SPECIAL REPORT:
Field Research on FMN Business and Patronage in Nigeria
June 28, 2011
1
STRATFOR
700 Lavaca Street, Suite 900
Austin, TX 78701
Tel: 1-512-744-4300
www.stratfor.com
Special Report:
Field Research on FMN Business and Patronage in Nigeria
Overview and Aim of this Report
STRATFOR traveled to Nigeria to observe and collect information regarding Flour Mills of Nigeria (FMN)
and areas of interest that either FMN or companies interested in FMN are involved in or are affected by.
This second report is a follow-up to the initial report provided in May.
Areas investigated by STRATFOR include FMN rivals (notably the Dangote Group), political patronage
sought by FMN and new patronage opportunities by the Jonathan administration that FMN or interested
parties should be mindful of.
FMN Rivals
FMN is a known and visible group of companies in Nigeria, though the group’s reputation is less well
known than that of its top rival, the Dangote Group. Among political circles and among private equity
actors in Nigeria’s commercial agriculture sector, there was a clear awareness and a perception of
market strengths and dominant performance of Dangote, in areas of milling, product distribution
throughout the country, access to capital, and in acquiring political patronage. There was awareness of
FMN in these several areas but not to the same level as Dangote.
Dangote’s reputation has disadvantages, however. While Dangote may be the market leader in its
business areas, it is also seen as essentially a re-packager of its products. For example, with sugar or
cement production, Dangote imports the product to its facilities in Lagos, and then re-packages the
product into retail-sized units for distribution throughout the country. Dangote has a strong distribution
network, comprising thousands of vehicles to get to cities, towns and markets ranging from the south
to the north, as well as a strong capital base and patronage network. However, it is still seen as hollow
in terms of being a Nigerian business that provides local value-added input to the country’s industrial
base.
Dangote is seen as one of the top campaign contributor to the ruling People’s Democratic Party (PDP).
In a country where patronage and cronyism are significant contributors to business success, Dangote is
viewed as the market leader. Dangote is perceived as close to former President Olusegun Obasanjo,
who retains significant influence in the Nigerian government and the PDP. Obasanjo’s influence is
retained through his position as chairman of the Board of Trustees of the PDP, in addition to being seen
as a political godfather to President Goodluck Jonathan, whom Obasanjo promoted from relative
obscurity as a politician in oil-producing Bayelsa state to vice president in 2007.
That is not to say that Jonathan is wholly dependent on Obasanjo or that the former president has
complete control over his successor. But the door to the Nigerian presidential office (called “Aso Rock”
for the mountain located behind the presidential compound in Abuja) is always open to Obasanjo, and
Obasanjo loyalists are still found throughout the Nigerian government and public environment.
Although Dangote is one of the most significant campaign contributors to the PDP, it has not yet
developed a close relationship with Jonathan. Dangote’s support is therefore a legacy based on its
relationship with Obasanjo and support given to the PDP because of the party’s dominant position
across Nigeria’s political spectrum. Dangote does not have any ideological affinity to the PDP or
Jonathan; it is shrewd and supports the PDP because it wins.
2
© 2011 STRATFOR
Austin, TX 78701
Tel: 1-512-744-4300
www.stratfor.com
Political Patronage Sought by FMN
Although Dangote has a long-standing patronage relationship with the ruling PDP and with Obasanjo,
new opportunities exist regarding patronage and the Jonathan administration.
Jonathan has no particular affinity to Dangote beyond the latter being a reliable and valuable
contributor to the PDP. Jonathan is, however, anxious to promote both his and his supporters’ business
interests. Jonathan and his inner circle know that they have a four-year term in office, but beyond that
nothing is guaranteed. They might secretly or quietly hope for a second full term in office (Nigeria’s
next elections are not due until 2015) but at this point Jonathan faces considerable political constraints
that will likely limit him to serving a single term.
FMN’s existing patronage outlet, channeled through FMN Vice Chairman Alhaji Ahmed Joda, is seen as
satisfactory but neither especially noteworthy nor having fulfilled its potential. Joda might be part of a
wide circle of confidants used by Obasanjo, but he is not perceived as being a peer rival of Dangote in
terms of influence, sought-after reliance by the PDP for campaign contributions or in making the
transition to Jonathan’s circle of confidants. For the latter item, Dangote is not seen as having made
that transition either.
Patronage by the New Jonathan Administration
Jonathan and his supporters are anxious make their mark on government. Part of the motivation for
Jonathan’s camp is to follow through on campaign pledges of bringing about reforms that improve the
lives of everyday Nigerians. Raising domestic food production levels is one of these pledges.
Jonathan and his supporters are also interested in building personal business empires. This is common
among Nigerian politicians. Obasanjo, for example, is a very influential and successful businessman.
