The economy in Nigeria has been growing slowly since the oil price slump of 2014. Since then, volatility of global oil prices has negatively impacted growth performance.
Between 2000 and 2014, GDP grew at an average of 7% annually. However, after the oil price slump in 2014 – 2016, alongside negative production shocks, the GDP growth rate fell to 2.7% in 2015. The country went into its first recession in 25 years in 2016 and saw the economy contract by 1.6%.
Like the rest of the world, Nigeria was hit by the COVID-19 pandemic. Nigeria recorded its first case on the 27February 2020. Since then, the different sectors of economy have felt the adverse effects of the pandemic.
As a result of the pandemic, the economy is expected to contract sharply this year. This is primarily driven by the decline in oil prices, oil production cuts and supply chain disruptions. The pandemic containment measures put forward by the government have cut domestic demand drastically.
The case for diversification has intensified as a result of the COVID-19 induced oil price slump earlier in the year. The price of Bonny light, Nigeria’s oil blend, has been highly unstable and dropped to US$21 per barrel in March.
This unexpected shock has made the economy vulnerable and forced the Nigerian government to revisit its budget and revise its benchmark oil price for 2020 from $57 to $25 per barrel. Furthermore, the oil production curve continues to slope downward below the 2 mbpd average target which was set by the government.
Economic activity has also slowed down. This is as a result of declining net exports due to the disruption of global and domestic supply chains, border closure to nonessential trade, limited markets for exports due to fall in global demand and the devaluation of the Naira which has made it more expensive to import foreign goods.
Brief overview of the mining sector
The current administration has made active attempts to diversify the Nigerian economy away from crude oil. One such attempt is prioritising the mining and agricultural sector by creating incentives for investment.
The approval of the Medium-Term Expenditure Framework and the Fiscal Strategy Paper places emphasis on the importance of solid minerals in catalysing the economic growth strategy in the country.
The mining sector is a critical backbone of the industrialised value chain, being an essential source of input materials for significant sectors, such as construction, automobiles, electronics, shipbuilding, etc. Like oil and gas, Nigeria is well endowed with metallic minerals, but it has not exploited its potential for industrial development due to poor infrastructure for extracting, processing and transporting exploited minerals.
The weak value chain in the sector is evident as steel processing operations depend on imported raw materials such as billets, semi-finished products, etc. valued at $618 million in 2018.
Following the creation of a Sector Roadmap and its objectives, the federal government of Nigeria obtained credit from the International Development Association (IDA) and The World bank to fund the Mineral Sector Support for Economic Diversification (MinDiver) project which is aimed at implementing the targets of the Sector Roadmap and revitalising the mining sector’s contribution to the economy.
The key focus of the MinDiver project includes:
- Establishing a strong foundation for mining sector development;
- Facilitating downstream sector development and enhance competitiveness; and
- Monitoring and coordinating project management activities.
Nigeria’s strategic minerals
In some African countries, certain minerals have been prioritised to drive the growth of the mining sector and the economy as a whole. For example, the Democratic Republic of Congo is focused on cobalt and witnessed a 100% annual increase in revenue generated from the mineral.
Nigeria has a diverse mining sector made up of high value commodities, with over 44 minerals deposited in over 500 locations across the 36 states including the Federal Capital Territory.
In 2015, the Federal Government, through the Ministry of Mines and Steel Development identified ‘Seven Strategic Minerals’ namely; coal, bitumen, limestone, iron ore, barites, gold and lead and zinc – for priority development in a bid to revive the mining sector, unlock its potential and diversify the economy away from crude oil.
These minerals are deposited across the country and have not been fully explored due to a myriad of factors.
The seven strategic minerals:
Limestone is an industrial mineral required to produce cement. Nigeria has large deposits of limestone in Gombe, Benue, Kogi, Sokoto Edo, Oyo, Ebonyi, Ogun and Cross River States.
The annual national demand for limestone is estimated to be around 27 Mt with companies like Dangote, BUA and Lafarge dominating the cement industry.
