Finnfund

The Obajana cement mill, rising 220 kilometres southwest of the Nigerian capital of Abuja, will be the largest in Africa south of the Sahara when it is completed.  The investment is being undertaken by Nigeria’s biggest private industrial group, Dangote Industries Limited.

Apart from local sources of finance, the project is backed by several international development finance institutions including Finnfund’s counterparts in the Netherlands (FMO), Germany (DEG) and Sweden (Swedfund). Also financing the project are the European Investment Bank (EIB) and the International Finance Corporation (IFC), part of the World Bank group.

Finnfund is participating in the project as a creditor in a development finance tranche.

“In terms of size, Obajana Cement Plc  is one of the biggest projects that Finnfund has ever participated in,” says Finnfund senior investment manager Siv Ahlberg.

Total investment in the mill will exceed 1 billion U.S. dollars.  It is due to be completed in the second or third quarter of 2007.

Replacing cement imports

The Obajana cement mill will have significant effects on the national economy by reducing the need to purchase cement from abroad with foreign currency. In the past few years cement imports have become increasingly expensive because the explosive rise in demand for raw materials from the Far East has raised shipping charges.

“In Nigeria the proportion of cement imported has been nearly 80%.  The new mill will replace the entire imports of the Dangote Group.  This means about 480 million U.S. dollars a year,” Ahlberg says.

“Nigeria is currently experiencing a strong construction boom. In the past 5-6 years cement consumption has increased 17 % annually. 

Dangote Industries Limited has been in the cement business since 1999 when it commenced bulk cement packing at the Apapa port. It also acquired Benue Cement Company Plc in a privatization program in 2000.  It is the market leader in the sales and distribution of cement, with comprehensive distribution channels and established customer relationships throughout Nigeria.” Samaila Zubairu CFO Obajana Cement Plc says.

The mill’s logistics will be simplified by the fact that almost all of the feedstock required to make cement – limestone, clay and other minerals – are available in the vicinity of Obajana.

The location of the mill is also ideal for transporting ready products. There are relatively good road connections from Obajana to the capital Abuja and the countries business centre, Lagos.

Africa’s largest cement mill

Output capacity of the cement mill will exceed 4 million tonnes a year.

The project involves production facilities plus a mine to excavate minerals needed in cement making, a 90km natural gas pipeline and a 135 mw power station. To provide a water supply to the mill, a nearby river is being damned.

These investments will make the production facility self sufficient in electricity and water. This will guarantee uninterrupted production in a country of dilapidated infrastructure. Electricity supply is an especially serious problem in Nigeria.

Bringing jobs to a poor area

The Obajana mill has been favourably received in Nigeria and President Olusegun Obansanjo is one of the dignitaries who have visited the site.

“This is a project of great local significance,” Ahlberg points out.

It will create about 500 jobs. Indirectly it will employ thousands of people in a poor region of Nigeria.

“The prospect of well-paid employment has doubled the population of local villages to about 3000. The infrastructure required by the mill has also benefited the village of Obajana. It can be expected to become a town within a few years.”

Ahlberg notes that the international finance institutions are monitoring all stages of the project and that the investment will meet the exacting environmental and social criteria imposed on it.

“There is a challenge to development when a small locality grows rapidly. It’s important to ensure that the final result is sustainable.”

Biggest risk political

The greatest risks to the cement mill project are related to Nigeria’s economic and political development. A country that has suffered from years of military dictatorship, ethnic violence and corruption became a democracy at the turn of the millennium but the government faces many challenges, including poverty reduction.

“An enormous project of this size naturally contains large risks. But the market already exists because the Dangote Industries Limited has previously sold the same amount of imported cement as it is now beginning to produce itself.”

For further information at Finnfund please contact Ms Siv Ahlberg, Senior Investment Manager, tel. +358 9 3484 3329 or by email firstname.lastname@)finnfund.fi