Nigeria struggles with perception issues in mining investment

*Mining.

*Mining.

…Misses out in Fraser’s list of mining nations

Oscarline Onwuemenyi

10 April 2016, Sweetcrude, Abuja – Nigeria still remains a challenging place to do business based on data from the World Bank’s surveys over the past decade; while the country has recorded improvements in some areas since the return of democracy, a lot still needs to be done in an essential sector including mining, which in the past used to be the main source of the nation’s revenue.

Decades of neglect and half-hearted policies have really had a negative impact on Nigeria’s mining sector to the point that it presently occupies a fringe place in national economic considerations. Mining specific data such as the Fraser Institute survey puts Nigeria near the bottom of investor friendly destinations, and even if that is mere perception than reality, it shapes investor decision-making process. For Nigeria, the continued presence of these issues will hold back market development.

Analysts have contended that an established and well managed solid minerals industry is a path for economic and social growth of Nigeria. They insist the sector has potentials of providing employment and improving national income earnings far exceeding the petroleum sector if well managed.

Before now, the earnings from solid minerals was used to develop roads, education, hospitals and in fact develop the petroleum industry. The decline of the solid minerals industry started with the discovery of oil to an extent that Nigeria became a mono-product economy and vulnerable to international oil politics. The domineering role of oil did not allow past governments to attend to global challenges that evolved in the development of the solid minerals sector, thereby leaving the sector virtually in the dust.

Missing in mining ‘report card’

At a recent event, the Minister of Solid Minerals Development, Dr. Kayode Fayemi has cause to agonize about the fact that Nigeria was missing from the latest Fraser Institute’s report on the global mining industry. He lamented that the country may likely suffer more from the perception or lack thereof as a viable mining destination. According to the minister, the perception has been the reality for too long in the country.

The Fraser Institute’s 2015 annual survey of mining and exploration companies, which is described as “a report card” to governments on the attractiveness of their mining sector shows the result of the survey that attempts to assess how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment. The survey was circulated electronically to over 3,800 individuals between September 15th and November 27th, 2015. Survey responses have been tallied to rank provinces, states, and countries according to the extent that public policy factors encourage or discourage investment.

An overall Investment Attractiveness Index (IAI) is constructed by combining the Best Practices Mineral Potential index, which rates regions based on their geologic attractiveness, and the Policy Perception Index (PPI), a composite index that measures the effects of government policy on attitudes toward exploration investment. While it is useful to measure the attractiveness of a jurisdiction based on policy factors such as onerous regulations, taxation levels, the quality of infrastructure, and the other policy related questions that respondents answered, the Policy Perception Index alone does not recognize the fact that investment decisions are often sizably based on the pure mineral potential of a jurisdiction. Indeed, respondents consistently indicate that roughly only 40 percent of their investment decision is determined by policy factors.

The top jurisdiction in the world for investment based on the Investment Attractiveness Index is Western Australia, which moved up to first from fourth in 2014. Saskatchewan remained in second place this year. Nevada dropped to third after Western Australia displaced it as the most attractive jurisdiction in the world. Ireland moved up 10 spots into fourth place. Rounding out the top ten are Finland, Alaska, Northern Territory, Quebec, Utah, and South Australia.
When considering both policy and mineral potential in the Investment Attractiveness Index, the Argentinian province of La Rioja ranks as the least attractive jurisdiction in the world for investment. La Rioja replaced Venezuela as the least attractive jurisdiction in the world. The complete list of bottom 10 jurisdictions (beginning with the worst) is La Rioja, Venezuela, Honduras, Greece, Solomon Islands, Chubut, Guinea (Conakry), Kenya, Mendoza, and the Rio Negro.

While geologic and economic considerations are important factors in mineral exploration, a region’s policy climate is also an important investment consideration. The Policy Perception Index (PPI), is a composite index that measures the overall policy attractiveness of the 109 jurisdictions in the survey. The index is composed of survey responses to policy factors that affect investment decisions. Policy factors examined include uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labor regulations, quality of the geological database, security, and labor and skills availability.

