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Nigerian mining earmarked for growth, but GDP contribution in last five years a measly 0.15%

4th March 2016

By: Ilan Solomons

Creamer Media Staff Writer

  

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JOHANNESBURG (miningweekly.com) – Nigeria’s attempt to revitalise its solid minerals sector as part of a broad strategy to lessen its dependence on oil and gas is yet to produce substantial results, with the sector contributing less than 0.15% to the country’s gross domestic product (GDP) in the past five years.

The mining of core minerals, such as coal, lead, zinc and gold, experienced no growth at all during this period, according to advisory firm KPMG Nigeria tax, regulatory and people services senior manager Olufemi Babem. He tells Mining Weekly that the “miniscule growth” in solid minerals mining in the Western African country was largely attributable to an increase in quarrying activities by construction companies and the mining of limestone by companies engaged in cement manufacture.

Babem insists, though, that the Nigerian solid minerals sector offers much potential.

World Bank senior mining specialist and energy and extractives unit head Dr Francisco Igualada attributes Nigeria’s earning less than Ghana, Mali and Burkina Faso from mining activities to the country’s huge emphasis on oil and gas, which account for about 35% of GDP. This disproportionate focus on oil and gas has resulted in the solid minerals sector being neglected, despite its potential to be a significant enabler for manufacturing, services and other sectors.

“This is in addition to the huge opportunities of job creation, revenue earnings and the development of other support services in the value chain that could have boosted the economy, particularly with the decline in world oil prices,” he asserts.

As such, Nigeria, which has the largest economy in Africa, is currently trying to diversify its economy away from oil and gas, placing greater emphasis on revitalising its solid resource sector owing to the sharp decline in oil and gas prices in past year.

Nigerian President Muhammadu Buhari announced in October that the country’s 2016 Budget would include new policies and regulations to stimulate the rapid diversification of the economy away from its current overdependence on the oil and gas sector.

In November, Nigerian Export-Import Bank (Nexim) MD Robert Ungwaga Orya welcomed a team from the World Bank, led by Igualada and former Solid Minerals Development Fund of Nigeria (SMDF) chairperson Utsu Linus Adie, who shared ideas on how to provide structured intervention for the revamping and deepening of Nigeria’s mining sector.

Orya pointed out that the country was endowed with significant solid mineral deposits, with about 34 products identified in commercial quantities in different parts of Nigeria.

However, he acknowledged that the failure of the country, since independence in 1960, to put in place a structure that would result in all Nigerians benefiting from mineral exploitation had been “the bane of the country”.

Babem attributes the overall poor growth in mining in Nigeria to several factors.

The informal sector, comprising artisanal and illegal miners, constitutes a significant percentage of activities in this sector; this group of miners and their activities are not properly captured for reporting purposes, he states.

Further, infrastructure, such as railways and goods roads, is inadequate. The railways and rail system, operated by State-owned Nigerian Railway Corporation, are poorly funded and maintained, Babem explains, making it difficult to transport solid minerals and, subsequently, contributing to low investment in the mining sector.

He notes, however, that efforts are under way to increase railway infrastructure.

The lack of investment in the mining industry by local and foreign investors has stymied its growth, he contends. For example, the solid minerals mining sector was not listed as a beneficiary of foreign direct investment (FDI) in Nigeria from the 2007 to 2014 financial years.

“These statistics may indicate that no FDI was indeed received in this sector or the amount received was very insignificant,” Babem comments.

Mining Stimulus Initiatives

However, he points out that, in recent years, a number of government initiatives have been launched to accelerate development in the mining sector. The most important of these – the creation of a government Ministry – focuses on the development of solid minerals and the enactment of the Nigerian Minerals and Mining Act, as well as other subsidiary legislation.

Unfortunately, these initiatives have not achieved the desired objectives, owing to a myriad of issues, such the absence of reliable and comprehensive geological maps, infrastructure deficits, illegal miners and the lack of project funding, Babem concedes.

Orya, during the visit by the World Bank delegation, also stated that, despite Nigeria’s “huge potential”, the sector was still “grossly underdeveloped” and dominated by artisanal and informal miners using crude machinery and equipment.

However, he pointed out that, since Nexim’s inception in 1991, it had been contributing to Nigeria’s mining sector by providing project financing amounting to 7.17-billion naira.

Orya said the mining industry had created more than 4 300 direct jobs and many indirect jobs, in addition to facilitating foreign exchange inflow of $80 142 a year.

Besides providing assistance for Nigerian miners through direct funding, Nexim supported the Miners Association’s relocation from its inaccessible office in Jos, Plateau State, to the Bank’s headquarters in Abuja in 2013 by providing free office space and facilities for the association, he pointed out.

Igualada recommended that the World Bank’s public–private partnership initiative be adopted by Nigeria to ensure the development of its solid minerals sector.

He further suggested the revamping of efforts and linking of interventions to develop the mining sector through such initiatives as the SMDF, in addition to renewed involvement by government in developing Nigeria’s mining sector.

“I will seek the commitment of my office on the development of the mining sector and collabora- tion with Nexim, particularly regarding workshop participation and capacity training,” Igualada affirmed.

Unlocking Value

Nigerian business and ethical networking platform and consultancy for sustainability CSR-in-Action, the Nigerian Extractive Industries Transparency Initiative and advisory firm PwC will co-chair a working group to assist Nigeria in sustainably unlocking about $100-billion a year from its natural resources sector.

The Nigerian Ministry of Solid Minerals has also pledged to support the activities of the group. This was resolved during the fourth Sustainability in the Extractive Industries conference, themed Unlocking the Hidden Potential in the Extractive Industries, which was held in November in Abuja.

Key stakeholders came together to discuss the “boundless”, yet untapped, potential that evidently lies in these industries, particularly in terms of the country’s abundance of mineral resources, and proffer actionable solutions.

The resulting communique, read out to all stakeholders at the end of the conference, highlighted major issues as itemised by panellists and delegates. It noted that Nigeria had the capacity to foster growth in the mining sector, as it had more than 20 000 geologists. It also highlighted that there was “real interest” from the private sector and foreign investors to develop the industry. However, the communique also pointed out that “so little has been done so far”.

Babem also opined that, to accelerate the development of the Nigerian mining industry, government should consider replicating the administrative and contracting models adopted in the Nigerian oil and gas industry.

He recommends that a strong inter-Ministry linkage, between the Ministry of Solid Minerals and other government Ministries, be established to facilitate forward and backward integration for the use of solid minerals.

“A very good example would be encouraging contractors building roads and rail to also invest in the extraction and processing of available bitumen resources for their use. Some fiscal incentives can be provided to contractors to encourage such investments,” Babem states.

South African Example

Orya indicated that Nigeria “could and should” make the exploitation of solid minerals the mainstay of the economy. He questioned the country’s earning such “paltry” revenue and dividends, despite having large solid mineral reserves, while the mining industry remained a cornerstone of the economy in South Africa.

He noted that mining in Africa’s second-largest economy contributed significantly to economic activity, accounting for about 18% of GDP (8.6% direct and 10% indirect and induced), job creation (500 000 direct and 500 000 indirect jobs) and foreign exchange earnings (contributing more than 50% of all foreign exchange earnings in South Africa).

Igualada added that structured consolidation of efforts towards developing the sector should focus on building the right capacity at the human and institutional level, as well as establishing and enforcing the requisite legal and policy frameworks.

He concluded that Nigeria should learn from South Africa by ensuring that institutions, skilled mining professionals, infrastructure and enabling legislation were developed to unlock the country’s mining potential.

Edited by Creamer Media Reporter

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