On a coastal stretch of land near Lagos, as far as the eye can see, a sprawling oil refinery is under construction. It belongs to Aliko Dangote – the wealthiest African in the world and a visionary entrepreneur who wants to transform Nigeria into an economic powerhouse. To realise that vision he has taken a bold gamble – one that could end his country’s dependence on fuel imports for good. The West African state sits on 37 billion barrels of crude oil[1] but extracts barely 2 million barrels per day. Worse yet, it refines almost nothing. The four[2] state-run refineries are in a sorry state, and it costs more to import petrol and diesel than the revenue it gets from crude oil exports. This is turning out to be unsustainable. Petroleum imports exceeded oil exports by US$43.56bn last year (2021).[3] This has put pressure on the naira and pushed the state into a spiral of debt. To keep a lid on the problem the government caps the price on gasoline and pays importers the difference between the landing cost of oil and pump prices. Fuel subsidy costs 250bn naira[4] (US$600m) a month. It is a burden the government has been trying get rid of for years but with little success. A cosy nexus of politicians, traders, union leaders, and petrol smugglers have benefitted enormously from this knotty problem, and they have tried to keep things the way they are. Fearing protests President Muhammadu Buhari decided to delay scrapping fuel subsidies in January.[5] More recently, Abuja and Lagos plunged into chaos after reports of adulterated fuel sparked a scramble for petrol.
All this could become history once the US$19bn[i] Dangote integrated oil refinery becomes operational. It is spans over 2300 football fields[6] and will have the capacity to process 650,000 barrels of crude per day. It employs more than 40,000 people and is considered so vital that the state-owned Nigerian National Petroleum Corporation (NNPC) has decided to take a 20% stake in the project for US$2.7bn. The president of the African Development Bank (AfDB), Akinwumi Adesina called it a ‘game-changer’. It is, without doubt, an impressive project – the likes of which Africa has not seen. But will it prove to be as transformative as its backers like to portray? Aliko Dangote appears to have styled himself on the Indian billionaire-industrialist Mukesh Ambani of Reliance. They certainly have a lot in common. Both men have made their fortunes in heavily regulated markets. Both have benefitted from protectionist industrial policies. They have been accused of political patronage and they both have a reputation of making bold investments. It is also a remarkable coincidence that they have both thrived in similar unequal societies. I suspect the Dangote oil refinery may even have been inspired by Ambani’s 3035-hectare petrochemical industrial complex in Jamnagar is the world’s largest refining hub.[ii] It covers an area half the size of Manhattan and has the capacity of processing of 1.4 million barrels of crude oil a day. This facility has helped turn crude scarce India into one of the world’s largest exporters of refined fuel. Dangote
may be trying to replicate in Nigeria what Ambani has achieved in India. He has sent dozens of Nigerian engineers to India for training. He believes his refinery will not only end Nigeria’s dependence on foreign oil but make it an exporter of refined fuel. It may also have a knock-on effect on the rest of the economy. Agriculture contributes more than 24% to the national GDP.[1] The massive fertiliser plant at the site is expected cut US$3bn worth of urea imports.[2] The hard currency all of this will save could stabilise the Naira and help the Nigerian government balance its budget and unlock capital for social good.
Construction on the refinery project has been delayed due disruptions caused by the Covid-19 pandemic. It is expected to become operational next year (2023). But its opening will come at a time when the world is turning its back on oil-related business. Financial institutions are backing away from lending to energy intensive carbon emitting projects. Even Ambani has tried to divest part of his refining and chemical business (although his Jamnagar facility has ramped up crude processing following the recent surge in oil prices). He is building building factories that make more environmentally friendly products like solar panels and batteries. But Aliko Dangote shows no signs of following suit. Under a joint venture with Peugeot he has started to roll out gasoline-run cars from an assembly plant in the state of Kaduna. Dangote is betting on something that is going out of favour – an irony for a man who once avoided getting his hands dirty in oil. Africa is a young, growing and a hungry marketplace. He is betting that fossil fuel may yet have a long way to go here. He may be right. Oil has so far been mostly a wasted resource for Nigeria. It has promoted corruption and left a terrible legacy of loot, pilferage, conflict, and ecological disaster. Let us hope he can turn this curse into a blessing.
