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In 3 months, Dangote has agreed to rebuild two major roads in Lagos – what’s in it for the company?

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In 3 months, Dangote has agreed to rebuild two major roads in Lagos – what’s in it for the company?

In the space of three months, the Dangote Group has signed two different agreements with the Federal Government to rebuild two major roads in Lagos state.

The first Memorandum of Understanding (MOU) was signed in June between the Dangote Group, the Flour Mills of Nigeria, and the Nigerian Ports Authority (NPA) for the reconstruction of the Wharf Road in Apapa, beginning from NPA to the end of the Apapa Bridge.

The second agreement was signed on September 12, 2017 between the Dangote Group and the FG for the construction of the Apapa to Oworonshoki end of the Lagos – Ibadan Expressway. This second agreement is a network of roads comprising Creek Road, Liverpool Road, Marine Beach to Mile 2, Oshodi, Oworonshoki to the Lagos end of the Toll Gate on the Ibadan Expressway.

The Differences:

  1. Agreement 1 (A1) wasn’t Dangote alone pitching in from the private sector. The Flour Mills of Nigeria is also part of the deal. Agreement 2 (A2) is Dangote alone.
  2. A1 is for a much smaller road (distance of 2km). A2 is a larger road network of about 35km.
  3. A1 will cost N4.34 billion and – according to the Honourable Minister of Power, Works and Housing, Babatunde Fashola – it will be completed in one year. The cost and time frame for completion of A2 has not yet been determined. Fashola said last weekend that the FG is “awaiting the design… From the design, we will determine the cost and the scope of works which we hope can be executed quickly.”
  4. A1 is a Corporate Social Responsibility (CSR) initiative by the two companies. They are funding the project alongside the NPA, and getting nothing tangible in return. However, Dangote is expected to get a 10-year tax holiday for its troubles with A2. According to Fashola, the FG “inherited a tax incentive policy for individuals to benefit from tax remission, to recover investment made in public infrastructure like roads, which other members of the public can utilise. This government has thought it fit to review the five-year limit on that tax order to a ten-year period to sustain private investment in road infrastructure, because it is a long-term asset.”

Fiscal incentives for infrastructural investments are common in developing economies. How it works is that government provides measurable economic advantages to the investing enterprise(s). Fiscal incentives are popular because they do not require up-front use of government funds.

A major challenge however is the lack of transparency which usually surrounds the decision making around these deals. For instance, it is unclear how the FG arrived at a 10-year tax holiday for Dangote when the design and work scope has not even been concluded.

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