For the third year in a row, Ireland had the highest PPI score of 100. Wyoming, in second place, followed Ireland; it moved up from 9th place the previous year. Along with Ireland and Wyoming, the top 10 ranked jurisdictions are Sweden, Saskatchewan, Finland, Nevada, Alberta, Western Australia, New Brunswick, and Portugal

Morocco took the top spot among 20 African countries that were surveyed in the Fraser Institute’s annual survey of global mining companies in 2015 on the attractiveness index scale. Morocco was placed in 24th position, followed by Burkina Faso in 29th place and Ghana in 31st. Western Australia took top position. The Investment Attractiveness Index takes both mineral and policy perception into consideration.

Of the 20 African countries included in the survey, South Africa scored 11th on the investment attractiveness index. Globally, it ranked 66th out of 109 surveyed companies. South Africa was ranked 74th in the previous year. Kenya and Guinea (Conakry) were the only two African jurisdictions in the global bottom 10 based on their overall investment attractiveness. Zimbabwe just missed being in the bottom 10 this year, after placing there in the previous four years.

Generally, the median score for Africa on policy factors (PPI) – an assessment of the attractiveness of mining policies – improved slightly this year. This was also the case for the region’s median investment attractiveness score. However, on both measures, Africa has not been able to return to the previous high scores it achieved in 2011.

Despite that, in terms of overall investment attractiveness, as a region, Africa now ranks ahead of Oceania, Asia, Latin America and the Caribbean, and Argentina. Two African countries—Zimbabwe (106th) and Niger (103rd),—ranked in the bottom 10 of the survey rankings this year based on policy. Zimbabwe was also amongst the bottom 10 in the previous five years.

Botswana is again the highest ranked jurisdiction in Africa on policy factors, ranking 14th of 109 in 2015, the same as it did in 2014, even though the jurisdiction’s PPI declined slightly this year. Botswana’s slightly lower score on the PPI reflects increased concerns over trade barriers (-19 points), the geological database (-15 points), and the availability of labor and skills (-7 points).

Botswana also experienced a number of improvements which helped mitigate the above-mentioned declines.

Three African jurisdictions—Guinea (Conakry), Niger, and Zambia—each saw declines in their PPI scores of over 10 points.

Niger’s decline pushed the country into the bottom 10 this year. Niger saw the largest decline in Africa in PPI score (-20 points); it moved down to 103rd of 109 in 2015 from 92nd of 122 in 2014, in part due to increased uncertainty in the ratings for regulatory duplication and inconsistencies and labor regulations (both -21 points) and the taxation regime (-16 points), among other large declines.

Guinea (Conakry)’s PPI and ranking also declined in 2015. This reflects declining perceptions of labour regulations (-20 points), uncertainty concerning protected areas (-17 points), and regulatory duplication and inconsistencies (-10 points).

The 10 least attractive jurisdictions for investment based on the PPI rankings are (starting with the worst) Venezuela, Myanmar, La Rioja, Zimbabwe, Chubut, Neuquen, Niger, Kyrgyzstan, Rio Negro, and Honduras. Kyrgyzstan, Zimbabwe, and Venezuela were all in the bottom 10 jurisdictions last year. Four out of the 10 lowest rated jurisdictions based on policy were Argentinian provinces. Displaced from the bottom 10 in 2015 were Philippines, Bolivia, Ecuador, Mendoza, and Mongolia.

Fayemi sees it as his duty to bring about a sharp turn in the craft of the sector, reverse the stagnation and, finally, put the sector on a safe, sustainable and profitable trajectory.
Speaking recently at a briefing in Abuja, the Minister expressed dismay that the sector, despite its immense potentials, was operating at below capacity and with sub-standard mining techniques and processes that must be upgraded in order to reduce the incidence of mining site waste, and boost productivity and output.

He said, “In all my years in politics and the professions, not many issues have had a sobering effect on me as what I have seen for myself and learnt since I resumed this assignment (as the minister). For example, it is a collective shame for us that such a massive project as the Ajaokuta Steel Plant can be allowed to remain moribund in spite of our sovereign resources that have been invested and its immense potentials.”

