Sunday, September 24, 2023
HomeBUA GroupAdd local value to resources to avoid global shocks, says Abdul Samad...

Add local value to resources to avoid global shocks, says Abdul Samad Rabiu – A conversation with Abdul Samad Rabiu – By Omar Ben Yedder

BUA’s $400m sugar refinery points the way to the future of African agriculture, as the company’s founder and chairman tells us.

Agriculture will create Africa’s next billionaires, the president of the African Development Bank Akinwumi Adesina is fond of saying.

His proclamations have not fallen on deaf ears and one current billionaire, Abdul Samad Rabiu, founder of the BUA Group, is doing just that, investing in a vertically integrated sugar facility in Nigeria’s Kwara state.

The $400m project includes a 20,000-hectare sugar plantation, a sugar milling plant, a sugar refinery, an ethanol plant and a 35 MW power plant fuelled by bagasse, a sugar cane residue.

Sugar may not get the attention of other crops, even though it is frequently in the top five crops traded globally by value. Africa has some important producers – notably in Southern Africa such as Eswatini and Mozambique – but countries such as Nigeria, Egypt and Algeria still import more than they consume. In Nigeria imports account for 90% of consumption.

Making use of competitive advantages

For Rabiu, sugar is one of many low-hanging fruits when it comes to the agricultural opportunity and to working within the country’s import substitution strategy. His group – one of the most important diversified conglomerates in Nigeria, is already the fourth largest listed company in Nigeria by market capitalization, operating in foods, cement, mining and infrastructure, and now agricultural production and processing.

Rabiu made his fortune in cement and is applying the same logic to agriculture: tap into what your country produces and take advantage of your country’s resources and competitive advantages.

See also  President Buhari congratulates BUA Chairman on re-appointment as President of France-Nigeria Business Council

In cement, all the inputs – primarily limestone and gypsum – can be found in Nigeria. As a result, production costs make them highly competitive against imports, both in Nigeria (which has become self-sufficient in cement) and also neighbouring countries. Energy costs remain a concern, however.

Localized production is key

Still, the maths are simple in terms of agriculture, he says. As Rabiu points out, the conflict between Russia and Ukraine has once again highlighted Africa’s vulnerabilities. 

Countries that produce what they consume have been better able to manage their inflationary risk.

Uganda for example produces most of its staples – namely matoke, cassava, and sweet potatoes – and as a result has not suffered as badly as other countries when it comes to food inflation. And with an appreciating dollar, importing inflation is now a bigger risk for countries in Africa and elsewhere.

Rabiu’s model is simple and effective: “We concentrate on areas where we can add value to resources that we have locally… this makes you less susceptible to shocks. We’re sitting on 60% of the world’s arable land and 30% of the natural mineral resources.”

Rabiu himself has seen the mounting costs of global shocks. Increases in the price of wheat are threatening the viability of BUA’s flour and foods business.

“Last year we were paying $250 a tonne to import wheat. Today that has increased to $600. So if you are importing 1m tonnes a year, that is adding close to $30m per month to your cost base. We can’t pass this cost to the consumer, they just wouldn’t pay it, so yes it’s a cause for concern.”

See also  INTERNATIONAL DAY OF TOLERANCE: ASR Africa, 234Express kick off Reading Against Intolerance Project

His business model going forward is therefore to be as little exposed to foreign exchange risk as possible and localize as many stages as the production process as possible. This is evident in the new sugar facility.

Fully integrated plantation and mill

“The beauty of the sugar refinery is that in terms of agriculture it’s the way to go. Our plantation is going to be completed by next year. It’s a 20,000-hectare fully integrated four-in-one plantation with sugar mill, sugar refinery, ethanol and power plant. Once we complete it, it should reduce Nigeria’s import bill by $150m a year. 

“And we should be creating 6,000 direct jobs. It’s an exciting project. Even the power we produce to run the mill and refinery comes from a bi-product of the sugar cane. Agriculture is turning out to be a game-changer. And Nigeria sits on almost 48m hectares of arable land between Kwara state, Niger state and Kogi state – flat, arable, fertile land.”

For the time being, sugar will be sold in the domestic market. With a population of 200m, satiating local demand makes business sense. And selling to other countries is still tough.

Despite the implementation of the African Continental Free Trade Area, Rabiu says there are still challenges to cross-border trade as governments make a substantial chunk of revenues from import duties.

The Kwara state government was supportive in giving them the land on a freehold basis, although they did have to compensate local communities at considerable cost. Getting the title deeds in a clean and transparent way was a deal clincher, he explains.

See also  BUA Cement Plc holds FY 2022 Annual General Meeting, aims to achieve 17 million MTPA capacity by Q1 2024

Once this was settled, everything else, including finance, was relatively straightforward. Half of the project costs are being financed by the Africa Finance Corporation.

Nigeria must solve its power problems

Rabiu is known for his optimism and for continuously selling the Nigerian opportunity. But he admits to concerns over the country’s inability to get to grips with long-standing power supply difficulties.

Power, he says, which is critical to many of his businesses, is still a major issue. Africa, he says, has 180 GW of production capacity, with half of that in Egypt and South Africa. California as a state, he says, produces 285 GW. Nigeria produces less than 10 GW.

All these eats into a company’s productivity. Not to mention the fact that most projects will require a fully integrated solution, and that involves a higher capital expenditure than in other countries. But the returns, he says, are generally highly attractive. “Beneficiation is where the value is.”

With Nigerian elections approaching, he sends a message to the prospective candidates: “What I am looking for is for somebody that can come and unlock all the opportunities in this country. It makes me sad that we have everything and yet we have nothing. We import almost 80% of what we eat. We have no business importing food. These are the issues that we want our leaders to address and help us resolve.”



Please enter your comment!
Please enter your name here

- Advertisment -
Google search engine

Most Popular

Recent Comments