Entry into a market by any business set-up is a bold statement; the decision then to remain in the stream and not be taken by the tide, is not enough, as the business must have a clear-cut strategy of how to break-in and become an industry leader.
It takes a bullish plan by the new entrant, mapping out territories to be conquered—as much as the organization stays ambitious, it must of necessity keep to prevailing best practices and ethics that guide the industry. Bullish in its capture either through branding strategy, pricing mechanism or a rapid restructuring involving human resources and infrastructure. Within the marking of its ambitious plans lies risks—in form of working cartel, changing government policies, changing consumer preferences (consumption), and the high cost of maintenance of facilities.
In Nigeria, and in extension Africa, the issue of power becomes an attending challenge that businesses in heavy capital industry attempt to manoeuvre to either be reckoned with or, at the worst, stay afloat. With an estimated annual demand of 60 million metric tonnes for cement in Nigeria, there lies a gap that has been filled by imports from outside the country.
Cement is an essential building material for infrastructural development in a continent that is in dire need of good road networks, housing development, and overall urbanization.
Dangote Cement Plc has found that gap to fill in the cement consumption in Nigeria, where total annual consumption accounts for about 60 million metric tonnes, with about half of total consumption satisfied by local producers. Dangote Cement Plc has made its competitive advantage through economies of scale work for it. Dangote Cement contributes about 62 percent of the total local production from three cement plants—Obajana Cement Plant, Kogi, (its flagship) accounts for 13.25 million metric tonnes per annum (mmtpa); Dangote Cement Works Limited, Ibese, contributes 12mmtpa; while Benue Cement Company, Gboko, Benue, adds 4mmtpa.
Owning 62 percent market share will seem like nirvana to some, in a market with 4 major players and millions of consumption annually, but to Dangote Cement Plc, their reach- though commendable- is small potatoes!
The company plans to increase production capacity in Nigeria by 20 percent to 35.25mmtpa from 29.25mmtpa. And for that to take root, even with economies of scale in place, a bullish move has to kick-off. The turn of September 2015 witnessed that bullish move in form of price strategy. Dangote Cement Plc slashed the price of its 3X cement brand by N6,000 per metric tonne translating to a N300 drop in price of a 50kg bag of cement. That pricing strategy kicks-start that obvious revolution that Africa’s leading cement company hammer as they chisel through market dynamics in the industry.
Although analysts might be quick to point out the growth tendencies of the industry as demand/consumption does not tend to be inversely proportional to price and a slight drop might not shift yields exponential; it offers an industry leader-move no matter how subtle—the gains are not all in reference to profits, albeit important, but not universal.
DangCem CEO, Onne van der Weijde said on the pricing strategy: “We hope that reducing the cost of cement will help to stimulate building work across Nigeria at a time when the economy is in need of a boost. We believe our cost-saving initiatives and new pricing strategy will help to support the naira by reducing unnecessary imports and by enabling us to generate valuable foreign exchange earnings.”
The idea backing the strategy goes beyond merely profits as a reduction will lead to a win-win for stakeholders in the infrastructural development of the nation. A gradual step towards actualization of its objective to maintain its African leadership in the industry.
Dangote Cement Plc’s revolution is really taking over the African market in numbers with 42 percent of its cement sales outside Nigeria in Jul 2015, a sky-high increase from 22 percent sales volume recorded in the first half (H1) of 2014. A rapidly increasing capacity to meet annual cement needs has the company expanding to Zambia, Tanzania (a plant opened in October), South Africa, Congo, Ethiopia, Cote d’Ivoire, Liberia, Senegal, Ghana, Cameroon, and plans to expand operations to Kenya.
In the first quarter of 2015 (2015 Q1), Dangote Cement’s total revenues from the 3 regions- Nigeria, West and Central Africa, and South and East Africa- increased by 10.8 percent to record N114.7bn from N103.6bn in the first quarter of 2014 (2014 Q1). Dangcem’s production volume rose by 3.4 percent to 3.8 million tonnes from 3.66 million tonnes recorded in 2014 Q1; with a major shift from 39,000 tonnes to 462,000 tonnes in the South and East Africa attributed to the launch of plants in those regions. Gross profit also increased by 10.5 percent to N74.7bn in the period under review as net debt shrunk to N180.7bn from N222.0bn it stood at 31st December 2014.
Even with the DangCem’s achievements in a short period, the cement leader isn’t slowing down, yet. According to Chairman, DangCem, Alhaji Aliko Dangote, “The future remains bright for us as we fast track our expansion projects both within and outside the country.”
Dangote Cement, with assets of over N1 trillion, still invests heavily in infrastructure; power and road taking the huge chunk of the company’s infrastructural commitment. DangCem increased gas supply to its flagship plant, Obajana substantially at 92 percent in Q1 2015 compared to 68 percent in Q1 2014. This power development in the plant has also helped to reduce Low Pour Fuel Oil (LPFO) consumption from 32 percent to 7 percent as DangCem now relies less on external fuel but more on its generated power.
From the 1992 takeover of the Kogi State-owned Obajana Cement Plc, Dangote Cement has grown in leaps and bounds; setting the pace, building bridges (literally or figuratively), and merging cultures as it expands to reach new business territories and market situations. DangCem’s plant commissioning in African countries has had presidents in attendance as bilateral relations are strengthened by one company!
The goal to spearhead economic revolution in Africa through investment by an indigenous company in the continent is proof that there is untapped wealth within its borders. And, this, Dangote Cement has done and continues to do as it promotes African integration through its unmatched investment across the continent.
Starting out as a cement company to becoming a cement leader in sub-Saharan Africa, Dangote Cement has spread its tentacles to bilateral trade, diplomacy. With the expansion in and outside Nigeria, DangCem has provided thousands of job opportunities for young Africans, provided materials for infrastructural development in the continent, and continues to fulfill social needs of its locale.
Dangote Cement is The Sheet NG Business of the Week.
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