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Is This Billionaire the "Warren Buffett of Africa"?

Betting on developing nations has long been a way for entrepreneurial individuals to accumulate staggering wealth. Mexico's Carlos Slim, Spain's Amancio Ortega, and -- at one point -- Brazil's Eike Batista are just a few of our era's emerging-market success stories. All three reached the summit of financial achievement, with only Eike Batista faltering in the past year. 

Source: (Dangote on right).

The latest luminary hoping to join their ranks is Africa's Aliko Dangote. Already worth more than $20 billion, he is hoping to turn that into $100 billion with his bet that Africa's prosperity will continue to grow and that demand refined petroleum products will surge right alongside. This bet seems to be rather safe at the moment, as Africa is currently "the world's fastest growing oil user," according to the International Energy Agency. The continent already uses around 3.5 million barrels of oil per day. One thing's for sure: He must be confident.

Diversification at its finest
On his way to accumulating his monumental wealth, Warren Buffett was no stranger to diversification. Mention that Warren Buffett's Berkshire Hathaway grew from the seed of a struggling textile business, and most people might look at you with the lost gaze of a puppy. Now, quite well known for his insurance holdings, Buffett has begun to seriously diversify into natural resources.

A major part of the company's portfolio is wrapped up in stocks such as ExxonMobilSuncor Energy, and, most recently, a large purchase of assets from Phillips 66, using 19 million shares that Buffett already owned. Taking a page from the Buffett playbook, Dangote has amassed his wealth by way of cement, sugar, salt, noodle factories, and, if he has his way, oil and gas -- just as energy investments began emerging later into Buffett's career.

A risky proposition based on recent history?
For the past couple of years, the oil business has been rife with theft and disruption in Africa, and Nigeria in particular. The nation has seen some of the largest oil companies in the world, including Royal Dutch Shell (NYSE: RDS-A  ) and Chevron (NYSE: CVX  ) , selling assets because the potential reward wasn't enticing enough to endure the headache. If you lump in Total (NYSE: TOT  ) to the mix, the three oil majors have already sold off $6.5 billion in Nigerian assets this year.

This is not to say that all foreign oil companies are heading for the hills. Tullow Oil, for example, has continued a recent string of success in the country with a fifth consecutive Nigerian oil discovery last November. The fact that actually finding oil hasn't been the prime culprit in the departure of several companies provides some insight as to why Dangote recently announced that his firm, Dangote Group, could be interested in purchasing some upstream assets. These would likely be used to supply his planned refinery with valuable oil and natural gas feedstock.

Source: Wikipedia.

So why refining?
If you look back at the history of Nigerian refining operations, it has been rather difficult to secure necessary approvals. As a result, only one refinery was built in the country between 2000 and 2010. The situation is shaping up quite similarly to how he first truly began to construct his empire in 2008. You see, five years ago, the 2014 World Economic Forum co-chairman convinced the Nigerian government to allow him to corner the country's cement market by stemming imports as he constructed the country's largest plant.

This deal will likely not come together nearly as easily, because of international interest in surging African growth. However, homegrown petroleum products would certainly be welcomed if demand projects prove prescient. To truly make this work, though, Dangote will need to avoid the Achilles' heel of his country's oil industry: theft. 

Estimates state that up to 400,000 barrels of oil go "missing" each day. To counter this action, Dangote has initial plans to bury his pipes carrying oil from offshore production. Not only should this help curb the siphoning of his oil, but it will also provide some logistical advantages not enjoyed by incumbent refineries. 

Elephant hunting
Buffett has placed a lot of big bets in his day, with most of them working out. Based on his track record, Dangote is no stranger to similar ventures, but none compares with his most recent scheme. Should things work out, Buffett will likely have some company among the richest of the rich, but a few missteps, and Dangote might just join the ranks of Eike Batista and his vanished wealth.

What can we, as investors, learn from Warren Buffett?
Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 23, 2014, at 2:27 PM, Mo101 wrote:

    Gates made his wealth through superior intellect; the military dictator, Sani Abacha, made Dangote!

    The heart of his wealth, Dangote Cement, has a similar valuation to Lafarge, but with a mere 10th of Lafarge's capacity: he is the chairman of Nigeria's stock exchange!

    Despite much higher costs of operation, he sells cement at nearly twice the profit margin of a MacBook Pro: cement is merely sand!

    The current administration are aid and abetting him by imposing punitive tariffs!

  • Report this Comment On February 24, 2014, at 12:13 AM, dcshow wrote:

    mr dangotes ill gotten riches is well known in Nigeria, but not to the outside world. His close ties with the former military dictators, guaranteed him deals that weren't available to nobody else. In a country where the 63% of the population live on less than $1 a day, meanwhile one person is worth $20 billion. Im sorry but this gentleman has nothing in common with mr.buffett

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Taylor Muckerman

Taylor is an Associate GM in our Fool International operations. Prior to that he covered all things Energy + Materials as an analyst. Over the years, he has built an investing skill set to rely on when evaluating companies inside and out. While at the Fool, he has made appearances on CNBC and Fox Business. In addition, he completed his MBA at the University of Maryland and will sit for the Level II CFA Exam.

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