Amid Oil Woes, Nigeria Turns To Agriculture: Dangote To Invest In Huge Food Processing Plant

 @JaceyFortin
on September 25 2013 10:41 AM
Dangote Aliko 2012
Nigerian billionaire Aliko Dangote gestures during an interview with Reuters in his office in Lagos. Reuters

Nigeria may be famous for its oil reserves, but a newly announced project could pave the way for Africa's second-largest economy to make a name for itself in another industry: food production.

Dansa Foods, a subsidiary of Dangote Group, a manufacturing conglomerate owned by Nigerian billionaire and Africa's richest man Aliko Dangote, is investing $36 million in the construction of the continent's largest high-energy food processing plant.

Dangote Group has operations in several African countries. The conglomerate is known for its subsidiaries Dangote Cement PLC (Lagos:DANGCEM), Africa's largest cement producer, and Dangote Sugar Refinery PLC (Lagos:DANGSUGA), which operates a huge sugar refinery in the port city of Lagos. (Dansa Foods isn't yet listed on the Nigerian stock exchange.) This is the conglomerate's second major investment initiative this month; Aliko Dangote just kicked off a $9 billion project to build Africa's largest oil refinery, in Nigeria's southwest, which could double the country's fuel production capacity.

Nigerian Agriculture Minister Akinwunmi Adesina announced the food processing plant project on the sidelines of the U.N. General Assembly in New York City. “As I have said many times, this is not a populist issue," he said, according to the Nigerian Tribune. "We are seriously restructuring this sector for greater performance because the future of Nigeria is not in oil but in agriculture. It is not the agriculture in the way we have been doing it before but now as a business.”

Nigeria is Africa's biggest oil producer, but the hydrocarbon industry is riddled with problems. Oil theft brought summertime production levels down to a four-year low of 1.9 million barrels per day, down from an average of 2.5 million last year. The country also lacks enough refineries to turn its crude into fuel and has to import about three-fourths of its domestically consumed fuel from abroad. On top of that is a highly impractical fuel subsidy program, which costs about $8 billion a year and is dripping with graft.

Despite having the second-largest gross domestic product on the continent behind South Africa, the Nigerian government hasn't translated its oil revenues into broad-based growth -- more than half the population lives in poverty, and unemployment is at least 22 percent for the general population and near 40 percent for youth.

Where hydrocarbons have failed to address many of Nigeria's economic woes, food production could be the solution. Oil accounts for about 80 percent of state revenue and a full 95 percent of foreign exchange revenue, but it only makes up about 14 percent of total GDP. At 40 percent, agricultural production accounts for the biggest chunk of Nigeria's GDP -- but many farmers work small plots of land on a subsistence basis. As a whole, the industry is wildly inefficient; despite a wealth of arable land, Nigeria is sub-Saharan Africa's largest importer of wheat. It also spends hundreds of millions of dollars annually to import goods it could produce domestically, like citrus and tomatoes, in part because rural areas lack adequate infrastructure for transport and preservation. All too often, agricultural output rots before it can be consumed.

The government is well aware of these shortfalls. Nigeria has already ramped up agricultural production by about 8 million metric tons last year, according to Bloomberg, and plans to spend about $10 billion on it over the next few years, with help from foreign investors. The new plant will help to turn that output into processed food on Nigerian soil, which could drastically reduce the $11 billion that Nigeria spends on food imports every year.

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