Nigeria: Dangote Refinery, African Free Trade hinge on better roads
Nigeria’s road network is the elephant in the room for Dangote’s new oil refinery – as well as for free trade in Africa.
Dangote Group director Devakumar Edwin spoke to reporters last week about the date petroleum products from the giant project will hit the market. “Middle of next year, we start the commissioning process, and it’s a huge refinery, the commissioning process may take three to four months”
COVID-19 and the recent disruption to business caused by protests against police brutality may push that into 2022, says Femi Ademola, executive director at Cordros Capital in Lagos.
But unless a planned new coastal road is completed before the refinery starts operation, “moving crude from the ports through the roads may not be efficient,” he says.
Moving products from the refinery will be a formidable task.
Edwin has ruled out building a pipeline for distribution. He has said that an expanded road network, combined with shuttle boats, will be used. The Lagos State government plans to build a road linking the refinery with the Benin-Sagamu expressway – a plan that could take a decade to execute.
The potential of the refinery to transform Nigeria’s crude-dependent economy is undoubted. Jean-Marc Ricca, managing director for BASF West Africa, sees the refinery as a game changer, especially for chemicals industries.
Nigeria’s economy “can’t grow by exporting cheap crude,” says Ricca in Lagos. The refinery will “open up local chemical value chains” and “will create opportunities for everyone.”
- The country’s ports may be congested now as a result of the project, but new infrastructure is being built, Ricca argues.
- He gives fertiliser production as an example of an industry that can take off. Ending dependence on imported fertilisers will stimulate agricultural production, he argues.
- Packaging industries will also be able to develop, he adds.
- The refinery has the potential to encourage investment in further large-scale African localisation projects, Ricca says. “We will feel the impact way beyond Nigeria. In 15 to 20 years’ time, the Dangote refinery will be seen as a pivotal moment.”
A better road system would kill two birds with one stone: the costs to the country of accepting the African Continental Free Trade Agreement (AfCFTA), which Nigeria has yet to ratify, would be reduced.
Academics led by Onwuka Ifeanyi Onuka of the University of Ibadan argued in a June research paper in International Business Research that an undiversified economy such as Nigeria has less to gain from the AfCFTA than countries like South Africa and Egypt. The poor state of roads and maritime infrastructure further limit the potential benefits to the country of AfCFTA adoption.
- According to the research, Nigeria has the lowest road-to-population ratio in Africa.
- Due to the country’s growing population, the ratio is getting worse rather than better. The population has more than doubled from 95 million in 1990, but the total road network increased by only about 60% to 194,000 km in 2017.
- The result is “huge pressure” on the available road network, “resulting in exorbitant transportation and delivery costs in moving goods from producers to consumers.”
- The paper argues that Nigeria should refrain from committing to AfCFTA until it has undertaken a massive infrastructure programme. That, the academics argue, would put the country in a stronger position to benefit.
“Some countries need to do it at their own pace,” in terms of adoption, Ricca says.
He points out that it’s logical for smaller countries like Rwanda and Ghana, who have less to lose by opening their markets, to adopt faster than larger countries such as Nigeria.
- Ricca sees the question as one of timing. For some countries, opening their economies too quickly would cause economic damage, he says.
- Ricca compares the AfCFTA with that of the European Union. The fact that one member may opt out doesn’t alter the logic of free trade, he says.
- “Nigeria does recognise that the agreement is good for them,” he adds. “It’s a matter of when, not if.”
But: Dangote Cement has managed to win an exemption to the the current closed border restrictions.
By the end of next year, it will be able to export to Niger and Chad, perhaps heralding greater flexibility in Nigeria’s current land border trade rules.
Bottom Line: Improved road infrastructure is more important for Nigeria that formal AfCFTA adoption in the short term.