Unrelated Matters

You guys heard about Anhui Conch (AC) or nah? No? I thought so. Anyway you’ve come to the right place. The picture below should give you an understanding.

Screen Shot 2014-04-04 at 23.36.05

That’s right, they are the world’s largest cement manufacturers by volume. They operate mainly in China though so that might be part of the reason they are not a household name across the world.

Anyway, they recently released their annual financial reports for the year ended 31st December 2013. You can find it here. To make things even better, the accounts were prepared under IFRS meaning that it’s a lot easier to compare them to any other IFRS account anywhere, basically. Even more coincidentally, Dangote Cement (DC) released their own annual financial reports a few weeks ago and you wont believe it but it’s for the same year ended 31st December 2013. And amazingly, their accounts are also IFRS. You can find it here.

So given that we have all this information, we might as well compare them no? Exactly. But accounting can be really boring so I’ve extracted the main numbers and converted them to US dollars using exchange rates from xe.com

Screen Shot 2014-04-07 at 19.24.47

AC has almost 11 times the capacity of DC from the earlier chart above but it sold $8.9bn worth of cement while DC sold $2.4bn. One way to look at the numbers above is to say that for every dollar of cement that AC sold, it cost 67 cents in raw materials to produce. For our own DC, every dollar of cement sold cost 38 cents in raw materials.

Now you can say that perhaps this means limestone and all the other things that go into making cement is much more expensive in China. Best way to check this is to fool around alibaba.com for Portland cement prices. You will find that prices go as high as $80 per metric tonne. This is not an exact science by any means but we can at least imagine that AC’s prices wont be too far off that range given they are the largest manufacturer. Based on reports in today’s papers, an equivalent metric tonne in Nigeria now goes as high as $640, nine times the price in China. I stress that this is a very rough calculation but I think we can make the point that cement in Nigeria is much much more expensive than in China which is the explanation for DC selling 1/10th of the cement that AC sold but made 1/4 of AC’s revenues.

I didn’t bother with all the other admin expenses and salaries etc. but you can see that by the time we get to the Profit before Tax, the gap between them has closed to roughly $800m due to AC having higher costs like bigger salaries ($433m, pg 33) compared to DC’s ($47m, pg 26). Anyway you look at it, AC must be employing a lot more people than DC, obviously.

So how much tax did each of them pay to the relevant authorities? Normally we would have to investigate the tax rates in each country before making a comparison but in this case it doesn’t matter. DC didn’t pay any tax at all on its profits due to the fact that it still has plenty of tax credits – ‘losses’ from previous years and govt incentives that it carried forward – left to use (it didn’t pay any taxes in 2012 either). AC on its part paid $459m in taxes to the People’s Republic.

Now that the government in Nigeria has ordered the Federal Inland Revenue Service (FIRS) to look for an extra N6.4trn in taxes on account of our newly rebased GDP, it might want to start by looking at all the tax breaks and waivers it hands out. Just a suggestion.

By the time we get to Profits after Tax, the difference between both firms is just over $300m – the 27th largest cement maker in the world makes almost the same amount of profit as the world’s largest which operates in a market of 1 billion plus people. This is good business I am sure you will agree.

One more thing I found interesting in the accounts (pg 11):

Screen Shot 2014-04-07 at 20.29.11

Regular readers of this blog, would have been following the ongoing Konkere Wars. Recall that the war broke out on account of the presence of ‘inferior’ 32.5 grade cement in Nigeria. Rumours that this grade of cement will soon be banned in Nigeria have been all over the papers. But from the above, not only did AC sell $2.5bn worth of this particular grade of cement, the product was slightly more profitable than the 42.5 grade.

32.5 grade cement is used mainly for residential construction so I reckon one can hazard a guess as to the kind of infrastructure development going on in China right now (my note on Chinese infrastructure is here).

Consumption is the sole end and purpose of all consumption‘ as Adam Smith once said. The Chinese seem to be making cement so it can be consumed by those who need to build stuff.

Anyway I thought the numbers were interesting enough to share. No need to thank me please.


Most people are familiar with Jim Crow laws in America and how they were passed to enforce racial segregation in public places in the US south starting in the late 19th century. Buses were of course public places and the state of Georgia was one of the first to pass such streetcar laws in 1891 while from 1900, various cities in Alabama started to pass such laws as well. It’s useful to note that before these laws came into being, blacks and whites had been sitting side by side on the buses and no one died.

Around about the same time Jim Crow laws were being passed in America, ‘Colour Bar‘ statutes were also being rolled out in South Africa (funny how bad ideas spread eh?). The whole point of these laws was to prevent blacks and Indians from competing with white labour in the market. These laws covered not just mining but also textile and construction.

One can leave these two stories here as we know how they ended. On December 1, 1955, Rosa Parks famously refused to give up her seat in the black section of the bus to a white passenger in Montgomery, Alabama (others before her had also shown defiance in various towns) and Jim Crow laws were eventually overruled by the Civil Rights Act in 1964 and the Voting Rights Act in 1965. In South Africa, apartheid, as state policy, came to an official conclusion in 1991 and of course Mandela became president.

