Dangote Sugar profits down 36%, hit by smuggling and poor logistics
Nigeria's notoriously poor ports infrastructure – and smugglers – are hurting the fortunes of Africa's richest man even when he's making profits.
At the Annual General Meeting of Dangote Sugar earlier this week, the company declared a N34bn ($94m) profit after tax for 2018; a decent return but still a sharp 36% drop from 2017’s N53bn.
- Profit before tax also declined from N43bn in 2017 to N32bn in 2018.
Chairman Aliko Dangote pinpointed the reason for the reduced revenues as the gridlock at the Apapa ports hampering logistics.
Smugglers have also taken advantage of Nigeria’s many porous borders and acute shortage of well-trained security personnel, to disrupt the domestic market.
“The gridlock constrained availability of trucks required daily to evacuate the production volumes, while the influx of smuggled sugar exerted a downward pressure on selling prices,” Dangote told reporters.
Dangote Sugar has also re-adjusted the timeline for its ‘Backwards Integration Plan’ – the growing of sugar within Nigeria for processing, rather than importing unrefined sugar from abroad.
- The next milestone, production of 6,000 tons of cane per day, should be hit in 2020.
The company remains the largest producer of household and commercial sugar in Africa’s largest economy and has a refinery with 1.44m MT refining capacity at the Apapa ports.
The ports are the problem
At independence in 1960, Nigeria had ports in Lagos and across the Niger Delta in Sapele, Warri, Koko, Port Harcourt and a few other towns in the south bordering the Atlantic and the Gulf of Guinea. Today, most are dormant, reshaping the structure of Nigeria’s economic and social life for both country and economic capital.
- The two biggest ports by daily activity are the Apapa and Tin Can Island ports in Lagos. Their presence in the commercial capital has led to a corresponding influx of businesses and people for decades.
- The result is that Lagos, the smallest of Nigeria’s 36 states by landmass, is home to the largest population – an estimated 18 million people.
- The condition of the roads to the ports have worsened on an annual basis, triggering logistical issues across the city.
- In addition, red tape bureaucracy and corruption have increased clearing time for vessels and goods at the ports, increasing operating expenditure for many local and foreign investments.
The situation at the ports led the Dangote Group pumping in billions of naira for repairs of the road, despite delays related to the Lagos state government.
“We would have done more if not for Lagos State government’s restrictions”, Yakubu Abdullahi, its head of port operations complained in March 2017. “Even the Nigerian Ports Authority (NPA) made an attempt to fix the roads but stopped.”
Before the gridlock, Dangote said, an average of 60-70 trucks full of sugar left the refinery daily for nationwide distribution.
- That number is now down to just 20 trucks a day.
In a country with over 87m citizens living in abject poverty, there is more incentive for citizens to patronise the cheaper – read smuggled – equivalents of basic commodities.
Bottom line: Until the ports are fixed and border security tightened, Dangote Sugar will struggle to maintain its previous margins.