The operations of these companies alongside conducive policies have been beneficial in strengthening the value chain and increasing local production. Today Nigeria has moved from being net-importer of cement to a net-exporter, saving around $10 billion in foreign exchange in the past decade.
Coal, also called metallurgical coal, is used in the form of coke and serves as fuel in the conventional steel processing as it provides the heat energy needed to melt down the raw materials. It also acts as a reducing agent in the blast furnace.
Nigerian coals are generally non-coking hence; most of the cokes derived therefore are not directly utilisable in blast furnaces. Nigeria has a proven reserve of 639 million metric tonnes of coal.
There are several opportunities that this mineral proffers, particularly with the coal to power project which aims to create more sustainable energy sources for Nigerians.
Gold is one of the most valuable resources in Nigeria. It also accounts for an extensive amount of artisanal mining activities. Large deposits of gold have been found in the north-west and south-west of Nigeria and other parts of the country, mainly as a result of exploratory activities and activities of artisanal miners.
Thor Explorations’ Segilola gold project in Osun state is expected to be a game changer in the industry as the facility aims to mine and produce gold ore.
More recently, the Nigerian government has licensed gold refineries to produce the metal for export and for the Central Bank of Nigeria to become an off-taker, buying at international prices.
The Presidential Artisanal Gold Mining Initiative was recently flagged off by the Federal Government, working with the Solid Mineral Development Fund.
Iron ore is one of the critical minerals used to produce steel. There are over 3 Bt of iron ore found in Kogi, Enugu, Niger, Zamfara, and Kaduna States. Earlier in May, the Federal Government inaugurated the Ajaokuta Presidential Project Implementation Team.
The implementation team was commissioned to prepare and submit periodic work plans and develop concession contract terms towards reviving Ajaokuta Steel Company Limited.
Activities related to lead and zinc mining are ongoing in Nigeria. While some small-scale quantities of lead-zinc ores are exported in their crude form, no concrete steps have been taken to process the ore to metal.
In 2017, the Nigeria Extractive Industries Transparency Initiative (NEITI) reported that three of the 26 minerals exported accounted for 73.81% of total exports. The commodities are zinc ores and concentrate, lead ores and concentrate, and silica sands and quartz.
Barite is a mineral that occurs extensively in Nigeria. Its usage ranges from oil and gas exploration to other industrial uses. Recently, the Ministry of Mines and Steel Development announced support for local mining and production of barite as an import substitution for foreign sourced barite.
Nigeria has very large deposits of bitumen, however the mineral has been largely untapped, and bitumen is still imported to meet domestic demand and consumption.
The impact of COVID-19 on mining operations in Nigeria
COVID-19 led to draconian lockdown measures in countries around the world, including Nigeria. Reduced mining operations and lower demand led to the closure of mines worldwide.
The uncertainty that accompanied the pandemic has also led to the volatility of commodity prices in the sector. However, the price of gold surged as a result of the pandemic, as gold is largely seen as a reliable store of value.
This led to a surge in gold smuggling and illegal mining. For instance, in late April, the government arrested a number of illegal miners in Zamfara state which is known for artisanal mining activities related to gold mining.
According to the National Bureau of Statistics, mining and quarrying makes up 0.17% of employment in Nigeria. Artisanal and small-scale miners who make up about 85% of miners in Nigeria cannot continue with their regular activities as a result of the pandemic.
Thus, the disruption in mining activities has had a significant impact on the lives and livelihoods of miners in the country.
The mining sector in Nigeria has not been considered an essential service which has caused challenges for revenue generation. It has affected operators in some of following ways:
- Inter-state movement has restricted the movement of explosives; and
- The construction industry which depends on input minerals has been affected due to accessibility issues.
For artisanal and small-scale miners (ASM) who make up a significant portion of the mining workforce:
- Buyers face travel restrictions in purchasing mineral products;
- Subsistence and small-scale miners who work in the informal sector face unemployment with no savings or welfare benefit to fall back on; and
- As a survival mechanism, subsistence miners have switched to alternative sources of income such as farming and fishing as these are considered essential products.