But I like to discuss things from an economic perspective on this blog and the wise man I learnt much of my economics from once said ‘economics is concerned with what actually happened and not what anyone intended‘. So what happened after these discriminatory laws were passed?

Let’s go to Jennifer Roback’s ‘The Political Economy of Segregation: The Case of Segregated Streetcars‘:

The resistance of southern streetcar companies to ordinances requiring them to segregate black passengers vividly illustrates how the market motivates businesses to avoid unfair discrimination. Before the segregation laws were enacted, most streetcar companies voluntarily segregated tobacco users, not black people. Nonsmokers of either race were free to ride where they wished, but smokers were relegated to the rear of the car or to the outside platform. The revenue gains from pleased nonsmokers apparently outweighed any losses from disgruntled smokers.

Streetcar companies refused, however, to discriminate against black people because separate cars would have reduced their profits. They resisted even after the passage of turn-of-the-century laws requiring the segregation of black people. One railroad manager complained that racial discrimination increased costs because it required the company to “haul around a good deal of empty space that is assigned to the colored people and not available to both races.” Racial discrimination also upset some paying customers. Black customers boycotted the streetcar lines and formed competing hack (horsedrawn carriage) companies, and many white customers refused to move to the white section.

In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway “contested bitterly,” and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that his group “was in cahoots with the railroad lines in Jacksonville.” As pressure from the government grew, however, the cost of defiance began to outweigh the market penalty on profits. One by one, the streetcar companies succumbed, and the United States stumbled further into the infamous morass of racial segregation.

For South Africa, we go to the book ‘Capitalism and Apartheid‘ by Merle Lipton (sorry no online copy or e-version anywhere) which tells us that even though only whites and ‘coloreds’ were officially allowed to work in the Transvaal clothing industry, by 1969, sixty percent of the workers in the industry were black (pg 42). In the 1970s, even though the South African government had thousands of civil servants devoted to enforcing color bar laws, businesses were regularly flouting their quota by hiring black workers such that the government had to launch crackdowns on businesses by fining and even shutting some down.

Then there was the famous Rand Rebellion of 1922. When the price of gold in the international market started to drop in 1921, the mining companies (who were already breaking the color bar laws) started sacking white workers (nearly 30% of whites were sacked) and hiring more blacks and promoting others.

Of course the white unions didn’t take this lightly and they went on rampage killing blacks which in turn forced the government to send out troops to quell the uprising, killing 200 people. Alas, that government was defeated at the next election and a more racist and extremist Afrikaner Nationalist Party was elected in 1924. This government tightened and expanded color bar laws and then introduced ‘waivers’ and zero tariffs for companies who employed whites only or kept black workers to a minimum.


It’s worth pausing to consider these stories. In both cases, racist governments were passing racist laws and yet businesses that were owned by whites (who were probably racists themselves) refused to obey the laws. Why was this the case? A simple answer is that  – racism is not discrimination.

Imagine that I hold racist views towards, say, Chinese people. Say I am sitting in my living room and on the news I see a Chinese guy paraded on TV for something like theft. I then start ranting at the TV that ‘bloody Chinamen come to this country and all they do is steal!‘ or something like that. That’s undoubtedly a racist thing to say. But in the time I am ranting the Wok U Like Chinese restaurant down the road from me has probably sold £50 worth of food. My racism does not affect their business in any way. Even if I stop patronising them, my racism is simply not enough to run them out of business and I will be depriving myself of Chinese food.

Now imagine that I am the HR Manager for a large bank. I now have the opportunity to ‘upgrade’ my racism towards Chinese people to actual discrimination by ensuring that the bank does not hire Chinese workers. I can get away with it (maybe for a while) but the problem is that the country does not have any laws that allow discrimination against Chinese people meaning that my competitors will continue to hire them. I have thus imposed a cost on my business because if there is a super talented Chinese worker who can add value to the banking business, he/she will automatically go to my competitor.

But what if I am friends with the Prime Minister or many MPs and somehow I get them to pass a law discriminating against Chinese people in the entire banking industry? Automatically, in theory at least, I have eliminated the cost of discrimination because no matter how good a Chinese worker is, nobody in the banking industry will be able to hire him – we are all level.

It is not that the streetcar owners or the mine owners were nice guys who loved black people (I’m pretty sure the British and Jewish mine owners in South Africa were racist). They were operating in a market where even if racism was free, discrimination was expensive. This is the inbuilt morality of a market system – it is difficult, if not impossible, for anyone to carry out their discrimination free of charge. Even where a cartel is formed, there will always be one nuisance who will break the agreement and try his luck on his own.


And here’s the moral of the story. The only way to get rid of the cost of discrimination or impose your will on the people is to get the government to back you. In a market system, you make money by doing what other people want, not what you want. But if you can get the government on your side, you can make money by doing what you want and not caring about what other people want.

In America, the government began to crackdown on streetcars who didn’t enforce segregation by arresting conductors i.e. using force. In South Africa as we just saw, not only was force used, the market was completely turned on its head when the government began rewarding discrimination via tariffs.

