The Nigerian government is targeting $5bn in mining investments over the next 10 years under a new industry roadmap, as part of a broader drive to diversify revenue sources away from non-oil sectors.
In August Kayode Fayemi, the minister of mines and steel development, unveiled a new strategic plan for the sector that targets expanding mining’s contribution to GDP to approximately 7% over the next decade, from under 0.3% last year, with Fayemi predicting that the sector could be worth $27bn by 2025.
Towards increased investment
To help achieve these targets, the Ministry of Mines and Steel Development (MMSD), formerly the Ministry of Solid Minerals, is recommitting to investment incentives, rolling out regulatory changes and increasing access to financing.
The recently unveiled roadmap maintains the three-year tax holiday, as well as exemptions on import duties for mining equipment – incentives first implemented under the previous administration, but re-authorised in the new roadmap. Fayemi stated that the government would continue to allow 100% foreign ownership in the sector, according to international media reports.
The roadmap also stipulates the creation of a new independent regulatory agency, which will assume the collective roles of the existing regulatory bodies in the sector, including the Inspectorate, Environmental Compliance and the Artisans and Small Scale units of the ministry, according to Fayemi. This in turn will allow the MMSD to focus on facilitating investment and development.
“What distinguishes this roadmap, which builds on the old roadmap that was approved by the council in 2012, is its determination to set up an independent regulatory agency, which investors have been insisting on that the ministry, which has been serving as facilitator, should also not be the one that regulate them,’’ he told media.
Plans are also under way to make more funds available for investors, with the Federal Executive Council approving a N30m ($98,522) mining intervention fund in mid-October. In addition, the partly state-owned Bank of Industry has pledged to increase financing in the sector, according to press reports.
In October media also reported that Fayemi was negotiating a $500m investment fund with the Nigerian Sovereign Wealth Fund to further support the objectives laid out in the new roadmap.
Strengthening local ties
The roadmap also aims to increase cooperation between investors and local communities, as well between federal and state government.
Currently, mining companies in Nigeria are required to have a community development programme, as well as local consent in order to obtain a mining license, in part to ensure local communities benefit from nearby mining operations. The roadmap further focuses on working with communities to encourage financial participation and develop educational opportunities as part of the plan’s short- and long-term goals.
A newly announced directive that awards state governments 13% derivation from mining revenue is also expected to improve relations with local communities and deepen the federal ministry’s partnership with state governments.
This is in line with Fayemi’s announcement to the National Council on Finance and Economic Development that the federal government should offer incentives for state cooperation by enabling a greater degree of financial participation and revenue sharing.
“We will work equally with states to find commercial means for them to co-invest alongside private companies to bring mining assets to the market faster and more profitably,” he said.
The MMSD is also setting up a Council of Mining and Mineral Resources, a quarterly forum to promote collaboration at the state and federal level. The council plans to open zone offices of the Mining Cadastral Office – the single body responsible for all mineral titles – to ensure that operations are closer to the state.
Diversifying revenue sources
Despite growth potential, the mining sector has remained largely undeveloped since the discovery of oil in the 1950s, due in part to a focus on hydrocarbon wealth, but also to a number of sector challenges, with international firms wary of cost-intensive prospecting and local companies finding it difficult to access financing, as well as the equipment and technical know-how needed for exploration.
Nigeria – which derives about 13% of its GDP from crude oil production – has been affected by sustained low global oil prices, with the IMF forecasting a 1.8% economic contraction for 2016, the first full-year decline since 1991, resulting in a push to diversify revenue sources.
To this end, Nigeria is looking to expand the base of its mining sector on the back of new finds, such as the nickel deposit in Kaduna State, which the government predicts could create $400bn in revenue. MMSD estimates that there are 44 different types of minerals identified in 500 locations across the country. Limestone reserves in the south-west are about 31m tonnes while iron ore reserves are estimated at just over 880m tonnes.
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