Nigeria is no doubt very rich in mineral resources, which have been largely untapped because of barriers to investment. While the federal government believes it is on course to transform the country into a mining destination, Kingsley Nwezeh looks at suggestions by the Nigeria Extractive Industry Transparency Initiative (NEITI), in its latest report, on ways to improve the sector
Beyond oil and gas for which Nigeria is highly ranked and known for globally, huge deposits of solid minerals abound in the country such that there is hardly any state without the resource, sufficient to power the economy, if fully exploited.
Owing to lack of attention by successive administrations to reactivate the sector and the full concentration on oil and gas, the mining sector, with a huge capacity to contribute to gross domestic product (GDP) has suffered untold neglect.
Minerals in Commercial Quantities
Officially, there are 44 different minerals found in commercial quantities in 450 locations across the country. They include gold, iron ore, tin, gemstones, columbite, topaz, limestone, uranium, laterite, gypsum and kaoline among others.
The Extractive Industry Transparency Initiative (NEITI) in its latest report, “Improving Transparency and Governance for Value Optimisation in Nigeria’s Mining Sector”, outlines three categories of minerals resources to include high value commodities like gold, bulk commodities like iron ore and tin and gemstones.
“These minerals can also be grouped into categories depending on their usage: precious stones, metallic minerals, energy minerals, industrial minerals and construction minerals,” it said.
A Rich History of Mining
Before the discovery of oil and the consequent decline in mining, Nigeria was a hub of mining activities, dating back to 1902 with the first mining of tin ore by the Royal Niger Company in 1905. Gold was mined subsequently in the present Kogi and Niger States in 1914 and coal in present day Enugu State in 1916.
Mining contributed to the development of a functional railway industry helping to transport mined coal from Enugu to the seaport in Port Harcourt and to a power plant in Oji River.
“With tin ore mining and processing came the establishment of the largest smelter in Africa (Makeri smelter in 1961) as well as a power plant in Jos. Finally, the establishment of industrial complexes and behemoths (at the time) of manufacturing came with iron ore, including the Ajaokuta Steel Mill, with the capacity to produce 5.7 million tonnes of liquid steel; Delta Steel plant with a capacity of 2 million tonnes of steel products; and three inland mills in Osogbo, Jos and Katsina,” the report added.
Low Policy Perception Index
After several decades of inactivity, recent efforts have been put in place to revive the sector which is still grappling with low policy perception index, a function of poor attention accorded the sector by government. The NEITI report identifies this snag as the reason for the absence of mining majors and minor and why Nigeria is still not a mining destination but is considered a global haven for 54 unexploited mineral resources strewn across 22 states of Nigeria.
‘’Given the review of Nigeria’s extensive and comprehensive mining regulations, it is obvious that the country boasts of a regulatory framework that can measure up to some of the best in the world. However, it is obvious that efforts to give Nigeria a world-class regulatory architecture have not produced the kind of investor interest and patronage that was intended.
‘’It is very probable though that with increased investor awareness of the continuous reforms to fine-tune the process and address the gaps, investors will come around to the emerging reality and begin to take advantage of the huge potential presented by the Nigerian mining industry.
‘’This potential is reflected in the globally referenced Fraser Institute annual survey of mining companies 2014, which also compared Nigeria with other known global mining destinations such as Chile, Australia, United States of America (USA) and South Africa.
The indices used by the institute are in relation to corporate tax, the royalty payment regime, financial incentives, lease duration, customs duty and ownership requirements,” the report said.
The report further noted that, “Nigeria’s corporate income tax rate of between 20-30 per cent compares favourably with those of South Africa, Chile and Australia, and is much lower than that of the United States of America at 40 per cent. The royalty regime of 3-5 per cent for metals, gold, copper, iron ore and energy mineral coal, also compares favourably with these countries and is much lower than the USA’s regime of 4-10 per cent.
“The tax holiday incentive of an initial period of three years from the commencement of operations is very attractive by global standards, especially for a green and brown field exploration and mining destination”.
While Nigeria’s efforts at attracting mining investors with the introduction of the ease of doing business policy initiative, three years tax holiday among other incentives, the sector remained largely unexploited.
“The government policy of exemption from customs and import duties for mining equipment is also a major incentive, as obtains in South Africa and the USA. This is unlike Chile and Australia that collect 6 per cent and 5 per cent respectively and in some cases, still collects additional import processing charges.
“Perhaps only Chile, which allows for an indefinite leasehold duration on mining leases, could be said to be more attractive in comparison to Nigeria’s 25 years lease period. In terms of ownership and foreign participation, foreign companies are encouraged to incorporate local subsidiaries, compared to these other destinations with varying percentages of permissible foreign acquisition. While South Africa allows for a maximum of 26 per cent ownership, in Australia this is limited to only 15 per cent.