How infrastructure shortfalls turned $180m cement project into $1bn venture

Industrialist Aliko Dangote has revealed that severe public infrastructure shortfalls inflated the initial $180m estimate for his Obajana cement plant to $1bn, as his company was forced to independently finance basic utilities it had expected the government to provide.

He stated this at the 25th annual conference of Women in Management and Business in Lagos, while recounting the financial difficulties involved in developing the Obajana plant in Kogi State, now Dangote Cement’s flagship facility.

He said the company initially did not invest in essential infrastructure such as gas pipelines, fuel facilities and power plants because it expected the government to provide adequate public utilities.

“We didn’t put in a gas pipeline, we didn’t put fuel in, we didn’t put in a power plant. All these things, because the government announced that we’d be having enough power and other things, which overall ran us into problems,” he said.

The infrastructure shortfalls contributed to the escalation in project costs, forcing the company to seek additional financing from the International Finance Corporation (IFC).

According to Dangote, the IFC didn’t approve the company’s proposed three-year repayment plan after assessing its financial projections and instead offered a seven-year arrangement, with a two-year repayment moratorium followed by five years of repayments.

“We wanted to pay within three years, but when the IFC used their own financial model, they said our business plan was wrong. They gave us seven years. They said in the first two years we cannot pay anything. Then, in five years, is the payment period,” he said.

Borrowing from local banks also came at a high cost.

Dangote said the company paid interest rates of up to 40 per cent on its local bank loans.

“But because our interest rates were high, we were paying combined. Also, I don’t want to mention the name. But we were paying interest at 40 per cent to the local banks. They can check the records,” he said.

The Obajana experience highlights how inadequate public infrastructure can increase the financial burden on manufacturers, forcing them to commit additional capital to power, gas supply and other facilities needed to sustain production.

He also encouraged women entrepreneurs to be ambitious, involved in industrialization and take calculated risks in pursuing their business goals.

“Don’t let anybody tell you that you are not able to do it. You must think very, very big. You must be very ambitious. You must give yourself a target and believe that you can deliver that target,” he said.

Rather than concentrating their investments on expanding production capacity, businesses must also finance supporting infrastructure, increasing their capital requirements and potentially delaying project completion.

Nigeria’s infrastructure deficit remains a major constraint to private-sector productivity, particularly in manufacturing, where reliable electricity and transportation are essential to production and distribution.

Dangote said inadequate infrastructure continues to force businesses to provide facilities independently rather than rely on public utilities.

“We are facing a lot of issues in terms of infrastructure. And right now, sometimes, what we do is we put the money down. I would like to build this infrastructure, and then we just do it on our own,” he said.

He further urged business leaders to remain resilient in the face of setbacks

“There is nothing in this life that’s easy. You must always say to yourself that I’ll surmount these pressures,” he said.

He said the Dangote Petroleum refinery was expected to record the highest profitability on the African continent within 55 days, as the company is prioritising profitability in its best.