Last week US billionaire investor Warren Buffett released
his annual letter to the shareholders. A much awaited document that he has
penned for almost half a century as the head of Berkshire Hathaway, it spells
out in detail his philosophy on business and life.
As he has done over the last several years in his annual
letter, he laments that there re no big companies, selling at price that would
meet his criteria and tempt him to commit some of the $112b held in cash by the
company.
At 88 he has learnt over a long investing career, that started when he was 11, that waiting for the good deal may very well be the best use of his time and his investable capital...
Buffett is a billion air many times over and this is thanks
to his investing process, which entails looking for good companies selling at
discounted prices to their intrinsic value and holding forever.
His search from
value has been fine-tuned over the years to the point that is company is valued
at just over $500b today or 20 times the size of the Uganda economy or thrice
the size of the East African Community.
Which brings me around to our African billionaire Aliko
Dangote. The Nigerian’s wealth has evolved from a commodities trader to a huge
industrialist. The cornerstone of his empire has been his cement manufacturing
operations strewn across the continent – his Obajana operation alone churns out
1000 trucks of cement daily.
The jewel in the crown will soon be the 650,000 barrels a
day refinery that is under construction outside Lagos that will cost $12b.
Uganda, using current estimated reserves, will be pumping out 200,000 barrels
per day.
While not an exact fit Dangote may be the continent’s
Buffett in the way he seeks out assets, in our case natural resources, and
invests to extract their full value.
Anybody who knows anything knows that Africa is not poor, the challenge is that unlocking the value of its people and natural resources has been subverted by bad politics, foreign interference and poor business skills...
Africa as Dangote is showing, so dramatically, is a deep
value play and the best people to fully unlock that value have to be us. Africa
does not conform to the modern investment critea that are employed in western
boardrooms. Investing in Africa takes a faith that the atheist west has long
lost. Investing in Africa requires that’s its people are seen as useful
partners and not statistics in market research report.
So why don’t we have more Dangotes around Africa.
It helps that Dangote came from a longline of businesses.
One can only guess that every generation has improved on the business quality.
So if Dangote’s forefathers started with trading cowrie shells in the Trans
Saharan trade their descendant has overlaid industry on that foundation of
business practice.
It helps too that he is Nigerian. In the most populous
nation on the continent you either do big or go home. With this outlook
ingrained in his DNA it should come as no surprise he has no qualms jumping onto
his private jet to explore opportunities not only in West Africa where he has
presence in Nigeria, Ghana, Cameroon and Benin but further afield in South
Africa, Zambia and Tanzania.
He is more of a hands-on manager compared to Buffett, who
rarely leaves is Omaha, Nebraska base to visit the constituent companies of his
conglomerate. But maybe that is what is needed, face to face meetings with his
mangers on site, if only to drum in his vision and their part in fulfilling it.
Apart from the aforementioned retained earnings in his
company, a lot of the financing for Buffett's ventures is got from his insurance
companies, whose “float” – the premiums policy holders pay out net of claims,
is the gun powder he uses for his acquisitions.
The way the story is told Dangote borrowed $3000 from an
uncle to start his first business. Four of his companies are listed on The
Nigeria Stock Exchange (NSE) and given the scope of his holding one can expect
that he is not averse to mining the money markets of Europe to finance his
ambitious expansion plans.
He has on several occasion dismissed suggestions that his
success has been driven in no small part by his closeness to the Nigerian
establishment, but even if that was so we know dozens of people close to the
establishment who have had and still have access to hundreds of millions and
have squandered the opportunity. That Dangote can parlay this alleged advantage
into huge economic success – he is the largest private sector employer in
Nigeria, tells you a lot about the man.
"Value investors like Buffett and Dangote are happy to invest when there is blood running in the streets, they are greedy when others are scared. It takes a lot – risk, pain and sweat to develop such a mentality and maybe that is why there is only one Dangote in Africa.