According to him, “It is no news that Nigeria has tremendous mining endowments. Today we have at least 44 known mineral assets that include precious minerals, base metals, bulk minerals and what are known as rare earth minerals. More specifically, our more promising mineral assets include gold, iron ore, barite, lead, zinc, tin, and coal.”

He added, however, that based on current data, Nigeria’s solid minerals sector makes up about 0.34 percent of gross domestic product (GDP). “That means that based on current official rates, the mining sector contributes N400 billion in value to the economy. While that is a significant role, it is smaller than its true potential as the vast majority of our mining assets have yet to be exploited.

“In fact, what has been happening is the sector has more or less been operating sharply below capacity, with many mining operations manned by small-scale artisanal miners as opposed to large-scale players.”

According to Fayemi, Nigeria “must resolve these set of issues as they impact how we choose to compete in the market. While external markets create opportunities we can exploit, improve ease of doing business or reducing transport costs will enable us to attack market opportunities as a lower cost competitor for example. Indeed, the global mining party is ours to attend, but we must dress appropriately and come with a competitive edge. My team and I will be spending more time on building collaborative links with other key ministries to enable us to build a cost-competitive industry.”

The Minister identified limited infrastructure, insufficient geological data, weak institutional capacity, insufficient funding, illegal artisanal mining and limited cooperative federalism as key internal challenges being faced by the sector. Other mining stakeholders who corroborated Fayemi’s claims also identified weak mining laws which they say to a large degree still restricts private sector involvement.

Dr. Fayemi noted that based on the presidential promise by President Muhammadu Buhari to build a more diversified economy, the task of the Ministry of Solid Minerals Development will be to remove any and all obstacles to such growth. For the minister, getting the nation’s solid minerals sector back on track is already work in progress. As such, he highlighted some short term actions which the ministry will begin to embark upon.

“Nigeria not yet a mining nation”

The President of the Nigerian Mining and Geosciences Society (NMGS), Prof. Gbenga Okunola asserted during a recent mining conference that the country was not yet in the cadre of what would be regarded as mining countries. He said, “Nigeria is not yet a mining country. It is, however, a potentially huge mining destination with the sector still in its formative form.”

According to Okunola, the prospects for the solid minerals sector are huge and attractive. “If one considers the fact that the percentage of exploration expenditure in the West African region ranges from 5-7 percent, the role of Nigeria within this regional context is far below 0.5 percent. From a historical perspective, the exploitation of some of the minerals occurring in Nigeria contributed over 12 percent to the nation’s GDP between 1965-1975.

The NMGS leader notes that despite the current seeming moribund situation, Nigeria has founded over 40 companies involved in mining which can be brought back into production depending on the right market and pricing conditions to justify their viability. The opportunities for the industry are huge. Globally, the recent growth in the mining sector has been unprecedented and has been largely driven by China.

The same pattern, Okunola notes, is beginning to occur in other emerging and fast developing nations. “There is no doubt that all countries have gone or will go through a metal intensive stage in their economic development at an increasing rate of transition than experienced in the past,” he said.

Growth in exploration and mining interest in West Africa, in particular, has been encouraged by the depletion of easily accessible mineral deposits in Western Europe and the United States. Between 2015 and 2020, many new mines are scheduled to commence production in Liberia, Guinea, Sierra Leone and Mauritania. These mines are targeting a combined output of 600 metric tons a year.

Experts believe that as populous countries like China and India go through their development phase, the effects of mineral and metal demands is drastic. New mines will be needed and will be particularly located in remote developing countries. In recent years, huge investments have been made in Africa and these are likely to escalate in the next ten years. Several notable companies have recently started operations in Africa countries such as Guinea (Rio Tinto, Sumadion project, Sable Mining), Liberia (BHP Billiton, Garmu Mine), Mauritania (Glencore Xstraila, Zanoga, and Guelb El Aony projects), Sierra Leone (Lowdon Mining, Marianga mine).