In terms of regulators, the pandemic has led to:
- An interruption of field work such as ASM extension and formalisation services due to inter-state lockdown and social distancing practices;
- Inadequate technological infrastructure to retrieve ASM formalisation documents virtually from ASM miners
Legislation and regulatory framework in the mining sector
Exploitation and exploration of solid minerals are governed by the Nigerian Minerals and Mining Act 2008 (the Act), and the Nigerian Minerals and Mining Regulation 2011.
The Act vests control of all properties and minerals in Nigeria in the States and prohibits unauthorised exploitation or exploration of minerals. According to the Act, all lands in which minerals are found in commercial quantities shall from the commencement of the Act be acquired by the Federal Government in accordance with the Land Use Act.
Property in mineral resources shall pass from the government to the person who lawfully acquires a right over the exploration or mining of the mineral resources.
The Act also provides for the establishment of the Mining Cadastre Office (MCO) which is responsible for the administration of mineral titles and the maintenance of the cadastral registers, and empowers the Minister of Mines and Steel, by regulation, to determine areas eligible for the grant of an exploration or mining lease based on a competitive bidding process.
The Federal Ministry of Mines and Steel Development is the body which is responsible for prospecting licenses for both local and foreign investors to participate in the exploitation of the vast mineral resources in Nigeria.
The ministry executes its mandate through the Mines Inspectorate Department, Mines Environmental and Compliance Department, Mining Cadastre Office, the Artisanal, Small-scale Mining Department, and the Mineral Resources and Environmental Management Committees established in each state of the Federation.
It is clear that the mining sector can contribute immensely to the growth and development of the Nigerian economy. However, for these benefits to be seen, there are certain institutional, legislative and operational bottlenecks that need to be addressed to ensure the smooth operation of the key players in the sector.
The following recommendations offer guidance on how the government and key stakeholders in the mining industry can accelerate the growth of the sector.
- Block revenue leakages and align scarce human and financial resources to priority projects
- Align mining ecosystem with all stakeholders, that is government and private sector. Furthermore, the government should foster transparency and frequent engagement between relevant bodies to improve organisational efficiency and prevent waste of resource resulting from duplicity of roles.
- Initiate virtual mining council meetings to sustain collaboration with State governments.
- Support and upskill the Mineral Resources and Environmental Management Committee (MIREMCO) to provide real time on ground support for actualisation of FG initiatives.
- Engage in more active monitoring of mining activities to outlaw illegal levies on miners.
- The government should continue and intensify formalisation efforts of ASMs to increase employment and enhance the lives and livelihoods of mining communities.
- Improve the security of mines especially in remote communities.
- The mining sector should be considered an essential service to mitigate oil price shocks and support the economy.
- Identify minerals that are quick wins and leverage on the seven strategic minerals to catalyse the growth of the sector. Emphasis should be paid on the minerals of the future.
- Intensify local efforts on minerals that reflect strong global prices and are internationally competitive.
- Support of the local processing sector to reduce importation dependency and improve trade balance.
- Intensify data gathering across the value chain to drive evidence-based decision making and policy formulation.
- Promote the formalisation of artisanal miners.
- Strengthen local content efforts to spur domestic production, create employment and lower import dependence.
- Improve mining infrastructure requirements by promoting public private partnerships.
- Promote safe mining practices, health and sustainable mining operations to ensure mining communities and workers do not feel the adverse effects of mining practices. Mining operations should also consider the environment and should be carried out in a sustainable manner.
- Leverage on the Africa Continental Free Trade Area (AfCFTA) to strengthen regional integration, benefit from economies of scale, gain competitive advantage and expand market reach.
About the author
Habeeb Jaiyeola has been an associate director for PwC Nigeria for the last 14 years. Prior to that he fulfilled a managerial role for the company within the energy, oil and gas, power, utilities and mining divisions.