On October 29th 2015, The Harvard Center of African Studies presented the inaugural Hakeem and Belo- Osagie Distinguished African Business and Entrepreneurship Lecture, featuring Aliko Dangote, President and Chief Executive of the Dangote Group. This was a historic event for the Harvard Center of African Studies in its efforts to further develop its reach into the continent and a celebration of an African success story with Aliko Dangote, the richest man in Africa, who made his fortune building successful manufacturing businesses throughout the continent. Dangote Cement is one of the very successful companies in the Dangote Group. Commenting on the opening of a 1.5 million metric cement tonnes per annum cement plant in Douala, Cameroon earlier in 2015, Dangote explained his vision:
“We are motivated to create an African success story because we believe that entrepreneurship, especially our own home-grown African entrepreneurship, holds the key to the future economic growth of the continent. The fact that Africa offers one of the highest returns on investment (ROI) in the world is an additional incentive for any discerning investor, who can take calculated risks”(1).
Dangote Cement Business Model
As mentioned during his speech at the Center of African Studies inaugural lecture, Dangote Cement’s business model was pretty simple. The goal was to displace cement multinationals in Nigeria and the rest of Africa by offering quality locally made cement at a competitive price. The key to this strategy was the “backward integration” approach. In fact, Dangote evolved from trading imported cement to slowly building capability to make the product locally. Today, Dangote cement is Africa’s leading cement producer with three plants in Nigeria and recently opened factories in Senegal, South Africa and Cameroon (2).
According to Dangote Cement CEO Onne van der Weijde, who gave a talk to the Harvard Business School Africa Business Club during the Fall of 2015, one key success factor of Dangote Cement was to decide to be energy dependent at every single plant. One thing that has always scared investors away from building manufacturing capability in sub-Saharan Africa was the lack of reliable power from the grid. Dangote Cement overcame this problem by investing in coal power plants to power their facilities. Onne explained that the choice of coal was strategic because the company wanted to maintain total control over its energy supply. Though diesel powered generators were a very popular solution to bridge the gap of power generation from the grid, the supply chain for diesel presented a potential for abuse by players in the value chain (importers and distributors).
Another factor to the success was the decision to invest in their targeted African markets, instead of just relying on exports from Nigeria to meet demand elsewhere on the continent. Several billion dollars have been invested to build manufacturing plants and import/grinding terminals across Africa. There are operational facilities in Senegal, South Africa, Cameroon and Ghana, and integrated plants in Ethiopia, Zambia, Tanzania, Rep. Congo and Kenya are being built (2). This key operational choice to build outside of Nigeria has positioned the company as a partner for development with other countries. Upon the recent signature of a $350 million investment with the Republic of Congo, Mr. Rodolphe Adada, Congo Minister of Industrial Development and Private Sector Promotion, said:
“The project will help the country significantly reduce the imports of cement and even enable us become a net exporter of cement while boosting economic growth, development, job creation and income generation”(3).
Lastly, the company did a great job at offering new products that performed better than the competition, in an environment where established players took their market for granted. For example, Dangote Cement entered Senegal as a third player in a saturated market with two established cement factories. Country Head, Dangote Industries, Senegal Luk Haelterman explained:
“Senegal is a market with over-capacity of cement (only 14m people), because it had two cement factories before now. But today, Dangote has become the biggest and best because we have and produce the 42.5R only, which is better than what we met on ground, which is the 32.5R” (4).
The 42.5R grade cement also performed better in Cameroon, when it was introduced earlier this year. It was also cheaper than the current market offerings. A distributor in Cameroon commented:
“Consumers and other dealers are already making demand for the commodity. I sell 20 tonnes daily and the acceptability of the product is rapidly increasing and it goes for between 4,000 – 4,500 CFA ($7- $7.5)”(5).
Dangote Cement has been very effective in driving alignment between its business model and its operating model. Demand for cement is projected to continue to rise to support the large infrastructure needs of the growing African population, which is expected to exceed 1 billion in the next few years. Dangote Cement has tremendous growth opportunities because they recognized this positive economic trend and moved in early on local cement production.
Picture Source: www.dangcem.com