Okunola believes the opportunities for investments in the solid minerals sector in Nigeria are enormous bearing in mind the expansive areas of unexplored mineral potential. “Glaring realities show that less than 25 percent of the 900,000 plus square kilometers of Nigeria has mapped on the minimally acceptable scale of 1:100,000 since 1909. It is to be noted that despite the slow pace with largely haphazard and old methods, still over 44 major mineral types of equal if not more tonnage then coal and tin are known, with not less than 10 of them being of world class status,” he notes.

He explained that the opportunities accruable to the nation in minerals such as coal, which covers a distance of over 800 kilometers traversing 16 states may actually be a flagship of Nigeria’s industrial drive. “This have been largely explored since the 1970’s using acceptable exploration standards. Even the iron ore which has the potential of at least 5 billion tons have not been fully systematically explored and exploited. The bitumen potential is huge and its exploration has only been scratched the surface. The truth is that despite the seeming progress in carbonate exploitation, less than half of the occurrences have been mapped and discovered.”

In time past before the neglect, over two million workers were employed across Nigeria’s mining sector value chain, with the nation’s industrial development being greatly enhanced by the mining sector namely from coal, tin, and iron. The exploitation of coal resources led to the establishment of rail infrastructure, specifically to transport mined coal from Enugu to Port Harcourt seaport and a power plant in Oji River. Tin ore mining and processing led to the establishment of the largest smelter in Africa (Makeri Smelter) and a power plant in Jos (NESCO plant). Discovery of iron ore led to the establishment of an Integrated Steel Complex with a total and expandable capacity of 5.7 million tons of liquid steel notably the Aladja Delta Steel Plant with a capacity of 2 million tons of steel products and 3 mills in Osogbo, Jos, and Katsina.

The value addition potential of the mining industry can be seen from the presently dysfunctional Makeri Smelter, which, while operational over four decades ago, had the capacity to produces 1000 metric tons of ore annually and employed over 2000 workers. Indeed, there exist opportunities for mineral beneficiation in the Nigeria now, to provide feedstock for intra-sector industrialisation and high-skilled employment. The country has abundant energy fuels which would otherwise serve as an entry point to many beneficiation processes including coal, lignite, iron ore, clay, among others.

Locally, more than 600 companies in Nigeria will consume mineral raw material exploited in the country to the tune of 20.7 million tons a year even at 50 percent operation capacity. This is a huge opportunity for the sector in Nigeria. Opportunities will also abound in the forging of strategic alliances with the power sector for the actualization of government policy using coal to generate electricity about 1,000 MW by 2020.

Furthermore, there is potential for upstream value addition by utilizing the large regional resource sector to develop the supply of capital goods in terms of equipment and consumables to serve exploration, mining and processing activities.

The Nigerian Mining Sector regulatory framework is strong enough and of first class. There is the availability of reserve base to drive the economy as enumerated earlier. The cement story is well documented. The abundant limestone of over 5 billion tons reserve has helped Nigeria production to reach almost 115 billion tons almost largely meeting local demands. Nigeria cement production may reach well over 30 MT per annum by 2018 which will be more than enough and excess for export. Nigeria clay/claystone/shale deposits can easily in combination with carbonates, feldspar and silica are capable of meeting local demands for ceramic tiles, table wares, and claddings.

Iron ore, base metals, gold, tantalite-niobium will account for 84% of total future global c project pipeline. They also dominate the mining business in terms of total value of output put cumulatively valued at US$606 billion or 71% of the total value of all non-fuel mineral production during 2011-2016. Nigeria Iron ore deposits, especially the Lokoja-Okenne axis (LOK axis), the pegmatite and an orogenic belt hosted rare metals are veritable strengths.
Nigeria is also well placed geographically to reach regional, European and Asian markets for the supply of both raw materials resources of many of the largest minerals as well as value added products derived from them.

With a population of over 160 million in a lower-middle-income category, Nigeria has a ready pool of labour from whom a mining workforce can be drawn.

