Why Investors Won’t Fall for Nigeria’s Plans to Boost Mining
President Muhammadu Buhari’s government plans to support investments in the exploration of its priority minerals including gold, bitumen, iron, barite, limestone, lead and zinc, Fayemi said. The government is hoping to attract as much as 60-billion naira of private investment into mining, he said.
In the Bloomberg interview this week, the minister averred that tapping resources other than oil, Nigeria’s main export, is part of the government’s economic recovery and growth plan after the country went through its worst economic slump in 25 years as oil output and prices fell. Nigeria is Africa’s biggest oil producer. The contribution of solid minerals to gross domestic product is expected to increase to more than 8% by 2020 from less than 1% a year, according to the government. Back in August, Nigeria’s Bank of Industry and the Ministry of Mines and Steel Development announced plans to invest N5 billion to encourage the development of the industry as an alternative to oil and gas.
To further encourage investors, incentives including tax holidays of as much as five years for new companies entering the market, duty free imports on mining equipment and mining licences for 25 years have been put in place, the minister said.
Additional support for the industry is expected through a $600-million bond to be sold by the end of the year to raise more funds to provide required infrastructure and help accumulate data on minerals, according to Haiha Fatima Shinkafi, executive secretary of the Solid Minerals Development Fund.
“Nigeria is one of the lowest spenders on exploration as far as mining activity is concerned,” Fayemi said. “This government is determined to turn the tide on that, because we’re quite convinced of the opportunities.”
Nigeria has at least 44 minerals that can be extracted in commercial quantities, according to the solid minerals ministry. Mining in the country is currently dominated by artisans, who produce gold, tin and others in small amounts.
Indeed, Nigeria is richly endowed with a wide variety of mineral resources, namely coal, lignite, coke; gold, columbite, wolframite and tantalite; bitumen, iron ore and uranium, the latter found in about five of the country’s 36 states. Its coal is reputed to be one of the cleanest in the world and the deposits in the Southeast and Middle Belt of the country are sufficient to supply its projected but pie-in-the-sky 55 megawatts of electricity several times over.
Unfortunately, since the country got drunk on petro-dollars in the 1970s, mining has not only progressively died; it has also become the most lucrative site for the gravy train, graft, and sink holes of the national treasury. Currently, the mining of minerals (mostly by artisanal miners) accounts for only 0.3% of Nigeria’s GDP. Since the domestic mining industry is underdeveloped, Nigeria has had to import minerals that it could produce domestically, such as salt or iron ore. Rights to ownership of mineral resources is held by the Federal government of Nigeria, which grants titles to organizations to explore, mine, and sell mineral resources. Much of the licensing is matched in its opaqueness by the notoriously corrupt oil sector often described as the den of the most devious Nigerian and foreign robbers.
From time to time, one is startled by news headlines about plans to revive this moribund sector of the economy. For instance, in 2013, Australia and Canada reportedly launched a two-year program to support the Ministry of Mines and Steel Development in developing Nigeria’s mineral sector in an economically, environmentally and socially sustainable way. The program was expected to contribute to improved employment, economic diversification and development of small to medium scale exploitation of quarry materials, gems, gold and industrial minerals in the country. The project, designed and implemented by the World Bank, was reportedly financed by the governments of Australia and Canada with $940,000 and $950,000, respectively. It aimed to build upon earlier reforms purportedly implemented by the Federal Government with the support of the World Bank-assisted $120 million Sustainable Management of Mineral Resources Project (SMMRP) from 2004 till 2012.
The assistance responded to a request from, and needs identified by the Ministry of Mines and Steel Development to sustain the process of the mining sector reform into the “next phase.” The Bank allocated a whopping $10 million to raise the technical skills and capacity of Nigerian indigenous miners and facilitate the adoption of a conducive regulatory regime for mining in the country! A huge national conference/jamboree was held; all the Big Boys and Girls showed up and got their “fair” share of the “national cake.” Nothing has been heard again about these “dead aid” projects, apologies to economist Danbisa Moyo.
Intermodal transport infrastructure is non-existent in Nigeria. For instance, hardly any mines are linked to railway lines which are mostly not functional. Where they exist, they are not linked to any of the seaports, many of which not only lack basic infrastructure but are also among the most corrupt and inefficient in the world. Many parts of the country still “enjoy” less than four hour hours of electricity per day and yet pay one of the most expensive tariffs on the African continent.
The biggest huddle confronting potential investors in the mining sector is Nigeria’s legendary corruption and insecurity of property rights. You’d be lucky to find a few serious formal mining outfits today, such as Dangote limestone companies. Instead, the terrain is littered with thousands of “illegal” or artisanal miners (more than 1,000 in gold-rich Niger State in central Nigeria alone!) plus several dubious Chinese and Lebanese “mining” companies many of whom are engaged in the very lucrative quarrying business. Both groups of “miners’ suffer constant shake-downs by a slew of local, state and central government officials and security agencies who have pretty much privatized what exists of a once-vibrant industry.
Licensing and contract awards are as opaque as ever, despite pious anti-corruption rhetoric of the Buhari regime. In September the deputy minister of Petroleum Resources accused the group managing director of the state oil company, Nigerian National Petroleum Corp (NNPC) of awarding $25 billion contracts without due process and approval of the corporation’s board of directors or the minister. President Buhari doubles as oil minister, but has yet to take any actions. Critics allege that a “cabal” linked to Buhari has hijacked the contract awards and licensing processes, endangering property rights in the oil and gas, mining and other sectors of the economy.
Like every aspect of Nigeria’s economy, the mining sector is full of potential, but it is hobble by the same institutional, structural, and ethno-religious factors that have held the country stuck to its moniker as a “Crippled Giant.”