The world’s 40 largest listed mining companies made an aggregate net profit of $20 billion (about N6.29 trillion), according to PricewaterhouseCoopers (PwC’s) “Mine 2017 Report”. But Nigeria, which has over 44 mineral deposits, is not among them. Why? According to experts, the nation is not matching intentions with actions, particularly the implementation of the mining sector roadmap. This, they warn, may hurt efforts at increasing the sector’s GDP contribution from 0.46 per cent to 10 per cent by 2020. Assistant Editor CHIKODI OKEREOCHA reports.
If policy pronouncements were to be the only drivers of a strong and virile sector, Nigeria’s mining and related extractive industry would have been sufficiently stimulated to pull the economy out of its worst recession in 29 years.
Since 2014 when global oil prices started tumbling, causing Nigeria serious revenue losses and, ultimately, pushing the economy into recession, the industry has benefited from several policy responses and new regulations intended to reposition it to drive the Federal Government’s diversification agenda.
Sadly, however, most, if not all, of those policy statements have continued to suffer from perceived lack of political will to translate them into concrete actions. The Federal Government’s strategic rethink, in favour of exploiting the enormous but largely untapped potential in the mining and related industry to diversify the economy, raised hopes a rebound was in the offing.
However, the seeming motion without movement with regards to implementing the policies appears to have dashed such hopes. For instance, despite the launch of the roadmap for the development of the mining sector since April 2012, the document has remained on paper.
The blueprint was, among others, expected to rebuild the minerals, mining and related processing industry, rebuild market confidence in minerals and mining sector and win over domestic users of industrial minerals that are currently imported. Unfortunately, the strategic actions contained in the roadmap are yet to be implemented.
The mining sector roadmap was not the only policy intervention that put Nigerians and industry operators in an expectant mood. For instance, the Federal Government, The Nation learnt, has since given its nod to states demanding to be allowed to exploit mineral resources in their domains.
Government even went a notch higher, approving the payment of 13 per cent derivation from mining revenue to the 36 states of the federation, and a N30 billion intervention fund for the mining sector.
The Minister of Mines and Steel Development, Dr. Kayode Fayemi, explained that the fund would focus more on exploration, which, according to him, was at the heart of mining.
He added that the intervention fund was in fulfilment of the administration’s campaign promise to diversify the economy with emphasis on agriculture and mining. He also inaugurated the long-awaited Solid Minerals Development Fund (SMDF) Board, which is expected to address the barrage of challenges holding the sector down.
Other policy statements that promised to signal the beginning of a new dawn for the industry and the economy include Acting President Yemi Osinbajo’s announcement, about a fortnight ago, that the Federal Government has started the process of raising $600 million for the development of the solid minerals sector.
Osinbajo, who spoke at the opening of the National Mining Summit in Abuja, said the fund would be raised through the Nigerian Sovereign Wealth Investment Authority and the Nigerian Stock Exchange.
He said: “We are working with the Nigerian Sovereign Wealth Investment Authority, the Nigerian Stock Exchange and others to assemble a $600 million investment fund for the sector. Internationally, we have secured $150 million in funding from the World Bank for the minerals sector’s economic diversification.
“This will provide technical assistance in restructuring and operationalisation of the SMDF. The SMDF will make finance available to artisanal and small mining operators through mining finance and lease institutions.”
The Acting President was emphatic that “The mining sector is a priority for the Nigerian Government and a crucial part of our economic growth and diversification agenda. The President (Muhammadu Buhari) has seized every opportunity over the last two years to highlight the diversification vision and central role of the mining sector in it.”
But that’s as far as policy statements go. Despite highlighting the sector’s role in driving diversification in the last two years, the preponderance of opinion is that the intended objectives of the policy responses are yet to manifest, because of the government’s alleged lack of political will to walk the diversification talk.
Some industry experts and analysts, who spoke with The Nation, expressed concerns that the government’s failure to transform its intention to diversify into concrete, practical actions was seriously hurting efforts at riding on the sector’s back to rebound the economy, create jobs and grow the Gross Domestic Product (GDP).
For instance, Obiora Akabogu, a Lagos-based lawyer and public affairs analyst, observed that Nigeria has not been moving fast enough in the area of diversification. Describing the slow pace of diversification anchored on the minerals sector as “suicidal,” he said the requisite political will to translate policy statements into concrete actions was evidently lacking.
Partner and Head of Mining, PricewaterhouseCoopers (PwC) Nigeria, a consulting firm, Mr. Cyril Azobu, also said despite the launch of the roadmap for the development of the mining sector since April 2012, it has remained on paper. “It’s time to begin to put these things into action. We have to put some political will around all these. It’s a long term thing, but we have to start now,” Asobu said.
