Dangote Group moves into road construction; Possible benefits

The Dangote group seems to be on an expansion drive this year. From the kick off of a truck assembling plant in Lagos, the company has moved into road construction. AG Dangote, a joint venture with a German firm has constructed a 500m concrete road in Benin City, Edo state. Prior to this, Dangote cement had constructed a few roads, mostly around its areas of operation and for Corporate Social Responsibility (CSR) projects such as the Obajana-Kabba road in Kogi State.

Benefits for Dangote Group

Diversifying into road construction will benefit in several ways.

• The move into construction serves as a means of forward integration, as Dangote Cement a member of the Dangote Group, produces various types of cement.
• Going into construction will increase the potential markets for its cement. If road construction with cement is fully embraced, it could lead to a spike in both the price and demand for cement.
• The move into construction is an additional source of income, for periods when building activities are slow.
• Construction of roads with cement is still somewhat of a novelty in Nigeria, so the firm has the opportunity of cornering a market still in its infancy. Aliko Dangote has always been particular about being among the top two players in any market he operates.
• Being the largest producer of cement in the country, AG Dangote will be getting its primary raw material at the cheapest price possible.
• The company can thus afford to charge a lower quote than competitors who would have to place orders with a cement manufacturer. Since road construction and rehabilitation is cheaper with cement than asphalt, governments in the country may decide to switch to using cement.
• The move into construction may also be part of the pan African goals of Aliko Dangote, as Dangote cement has plants in several countries in Africa. The AG group also operates in other African countries

AG Dangote is a joint venture between Andrade-Gutierrez of Brazil and the Dangote Group. AG was founded in 1948 in Brazil, and is one of the biggest construction firms in the country. Dangote cement began in the 1990s with the importation of cement into the country, but switched to production in 2000 with the purchase of the Benue Cement Company (BCC) Gboko from the federal government.

Year to date, shares of the company are down 8.33% on the Nigerian Stock Exchange (NSE). First quarter results for the firm show revenue increasing from N140 billion in 2016 to N208 billion in 2017. Profit before tax jumped from N54 billion in 2016 to N77 billion in 2017.