Many people in Nigeria will actively reject a market system and even go as far as supporting government policies that reward ‘businessmen’ who are doing what they like and making money from it instead of what consumers want. In a functioning market system, where the government doesn’t rig the game, until you introduce guns and force into the equation, people will always do whats best for them and even do business with people they totally hate:

Screen Shot 2014-04-07 at 23.19.48

Governments do not bear or even understand costs. So they are able to impose costs on others without understanding or caring about the implication of their actions. If you are angry that someone is ‘just making money off you’, the first thing you should do is ask yourself if you have a choice. If you don’t have a choice, the next question to ask is who is limiting your choice and how are they able to do it?

When we begin to ask these hard questions of our society, our economy and those who claim to be leading us by forcing us to buy things from those they have favoured, we will be on our way to dismantling all the frustrating structures that serve the few at the expense of the many. There are so many ‘markets’ that have been created by governments in Nigeria that do nothing to help the majority of people to participate in them.

By demanding for properly functioning markets in Nigeria, devoid of government interference (as much as possible), we will be protecting ourselves. It is the ultimate self-interest move.

A few weeks ago after the government slapped 63% tariffs on imported books, a group of publishers, who were completely blindsided by the move, took to twitter to tackle a special assistant to the finance minister. Bear in mind that Nigerians have lately been reading more books, including those by Nigerian authors. The market is working even in the face of piracy and other harsh conditions.

Anyway he then responded via a series of tweets out of which I have selected this gem:

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Let me translate that into English – some producers who want to make money by doing what they (the producers) want, came to us and asked us to help them eliminate the thing that consumers actually want from the market. So we tariffed the life out of it. By the way, the use of the word ‘adjustments’ is almost poetic in this context.


Are all these things – Apartheid South Africa, Jim Crow America, book tariffs and Dangote Cement – related?

Who knows? This blog itself exists in a marketplace of blogs so it is hard for me to make you believe anything you don’t want to.




13 thoughts on “Unrelated Matters

  1. Another great write up & research, Feyi! We all feel the effects of ‘cabalism’, ‘cartelism’& ‘parapoism’ by Nigerian’s Billionaire businessmen where they coax the govt to slam tariffs & fines on competitions’ goods/ services to get the large chunk of the market.
    I have read everyone of your blogs from Oct 2008 till date and I think you are simply ingenious, making economics/ finance palatable to those of us who do not major in commerce but in science.
    I would like to know ur opinion on the recent rebasing of the Nigerian economy making it the largest on the continent. It is very topically right now.
    All the same, more power to your elbow. I hail ooh!

  2. Great write up and I can think of a million situations the second half of your article applies to. Especially recent occurrences in the States where CEO’s are being forced to step down for personal views that didn’t affect employment and photographers are being forced to work for clients they don’t want to work for. Re photogs: “if they don’t want to work on this project, that’s their economic loss. How is that a matter for courts and government?”

  3. Feyi; finally got around to reading this – interesting research work done from different sources using different examples. How would you say COST OF POWER come into play when it comes to the numbers released by DC?

      1. http://www.economist.com/news/business/21600688-mix-natural-advantages-and-protectionism-has-made-dangote-group-nigerias-biggest-firm-now

        I came across this a few minutes ago – and that brought my mind back to this article; read this this:

        “The Obajana plant has its own electricity generators; they are designed to run on gas but have to burn more expensive oil much of the time, while the gas pipeline is being upgraded. “Others don’t have these add-ons, so we think it is only fair that we have infant-industry protection,” says Joe Makoju, an adviser to Mr Dangote. “It should fall away as conditions improve; we want to compete on equal terms,” he says.”

    1. What exactly is the protection they want? I’ve checked the profits of various cement makers around the world and no matter how you compare, Dangote’s profits are insane

      So if they had gas they would have made even more profit? Ha

      1. What exactly is your point? I’m confused.
        Dangote is already the most profitable cement manufacturer in the world. What exactly is stopping prices from coming down now?

      2. What percentage of cuts would you expect Dangote to do today? And how come you are not paying attention to Lafarge/Nigeria to drop cost as well? DO they have a “JV” with Dangote for that not to happen?

  4. @aguntasoolo. A friend forwarded to me your analysis when I posted an argument against tax waivers for some very profitable companies such as cement manufacturers and oil producers on the grounds of pioneering. There is nothing pioneering about extending an existing plant or producing oil which we have been doing for 50 years. However, the government saw it fit to give these guys waivers of billions of dollars. The protection Makoju is laughable considering the profitability of the plant despite the electricity cost. What it also means is that the cement manufacturers have colluded to ensure the product is expensive. After all just the 2 of them (Lafarge and Dangote) probably control 70%+ of the market. So not difficult to collude.

    1. Furthermore, the Cement Industry has never been an alata sellers market; it has always been for BIG BOYS like the IOCs; they always find a ways to be BIGGER than the smaller players in every other market – that’s one REALITY that you must accept – we can talk of PRICE REDUCTION but to imagine that everyone would now begin to produce cement like it was “Silicon Valley Start-ups building companies in 2 years they can sell to Google/Facebook for $20Bn” would be plain wishful thinking – and even the merger of Holcim/LaFarge would even make things more interesting in that regard…

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