Counting the costs
According to experts, Nigeria parades over 44 solid mineral deposits across the 36 states including the Federal Capital Territory, Abuja. Some of them, which are in commercial quantities, include coal, tin, iron ore, columbite, limestone, gold, gypsum, kaolin, lead, zinc and bitumen, among others.
With sustained decline in global oil prices, which eventually pushed the economy into recession, the expectation was that Africa’s largest oil producer would have fast-tracked efforts at exploring and exploiting the mineral resources to exit recession. But that has not been the case.
Expectedly, the government’s failure to diversify, using the mining industry, has come at a huge cost to the economy and Nigerians. For instance, Nigeria, despite her rich mineral endowment was missing in the world’s 40 largest listed mining companies that returned to profitability in 2016, with an aggregate net profit of $20 billion, about N6.29 trillion.
According to PricewaterhouseCoopers (PwC’s) “Mine 2017 Report”, which was accessed by The Nation, market capitalisation of the top 40 miners increased by 45 per cent to $714 billion. The report said the world’s top 40 miners recovered from a race to the bottom, with bolstered balance sheets and a return to profitability, giving them the much-needed space to pause and draw breath.
Energy, Utilities and Mining Industry Leader for PwC Africa, Michal Kotzé, said the report analysed the 40 companies by market capitalisation, and that the financial information for 2016 covered the periods April 1, 2015 to December 31, 2016, with each company’s results included for the 12-month financial reporting period that falls into this time frame.
He said rapidly rising commodity prices sparked renewed market optimism and improved credit ratings across the top 40 firms. Valuations also climbed, especially for the traditional miners, with the trend continuing through the first quarter of 2017 even as commodity prices remained flat.
PwC Assurance Partner Andries Rossouw said: “Mining companies need to combine engineering excellence and know-how with a new open-mindedness to learn from advanced analytics and a need to embrace robotics and platforms that fundamentally challenge decades of doing things the same way …it is as much about behaviour as technology.”
Projected GDP growth targets threatened
Although Nigeria missed out from the global mining industry’s return to profitability, because of lack of political will to walk the talk in the implementation of policies and actions aimed at turning around the fortunes of the industry, there are fears that she may also fail to meet some of its projections based on the emergence of a strong and virile mining sector.
The solid minerals sector, on the average, contributes a paltry 0.46 per cent to the GDP, according to Azobu. Also, the Nigeria Extractive Industries Transparency Initiative (NEITI) has reported that the sector contributed only N113 billion to the nation’s coffers in five years.
Specifically, the sector’s overall contribution to the GDP in 2010 was N52 billion. Five years after, precisely 2015, it contributed N103 billion.
For a sector, which, before the discovery of oil in the 1950s, was a major contributor to the economy, swelling its GDP by as much as 12 per cent, the figures are far from flattering. Although the previous administration was said to have targeted a five per cent GDP from the sector by 2015, it failed to achieve the target.
Even with the current target of increasing the sector’s GDP contribution to 10 per cent by 2020, the realities on ground do not suggest that Nigeria will meet the target.
Dearth of infrastructure is a sore point
Even before the administration came on board, Azobu had in a paper titled “Developing the Solid Minerals Sector: Quick Wins for the New Government” observed that a well developed mining industry thrives on adequate infrastructure, particularly a well-established transportation network, which supports the movement of equipment to mining sites and the evacuation of minerals for sale and export.
“Infrastructure is a key element for the success of any mining industry,” the expert said, noting that although, there are a number of infrastructure development initiatives in road and rail being embarked upon by the Federal and state governments, such initiatives do not take into consideration planned linkage with existing or intended mining sites.
“The linkage of mining sites via rail or roads, and the resultant ease of transportation of minerals for sale, would act as catalyst for the development of the solid minerals sector,” Azobu said.
He further said the required raw materials for infrastructure development (e.g. Bitumen for road construction, iron ore to manufacture steel for rail construction) should be sourced internally.
According to him, this will aid the development of local markets for these solid minerals. He noted that previous administrations recorded some success with regards to limestone for cement production.
The PwC Nigeria Head of Mining therefore, said the federal government needed to take a holistic view regarding infrastructure development and mining sector plan. He also said there was need to develop a master plan for roads and rail for federal and state adoption.
“All identified mining locations should be considered when drafting this master plan, and it should be made mandatory for adoption by any level of government embarking on infrastructure development,” Azobu said.
Hope rising for Itakpe-Ajaokuta-Warri rail line
While government may not have taken a holistic view regarding infrastructure development, recent developments in the rail sector appear to offer some hopes. For instance, Fayemi announced last week that the Itakpe-Ajaokuta-Warri rail line under construction will be ready by December.
