Dangote Sugar Refinery (DSR) Plc is set to become a global force in sugar production by producing 1.5M MT/PA of refined sugar from locally grown sugar cane for the domestic and export markets in 10 years through its backward integration goal.
Sugar, a commodity that has received increased attention in recent years, provides an avenue for Nigeria to improve its diversification strategy. According to study, Nigeria's sugar output barely accounts for seven percent of its demand. Grown in states such as Katsina, Taraba, Kano, and Adamawa, the commodity fetches Nigeria a miserly $24.88 million in revenue and the demand gap is approximately 900,000 metric tons. This has resulted in an annual sugar import bill of approximately $100 million, the largest import bill for the commodity in sub-Saharan Africa.
The Nigerian Sugar Master Plan of 2012 is the starting point for backward integration in the sector. The plan's objective was to boost domestic production of sugar to attain self-sufficiency by 2020 and to contribute to the production of ethanol and the generation of electricity.
However, analysts noted that supply chain bottlenecks across the various producing states have hindered government attempts to meet the 2020 targets, saying that another challenge stifling sugar output is the government's poor protection of the local sugar industry.
Currently, government incentives to boost domestic production of sugar include, a five-year tax for investors in the value chain, 10 percent import duty and 50 percent levy on imported raw sugar and 20 percent duty and 60 percent levy for imported refined sugar. Analysts stated that without proper attention and implementation, these incentives are ineffective.
Dangote Sugar is Nigeria's largest producer of household and commercial sugar with 1.44M MT refining capacity at the same location. The refinery located at Apapa Wharf Ports Complex, refines raw sugar imported from Brazil to white, Vitamin A fortified refined granulated white sugar suitable for household and industrial uses.
Its subsidiary, Savannah Sugar Company Limited, factory located at Numan, in Adamawa State, is an integrated sugar production facility, with an installed factory capacity of 50,000 tonnes. Covering 32,000 hectares, the Savannah estate has considerable opportunity for expansion which is underway as part of the Dangote Sugar for Nigeria Project, campaign. The company was spun out of Dangote Industries in 2006 and got listed on the Nigerian Stock Exchange (NSE) about 11 years ago.
The company's strategy is to become a global force in sugar production, working within Nigeria's National Sugar Master Plan to end importation and sell more than 1.5 to 2.0 million metric tonnes of locally produced sugar in Nigeria and neighbouring countries.
In order to successfully execute that strategy, the company is making significant investment in its backward integration programme (BIP). Already, the company's Savannah cane sugar factory located near Numan, in Adamawa State has an installed factory capacity of 50,000 tonnes. Covering 32,000 hectares in extent, the Savannah estate has considerable opportunity for expansion which is underway.
Meanwhile, the company recently announced a profit before tax of N34.6 billion for the financial year ended December 31, 2018.
A breakdown of the result released on the floor of the Nigerian Stock Exchange (NSE) indicated that while gross profit stood at N39.7 billion, the refinery earned a revenue of N150.4 billion.
In terms of volume, seasonal sugar production at Savannah Sugar was 12,375 tonnes; full year refinery production at Apapa 564,785 tonnes, while Group sugar sales volume was 581,504 tonnes.
The chief operating officer, Dangote Sugar Refinery, Ravindra Singhvi, speaking on the results said, "Though we maintained our market leadership position in the sugar sector, year 2018 was very challenging due to the impact of unlicensed sugar, smuggled and sold in our key markets nationwide, and the logistics challenges brought about by the continued Apapa traffic gridlock. The gridlock constrained availability of trucks required daily to evacuate the production volumes, while the influx of smuggled sugar exerted a downward pressure on selling prices.
"Despite efforts being deployed by the regulators to stem the tide, the influx of smuggled sugar into the markets spread further across our key markets in the North East and North West. We are currently focusing on process optimisation and the realisation of our Sugar Backward Integration Projects targeted at the production of 1.08 million metric tonnes of sugar in six years, from our various projects across the country."
"Our Backward Integration goal is to become a global force in sugar production, by producing 1.5M MT/PA of refined sugar from locally grown sugar cane for the domestic and export markets" in 10 years, he added.
During the year, the following companies which form part of the Backward Integration Project (BIP) were incorporated and consolidated in the financial statements of the group, which is indicative of the progress being made in BIP.
They are Nasarawa Sugar Company Limited, Dangote Taraba Sugar Limited, Dangote Adamawa Sugar Limited and Dangote Niger Sugar Limited. These companies have a combined land mass for agriculture of about 110,000 hectares. The Greenfield sites like Savannah Sugar, will be integrated sugar production facilities with new plantation and modern facilities that are located closer to the consumers.
The Board has recommended a dividend payout of N1.10 kobo per ordinary share of 50 kobo to be paid to shareholders for the year ended 31st December 2018. This is subject to shareholders' approval at the 13th Annual General Meeting of the Company.
Chairman of the company, Aliko Dangote, in 2018, stated that the company has so far, spent N101 billion on its backward integration projects so far, saying one of the major causes of the delay in the take-off of the projects has been difficulties in the process of land acquisition.
Speaking at the 2019 Dangote Food Award, Dangote said "My special commendation goes to Dangote Sugar and Pasta customers who, despite the price challenges posed by influx of unlicensed and substandard grey imports stood by us."
"Such challenges will soon become history as we have invested massively in the country in line with our Backward Integration Project. In the sugar sector, we developed a sugar backward integration project plan targeted at the production of 1.5MT-2.0MT of refined sugar from various sites across Nigeria, in the next 10 years.
"This will ensure big savings on foreign exchange, and increased employment for not less than 75,000 to 150,000 persons, while placing Nigeria on the global map of Sugar producers. In effect we expect significant cost reductions and improved profits to the customers", he added.
Analysts noted that for Nigeria to attain self-sufficiency in sugar production on time, there is need for the right investment and government attention so that the country can become a net exporter and a key player in the global market. Good enough, ethanol production offers a viable avenue and incentive for Nigeria to boost its sugar output.