The purpose of building a business empire is to provide the political leader a steady source of income
and influence, especially for when the incumbent leaves office. The business empire will be managed
involving the private sector and hand-picked executives loyal to and acting on behalf of the political
patron.
Jonathan and his inner circle (including his wife, Patience Jonathan) and a handful of presidential
advisers (notably Jonathan’s chief security officer, Gordon Obuah), all of whom Jonathan selected from
his home region in the Niger Delta, are looking to combine these two interests: economic development
for political purposes, and business development for private gain. They realize that it takes time to
assemble successful business empires. It can be inferred from STRATFOR’s research in Nigeria that
Jonathan’s camp has already initiated some business interests in the oil and natural gas sector.
But the agriculture sector is a fresh opportunity and Jonathan’s campaign stated its interest in
expanding domestic food production. Obuah told STRATFOR that in addition to areas such as vegetable
oils, grains and the sugar industry, the Jonathan government is interested in promoting domestic rice
production.
Commercial agriculture development across these industries is helpful for political purposes. Because
these industries are found in several regions of the country (vegetable oils, especially palm, in the
southeast; sugar in the Middle Belt; and grains in the north), Jonathan can be seen by the voting
population to be promoting economic development and food self-sufficiency at a national level and on a
multi-regional basis.
State governments are equally interested in commercial agriculture development across the named
industries (i.e. vegetable oils, sugar and grains). While the oil and natural gas industry gets the most
attention in Nigeria, it provides employment opportunities for relatively few Nigerians. With an
3
© 2011 STRATFOR
Austin, TX 78701
Tel: 1-512-744-4300
www.stratfor.com
estimated 40 percent unemployment rate among Nigerian youth, creating job prospects is in the
interest of Nigerian politicians for stability and growth purposes (not to mention patronage and reelection opportunities). Prior to the discovery of crude oil on a commercially recoverable basis in 1956,
agriculture was the leading economic activity in Nigeria. It is commonly stated that the agriculture
sector has the opportunity to create much-needed jobs in Nigeria, and for state governments who are
not oil and natural gas producers (which are the majority of the country’s 36 states), turning to the
agriculture sector is a top way to promote development within their states. It is very likely that state
governments, desiring to promote large-scale, plantation-type agricultural developments within their
state will provide sufficient land at little to no cost. What they have is land; what they lack is capital
and an outside player who understands market mechanisms to assemble these component parts into a
successful enterprise. The Nigerians want a successful enterprise but more often than not it is an
outside player who is needed to act as a catalyst for development.
Conclusion
There is goodwill on the part of the executive branch of the Nigerian government as well as in several
state governments to promote commercial agriculture opportunities across several sectors (vegetable
oils, sugar and grain, as well as rice).
Part of this goodwill is based in self-interest. The Jonathan administration and a small group of core
supporters understand that four years will pass quickly. To them, building a business empire must be
started now, not once the incumbent leaves office. Building a business empire can take several forms.
This can include forming a partnership with a foreign business, with the Nigerian partner being fronted
by hand-picked executives acting on behalf of Jonathan’s camp. In this case, the foreign partner brings
the technical and financial capacity while the Nigerian partner brings the local expertise and patronage
to open doors and provide on-the-ground infrastructure.
The other part of this goodwill is that building non-oil and natural gas economic development will be
very useful for Jonathan politically. It cannot be ruled out that with a few political and economic
successes under its belt, the Jonathan administration will be able to better build a case that Jonathan
will need a second term to complete his agenda for the nation.
STRATFOR has both a relationship with members of Jonathan’s inner circle and an understanding that
there are fresh opportunities to establish a patronage relationship within that inner circle. Joda, the
FMN vice chairman, has not yet made the case for establishing a close patronage relationship with the
Jonathan administration. Neither has Dangote, even though it is a group of companies that is a
powerful and shrewd force for any Nigerian politician or private business. To that end, STRATFOR
advises that countermoves by Dangote against a new competitor must be anticipated.
STRATFOR is available to facilitate an introduction to Jonathan’s inner circle. This can include an inperson meeting at Aso Rock, to discuss business opportunities that the Jonathan government is
interested to promote. Establishing requirements (such as infrastructure assistance) that the foreign
investor may need can be explained at such a meeting. Establishing this level of relationship can then
be used to open the necessary doors at the relevant government ministries and with state and local
government officials. STRATFOR advises that positive relations will still be necessary to maintain
separately at the state and local government level, however, to avoid difficulties even if strong ties are
established at the federal level.
STRATFOR looks forward to providing a briefing on this information, believing this will be helpful to fully
explain the opportunities for doing business in Nigeria under the new Jonathan administration.
4
© 2011 STRATFOR
Austin, TX 78701
Tel: 1-512-744-4300
www.stratfor.com