The Minister, who made this known at the inauguration of the Development Partners and Donor Agencies’ Coordination Group on Mining in Abuja, said the rail line was critical to the mining sector, because it links the National Iron Ore Mining Company, (NIOMCO) Itakpe and the Ajaokuta Steel Complex with the Warri Port.
He also said the project, being handled by the Ministry of Transport, was critical to the Federal Government’s effort to revive the Ajaokuta Steel plant and its iron feeder plant, NIOMCO.
The Minister, who reiterated that the country’s road map for the development of the solid minerals sector was both consultative and inclusive, said it was the appropriate path to rebuilding the mining industry.
However, while most industry experts and stakeholders agree with Fayemi that an inclusive, well-articulated roadmap was imperative for rebuilding the mining industry, they argue that the pace of actual implementation of the strategic actions contained in the roadmap has been evidently slow.
For instance, Akabogu said he expected that by now, the Presidency would have forwarded an executive bill to the National Assembly (NASS) for modification or necessary amendment of the nation’s extant mining laws with a view to removing the hindrances to the maximisation of the potentials of the industry.
The Petroleum Act 1969, for instance, says that “All minerals belong to the Federal Government.” The 1999 Constitution (as amended) in Item 39 of the Second Schedule also reinforced this position by stating that: “All mines and minerals, including oil and gas fields, belong to the Federal Government.”
Akabogu told The Nation that the import of these extant provisions of the law is that the exploitation of solid minerals is on the Exclusive Legislative List, which means that only the Federal Government has the sole approving authority for mining licences and the regulation of the industry.
Although, Fayemi said states are now free to explore and exploit their mineral resources, experts insist that there is still the need for a proper review and amendment of the relevant mining laws to truly open up the industry.
According to them, a review and amendment of the relevant mining laws was not only long overdue, but also a matter of urgent national importance in view of the persistent dwindling oil revenue and the need to diversify the economy away from its over-dependence on oil and gas.
Flip flop on artisanal mining
Nigeria’s 0.46 per cent GDP contribution from mining of solid minerals, according to Azobu, is solely from the formal mining sector.
He said between 80-85 per cent of current mining activities in Nigeria is through artisanal and small scale mining, which is largely informal and fraught with the use of crude equipment and extremely dangerous working practices.
Besides, the sales channel is largely unofficial, and embedded with smuggling and distribution cartels, which hurts the nation’s economy in the form of loss of revenue from taxes and royalties.
It also exposes miners to uncontrolled risks, even as uncontrolled and non-systematic evacuation results in environmental degradation, erosion and excessive pollution, amongst other negative effects.
The expert, therefore, said “There is an urgent need to formalize the artisanal and small scale mining by formulating policies aimed at integrating informal artisanal miners into the formal mining sector.”
He listed some of the benefits of such integration to include training and equipment supply, funding, possible absorption by bigger companies, and enlightenment on safe mining practices.
This must have encouraged Osinbajo to announce that the Federal Government plans to establish modular refineries to engage youths in the Niger Delta involved in illegal oil refining.
Osinbajo, who spoke during his visit to Rivers State, early this year, said the President Buhari-led administration was committed to ensuring that young men and women in the region were properly engaged.
Although the initiative was seen by keen observers as a masterstroke to sustain the relative peace in the region where Niger Delta militants were hurting oil production, the planned adaptation of illegal refineries scattered across the region to modular refineries gladdened the hearts of the people
For instance, the Chairman, Petroleum and Natural Gas Senior Staff Association of Nigeria and National Union of Petroleum and Natural Gas Workers (PENGASSAN & NUPENG) Petroleum Industry Bill (PIB) Committee, Comrade Hyginus Onuegbu, said that on the strength of the planned modular refineries’ deal, Niger Delta youths started organising themselves with a view to establishing refineries
“When the Acting President came to the Niger Delta, he made a promise about modular refinery. In fact, there was an association of modular refiners in Nigeria,” he told The Nation. A number of investors were also said to have indicated interest in investing in the project, which has prospects of attracting about $160 million investments.
Pulling the rug off investors’ feet.
While Niger Delta youths and prospective investors in the modular refinery business waited anxiously for government to come out with modalities for the take-off of the project, the Federal Government backpedaled, declaring that it would no longer allow the proliferation of such refineries across the Niger Delta.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, explained that having such refineries scattered across the length and breadth of the Niger Delta would worsen environmental degradation and gas flaring, which will increase the problems of the region.
The Minister spoke at the presentation of the report of the New Nigerian Oil and Gas Sector Governance Policy Consultation Workshop held in Aberdeen, Scotland, by Nigerians in Diaspora Organisation, Europe, United Kingdom and North Aberdeen.
