Updated: May 23
Aliko Dangote, Nigeria’s richest man, and Africa’s wealthiest tycoon has announced that he was launching a new refinery to shape Nigeria’s oil industry. The Nigerian industrialist and business magnate built a multi-billion business empire in the manufacturing industry in which his holding company would process various commodities such as sugar, or cement. Today the Nigerian tycoon has decided to venture into the oil business. To be frank, it was a matter of time before he finally stepped into this industry. For years, it shocked many people that Dangote, the richest man in Africa, wasn’t involved in the oil business, which is the most lucrative industry and Nigeria’s first commodity to export on the global market.
Nigeria’s new Dangote petroleum refinery, known as Dangote Refinery, is Africa’s biggest—it will produce 650,000 barrels a day, giving it the potential to address the country’s energy supply crisis. The refinery is expected to boost domestic refining capacity, getting rid of the current consumption shortfall. It will also reduce import dependency and stimulate economic growth.
It is noteworthy to emphasize that it is the first privately-owned crude oil refinery in Nigeria. Indeed, Nigeria’s existing refineries, plagued by operational inefficiencies under government control, have failed to meet the growing demand for oil products. Thus, substantial imports have become necessary. Nigeria currently imports more than 80% of its refined petroleum products. The country is the largest importer of refined petroleum products in Africa. Local production will therefore massively cut the country’s import bill.
At the launch, Mr. Dangote outlined his hopes for the refinery. He stated:
“Our first goal is to ramp up production of the various products to ensure that within this year, we are able to fully satisfy the nation’s demand for quality products."
However, it is not yet clear what impact the plant will have on the price of fuel in a country where retail prices are subsidies. Like nearly all African countries, Nigeria does not process its own crude oil. It sells its crude oil as a raw commodity on the global market, which logically makes Nigeria powerless at the negotiation table. Thus, Nigeria ends up buying its own oil ten times the price at which it initially sold to the global market.
For Dangote, this has become unacceptable. It is “robbery.” The Nigerian industrialist believes that processing oil domestically will enable Nigeria to have the upper hand of the bargaining power at the negotiation table. More importantly, it will reduce Nigeria’s crude oil export dependency as well. Thus, the most notable impact of the Dangote Refinery will be the increase in local refinery capacity, which will reduce imports. Dangote Refinery is expected to help Nigeria meet 100% of its refined oil product needs, with surplus products for the export market.
The refined oil output from the refinery in combination with other refineries in Nigeria is expected to meet the shortfall of the estimated daily consumption of 72 million liters of oil. It is essential to stress that Nigeria has faced several fuel shortages in the past, which have caused prices to surge for transport and basic commodities. The price of imported fuel rose more than 100%. Importers operated at a loss due to price ceilings set by the government.
Refining crude oil locally will enable the country to pay for the refined product in Naira, which will save scarce foreign exchange and generate revenue in exported refined oil products.