The harrowing experiences of Dangote Group, a Nigerian multinational industrial conglomerate, offers a picture of how difficult investing in Nepal has become for foreign investors who fall into the trap of corrupt leaders, bureaucrats, and inward-looking local industrialists.
In the second week of July, the US State Department published its 2023 Investment Climate Statements, a report assessing the investment environment in 160 economies of the world, highlighting various obstacles and challenges for foreign investors in Nepal. The critique particularly points to political instability, widespread corruption, complex entry and exit procedures, bureaucratic inefficiency, unequal law enforcement, hindrances posed by trade unions, and tax administration as the major barriers in the Himalayan country and said that the factors collectively dampen enthusiasm for foreign investment in Nepal.
It is probably the first time that the United States, which is among the top 10 countries in Nepal in terms of investment, has raised issues so comprehensively about the investment climate in Nepal. It is serious that the world’s largest economy, which has a 76-year history of bilateral relations with Nepal and holds a reputation for providing significant assistance with the immediate potential impacts, has such an assessment of the investment climate in our country.
In the context of the US report, there is a tale of a foreign conglomerate that put relentless effort into investing in Nepal, but to no avail. The harrowing experiences of Dangote Group, a Nigerian multinational industrial conglomerate owned by the richest African Aliko Dangote, offers a picture of how difficult investing in the Himalayan country has become for foreign investors who fall into the trap of corrupt leaders, bureaucrats, and inward-looking local industrialists.
Dangote Group has built its vast empire across the business of cement, chemical fertilizers, sugar, flour, and lately oil and gas. The group, which was primarily operating in Africa, set its sights on expanding its presence globally. Being strategically positioned between the world’s two largest economies India and China, and with no large-scale foreign investment, Nepal became a country of choice for Dangote.
With extensive experience in the sugar and cement industries, the group evaluated the potential of production of both items in Nepal and decided to start with the cement industry. It took into account the gap between the demand and supply of cement in Nepal, the availability of limestone mines in the country, and the export potential to the vast Indian market.
The Investment Board Nepal (IBN) eventually granted permission for the establishment of the cement industry on November 1, 2013. It was the first-ever approval of a foreign direct investment (FDI) project by IBN since its establishment in 2011.
Subsequently, Dangote Cement Nepal Pvt. Ltd. was registered at the Office of the Company Registrar and Dangote paid Rs 5.07 million in registration fees. This was the first instance in Nepal in which an investor paid such a substantial amount in fees for registering a company. Dangote Cement was established with a total capital of Rs 56.23 billion and an authorized capital of Rs 16.87 billion.
Nigeria is Africa’s largest economy, and Aliko Dangote is the wealthiest African. According to Forbes Magazine, he has held the title of Africa’s richest person for the past 12 years. In the latest global rankings, he was listed as the 124th wealthiest person in the world. While Dangote Cement was in the process of getting registered in Nepal, Aliko held the position of Africa’s top billionaire for four consecutive years and was ranked 23rd richest individual in the world that year.
Too Much Excitement
After Dangote Cement was registered and was seeking a license to operate a limestone mine, a devastating earthquake struck Nepal in April 2015. Amid all the relief and rescue efforts, the Dangote Group also decided to contribute during the crisis.
Aliko Dangote himself spoke to the then Prime Minister Sushil Koirala over the telephone and expressed his support to Nepal during that difficult time. Soon, the Group Director of Dangote Group and CEO of Dangote Foundation came to Kathmandu and handed over a cheque of Rs 100 million to the Prime Minister Relief Fund. This was one of the major institutional support the government received to carry on recovery and reconstruction works.
Following the registration of Dangote Cement in Nepal, the group showed considerable enthusiasm to invest in the country. At that time, Nepal’s daily cement production was around 3,000 metric tons, while the demand was 7,500 metric tons. The plant proposed by Dangote alone aimed to produce 6,000 metric tons of cement daily.
After meeting the local demands, the main objective of the group was to tap into the Indian market, especially in Uttar Pradesh and Bihar, the states bordering Nepal. Nigeria is India’s major trading partner, and with Dangote being a significant player, they were confident to get support for legal and administrative actions from India without delay.
After the cement company was registered, the group conducted a detailed market survey through an Indian agency and the report showed positive prospects for cement business. Therefore, for export, the Nepal government also had to make a policy decision to remove the obstacles, and discussions were ongoing in this regard.
The First Obstacle
Alongside the company’s registration, the initial task for Dangote was to secure limestone quarries. For this purpose, the officials of the group had to run around multiple times contacting the Prime Minister, Ministry of Industry, Commerce and Supplies (MoICS), IBN, and Department of Mines and Geology (DoMG).
Dangote Group was confident that the government would arrange a limestone quarry as the proposed business promised 100 percent foreign investment. Although the Prime Minister and other officials appeared positive, obtaining a license for limestone quarry was becoming an uphill struggle. Despite the assurance of license, Dangote was informed By DoMG that they would not grant mining rights without the bidding process.
Since there was no immediate possibility of initiating the tender process for government mines, Dangote was advised to purchase licenses from private companies that held mining rights. With no swift alternative, the group purchased a private company in Bhimphedi, Makwanpur, with a limestone mining license.
