its copious investment in the sugar sector of the economy and its efforts towards ensuring that the government actualizes its National Sugar Master Plan that was conceptualized in 2012.

While on a tour of the Nasarawa farm two years ago, the Minister for Industry, Trade and Investment Otunba Niyi Adebayo, remarked: “It’s a very impressive sight.  It’s amazing that such a project exists in this place.”

He added: “What we’ve seen so far from all the plantations we’ve been to are very impressive. We are impressed with the level of work they are doing.”

In the same vein, commenting on Dangote’s Savannah Sugar company, he said: “The sugar production undertaking here is a huge one,” adding that it gave him much hope that as a country, Nigeria has moved far towards producing all its sugar needs.

Creating Jobs Through Investment in Sugar

DSR investment in the sector is creating jobs and helping to alleviate poverty in a country where over 50 percent of a population of 200 million live on less than $1.90 a day.

At present, DSR Numan that produces refined sugar from just 6,750 hectares of sugar cane cultivated on its sugarcane fields, has over 700 full-time staff, and over 5,000 part-time staff, with seasonal workers during the harvest season.

Also, the Nasarawa project employs about 325 staff, 175 permanent staff and 150 casuals for the land development, which will continue to increase in line with the requirements for the project development.

The company, through its copious investments, plans create between 150,000 to 100,000 jobs.

According to the National Bureau of Statistics (NBS) Labor Force survey, Nigeria’s unemployment rate was 27 percent in the second quarter of 2020- four percentage points higher than the 23 percent reported in the third quarter of 2018.

In a pessimistic tone, global accounting firm PWC estimated that the unemployment rate could reach 28 percent in the third quarter of 2020 and 30 percent by third quarter of 2020.

Aggressive Expansion Plans Bolsters Earnings

Despite a high inflationary pressure, currency devaluation, and decrepit infrastructure such as the traffic gridlock at the Apapa Ports, Dangote Sugar Refinery recorded double digit growth in earnings.

 The company made money from its core business as operating profit margins increased to 20.73 percent in December 2020 from 18.58 percent as at December 2019, which validates rapid growth in sales as expenses are being curtailed.

Similarly, Operating profit spiked by 48.44 percent to N44.43 billion in the period under review as against N29.93 billion the previous year.

Net profit surged by 33.20 percent to N29.77 billion in the period under review from N22.36 billion as at December 2019.

Revenue surged by 33.0 percent to N214.29 billion in December 2020 from N161.08 billion the previous year

From a geographical standpoint, Lagos accounted for the bulk of turnover (48.9% of total sales), growing by 92.2 percent year on year (yoy) to N104.87 billion, while the North region contributed 37.0 percent to total sales (+33.6% yoy to N79.25bn). In addition, the west region added 9.5 percent to total sales, although with a decline in turnover by 46.9 percent yoy to N20.34 billion, while the East region grew sales by 10.9 percent yoy to N9.83 billion (4.6 percent contribution to total sales).

The board of directors of the largest producers of sweetener has utilized the resources of its shareholders in generating higher profit as return on equity (ROE) increased to 12.60 percent in December 2020 from 10.60 percent the previous year.

Conclusions

The government should create a conducive environment to thrive, and that is only possible of it formulates transformation policies that will accelerate economic recovery.

This is because sources comment that the government’s backward integration program (BIP) for sugarcane production is significantly challenged; namely due to weak infrastructure, poor policy formulation and implementation, limited funding, and insecurity in some of the sugarcane production areas.  High transport and production costs for hauling harvested sugarcane to the mills, as well as low-capacity building are additional constraints.

It will be a great disservice to the country if a company like Dangote Sugar after investing (still pouring money) in the sector and creating jobs is allowed to grapple through a myriad of challenges that are aforementioned.

For a country with huge import bills that are undermining the external reserves, diversifying away from reliance on crude oil through local sugar production is the key to unlocking potentials in the economy.

In the past week, the National Bureau of Statistics (NBS) released its terms of trade report for FY-2020 that showed that total trade in merchandise declined by 10.4% in FY-2020.

Overall, Nigeria’s trade balance closed at a deficit of N7.3 billion, its highest deficit since the last recession in 2016.

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