Kachikwu said government was instead considering a situation where modular refineries would be located only in areas where its products would be easily evacuated and where getting feedstock to them would not be cumbersome.
While stating that the Federal Government was commissioning a broad study that would lead to the development of an intelligent plan for the construction of modular refineries in the region, the Minister said: “It is important to clear a misconception, especially as it has to do with modular refineries.
“Setting up smaller modular refineries in so many places in the Niger Delta would worsen gas flares in the region and also bring about environmental challenges. It is critical to develop an integrated approach and plan to modular refineries construction in the Niger Delta, ensure that they are properly optimised and are not scattered everywhere.”
Kachikwu argued that if the refineries are scattered everywhere they would not provide significant economic benefits to the country.
But the people of the resource-rich region are not swayed. “The relative peace in the Niger Delta was because the Acting President went round the Niger Delta and had a truce with militants. And of course, they are waiting for the Federal Government to fulfil its own side of the agreement, which is the issue around modular refineries,” Onuegbu told The Nation.
He said there was need for government to keep faith with its promise about modular refineries. According to him, sustaining the peace in the region was necessary to wad off disruption in oil and gas operations.
Glimmer of hope from coal industry
Worrisome as the poor performance of the mining industry is, despite push to leverage it to diversify the economy, recent developments in the Enugu coal industry are indications that there is perhaps, light at the end of the tunnel.
About a fortnight ago, the Federal Government announced that it had chosen the Simang Group of South Africa to work along with the Enugu State Government to revive the coal industry for the benefit of the South East geopolitical zone.
The investors led by Dr. Odilim Enwegbara of the Pan Africa Group and Stephen Paddy, Chairman of the Simang Group, explained that the principal objective of the investment drive was to use coal to generate electricity and then spin a chain of allied business activities for the benefit of the economy and Nigerians.
Governor Ifeanyi Ugwuanyi, who received the investors at the Government House, Enugu, said he had always believed that coal would be a major catalyst that would kick-start the economic development of the South-east in particular and the country in general.
However, the expected investment in coal is considered a drop in the ocean considering the quantum of mineral resources in the country. The thinking is that with Nigeria boasting over 44 minerals across the 36 states of the federation, the country is not moving fast in exploiting them.
The way out
Azobu said that the government needs to re-establish the milestones for the mining sector roadmap and take necessary action to ensure achievement of the set goals. He pointed out that the roadmap appears to have been treated as a theoretical exercise by either not setting realistic targets or not working to achieve them.
He listed some of the major milestones set by the road map to include increasing the sector’s contribution to the nation’s GDP from the current 0.46 per cent to 10 per cent by 2020 and facilitating the production of coal needed to fire coal-fired power plants that would contribute 30 per cent of the nation’s power generation by 2020.
While noting that expected collaboration between the Ministries of Power, and Mines and Steel to facilitate the achievement of this milestone does not exist, Azobu said the roadmap also envisaged producing geological maps on a scale of 1:100,000 covering the entire nation by 2020 and creating about three million direct and indirect jobs by 2015. This never happened.
The expert also recommended the establishment of Mineral Buying Centers and lapidaries, noting that the absence of solid mineral buying centres and lapidaries has enabled the flourishing of illegal sale cartels out of the country, with resultant loss of solid minerals revenue from taxes and royalties.
“As a matter of urgency, the government should establish various mineral buying centres and lapidaries across the relevant zones in the country. This will encourage the artisanal miners to sell minerals in-country, and production can be monitored for taxes and royalty collection,” Azobu said.
He also called for the establishment of a solid mineral development bank, noting that the development of the solid minerals sector was hampered by the lack of adequate funding to cater for the different stages of the life cycle of a typical mining operation.
The expert explained that before returns can be generated from a mining operation, the activities needed to go through the five stages of exploration – development – mining – processing – marketing, a cycle which takes between two and 10 years or more.
According to him, most mines in Nigeria are typically green fields (in the exploratory phase), thus not necessarily attractive for funding by the traditional commercial banks. “Establishment of a solid mineral development bank will provide investor-friendly loans, specifically designed to cater for the various stages of the mining life cycle,” he said.
Asobu added that this will have interest rates and repayment terms specifically designed around the mining life cycle, making funding more accessible to miners, and repayment terms more reflective of the realities in the mining industry.
He further suggested that the government provide special incentives for solid mineral development banks, or commercial banks having special packages for the solid mineral sector.
Will the government take the bull by the horns and implement these recommendations? Will it muster the necessary political will to walk the talk on diversification through the mining and related extractive industry?
While answers to these remain a conjecture, the consensus is that without matching policy statements with concrete, measurable action, hope of leveraging the nation’s vast natural resources to diversify the economy from the oil and gas sector and also create jobs will remain a mirage.
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