After buying a company with a mining license, further and detailed studies and soil testing began. About Rs 150 million was spent on all the works, but the drilling report did not indicate a positive outlook. The quality of limestone extracted from the inner layer of the quarry was found to be subpar, affecting the viability of Dangote’s plan to establish a cement factory around Hetauda.
Disqualification and Disappointment
Officials of the group were perplexed. Once again, they started visiting the IBN, MoICS, and DoMG. At the same time, after getting the information that DoMG would invite tenders for some mining licenses, they started preparations.
On 14 March 2017, the tender notice for eight limestone mines was published including Panikharaka and Kailash mines located in Dahding and Makawanpur respectively, and Siklesh limestone mine in Palpa. Dangote submitted its technical and financial proposal for three sites. However, on 3 November 2017, DoMG sent a letter to Dangote Cement stating that all three of its technical proposals were disqualified and asked to withdraw the bid. The rejection of the technical proposal from a company that had been producing cement in 10 African countries and had made Nigeria self-reliant in cement was unprecedented.
Later, the Panikharka limestone mine was awarded to a Chinese-Nepali joint venture cement company, and Kailash limestone mine to a Nepali cement industry. The tender for the third one – Palpa’s Sikles limestone mine, was won by such a company that had no experience in cement production but only supplied limestone to other cement industries.
Final Attempt
After being declared ineligible in the tender competition, the Dangote Group was indeed disheartened, but they still weren’t sure what their next step would be. Consequently, in a final attempt, the group engaged in discussions and negotiations and showed an interest in operating another mine located in Mahadevasthan, Dhading. On April 16, 2018, Dangote applied for the license of the Mahadevasthan mine at IBN. Even after the previous attempts that failed, they still have some hope to obtain the limestone mine through the decision of the cabinet and avoid spending a long time in the bidding process.
Following the application, MoICS and IBN exchanged letters for awarding the limestone mine. But the ministry, in response to the very first letter, had mentioned that permission would not be granted for the Mahadevasthan mine without the bidding process.
Dangote’s belief that Nepali politicians, bureaucrats, and businessmen would help in establishing an industry with 100 percent foreign investment, that promised direct employment to 1,000 people and indirectly to 5,000 people while filling the gap in the cement market in Nepal as well as increasing the prospect of export, was shattered completely. Subsequently, they shut down their office in Nepal.
So, after spending nearly Rs 250 million, how has Dangote understood Nepal? A retired government official who had closely watched the Dangote case said the Nigeria-based multinational industrial conglomerate came to the conclusion that they received no support from the Nepal government and that the bureaucracy here is corrupt. They have also noticed that political leaders, government ministers, and bureaucrats put their personal interests first before they consider bringing in foreign investments in the country.
Message to the Investors
Dangote Group showing its interest in investing in Nepal had sent a positive signal to foreign investors. Nepal’s positive branding was in progress. However, the message that Africa’s largest business group was instead chased away has badly impacted Nepal’s image as an investment destination. Therefore, there is no need to hesitate to say that all those who created obstacles are complicit in this “crime against the country”.
If investors from India, China and other developed nations were forced to face a similar situation, the diplomatic missions of the countries would come ahead to extend their support and the problems would get space in media and the public domains. Perhaps because of the weak diplomatic relations and links between Nigeria and Nepal, no one spoke in favor of this highly potential FDI.
In the past, the government had awarded projects such as the Budhigandaki and West Seti hydropower projects to foreign companies without a competitive bidding process. Dangote could have received a license to operate a mine for their project in the same way.
Merely talking about welcoming FDI won’t work in today’s world, the importance lies in putting the words into action. This behavior entails genuinely extending a warm welcome to real investors, making the process so smooth that licenses can be readily granted to them.
It is sad that Dangote closed its office in Nepal after seven years of trying to get a limestone mine and neither the then Prime Minister, the MoISC, the DoMG nor the IBN reached out to them. It seemed to have lost significance for everyone involved.
As Dangote has not officially withdrawn its company registration yet, it can still come back. Nonetheless, cement might not be their priority anymore as many cement companies have been opened in Nepal over the years and the country has become self-reliant in cement. Cement production can be a priority for Dangote only for export purposes.
Currently, Dangote Group is focused on the construction of a chemical fertilizer plant and oil refinery in Nigeria. An investment of USD 20 billion has been allocated for the oil refinery and over USD 2.5 billion has been set aside for the chemical fertilizer plant. Due to substantial financial commitments, the Dangote Group has been focused on these two projects for several years. The chemical fertilizer plant is already operational, while the oil refinery is in its final stages of becoming fully operational. This will be the second-largest oil refinery in the world which is expected to have significant impacts on Nigeria’s economy.
Dangote Group’s priorities are likely to be changed after the refinery is fully operational. This offers us a chance to bring them back and correct earlier mistakes. If the group shows no interest in cement, they can be persuaded to invest in hydropower projects. But bringing the Nigerian business group is only possible with honest and serious efforts of the Prime Minister and the bureaucracy. Otherwise, international reports like the one published by the US State Department will continue to portray the worsening investment climate in Nepal.
Aryal is the former Editor-in-Chief of Kantipur Television Network and Galaxy 4K TV.