Poor infrastructure base

There are no doubts that there are weaknesses especially the poor infrastructure base compared to other fast-growing emerging countries. According to international benchmarks, more developed countries typically have a “core infrastructure” stock (roads, rails, airports, power, water, ICT) accounting for at least half of the total volume. Nigeria’s core infrastructure stock is estimated at only 35–40% GDP. When considering the Mining Sector, the largest investment needs are energy, transport, and water which represent more than 50% of required investment over the 30 years’ period. According to the National Infrastructure Master Plan (NIMP, 2013), infrastructure deficiency restricts the growth of solid mineral development and discourages investors due to the requirement to commit to major expenditure on the deficiency. Power shortage is endemic and the current gap between peak demand and production is over 9,300MW.

Also, lack of adequate and reliable data for investment purposes will discourage investor interest. The combination of limited geological, geophysical and dearth of explosion fund has resulted in low or even negligible private sector interest an investment in the sector.

The current level of technology in the mining sector is very low as compared with what was obtained in the past when Nigeria mining sector was supported by the necessary technology which led to the establishment of underground coal mines in Enugu and huge tin and lead mines in Jos and Bauchi province. The current level of technology will require updating for the mining sector to develop.

Since mining in Nigeria has been dysfunctional for nearly four decades, there is a dearth of human capital and skills in key areas of the sector. The loss over the years, of recognized mining industry, means there is a very low level of experienced skills base upon which to build, leading to huge investments.

Policy changes by the government are a major risk to the development of solid minerals sector. Lack of decisive political will lead to a decoupling of high-level pronouncements with positive action and further serves to undermine the investor confidence.

Access to capital (credit) is probably the most widespread constraint experienced by the Nigerian investor. Due to long periods of inactivity and slow progress in implementing the government’s reform agenda in the mining sector, multi-national companies have been reluctant to fund projects in the country due to absence of reliable geoscience data, the Nigerian Mining Companies find it extremely difficult to access finance from the formal money markets in Nigeria to engage in meaningful commercial mining thus they engage in artisanal mining with low production volumes, sterilization of mining sites, land degradation, uncoordinated and inefficient mining methods with its inherent threats to workers safety.

Furthermore, despite the resources and the opportunities in the sub-sector, solid mineral sector is one of the sectors with the lowest output in the Nigerian Economy. Solid minerals production in normal terms stood at N52.42 billion in 2011. The sector contribution to the real GDP in 2011 rose minimally to 0.36% from 0.34% in 2010. This is compared to Ghana 6.16%, Mali 8%, Guinea 20%, Niger 3%, Senegal 20%, Mauritania 24%.

West Africa has recently become a popular destination for mining companies which are looking for favorable geological and mineralogical environment. As a consequence, most countries in the region are in competition for the investment that the region attracts. West Africa region attracted in 2012 around 17% of whole global exploration investment and in 2014 only 5%, Nigeria has a very negligible percentage of less than 0.25%.

Having considered the strength, weaknesses, opportunities, and threats, what are the immediate, medium, and long-term actions to develop this sector? Okunola suggests that government should be involved in all key roles but in different capacities. The correct mix of intervention and participation is required. Without sounding like a broken record, the public institution for data generation must be strengthened in terms of funding, logistics and capacity development

According to him, “Government needs to have a clear strategy and thus, an appropriate strategy for each of the mineral types. Taking a cue from oil and gas, Government is not configured to run a business like the private sector, thus, Government can invest in the sector but need to have a minimal role in the operation like it did with the NLNG.”

He adds that there is a need to re-organize the artisanal miners to make them efficient and regulated. Other steps should be taken to prepare the private sectors to attract investments – this should involve identifying and prioritize high-quality ore bodies for development, and support for enhancing exploration programme through grants, incentives, and joint initiatives.

“The ministry must plan, intensity road shows, meeting with mining investors and continuous media engagement. Restarting identified and prioritize abandoned potential mines with the correct manpower skills and resources; open industry to mining experts, professionals and consultants; intensify skill capacity development, and increase attractiveness by positioning Nigeria attractively through relevant and enticing incentives, these include financial, policy, human resources,” he adds.

As the nation grapples with falling oil prices and the high cost of importation occasioned by the foreign exchange rate, there is no better time for the nation to leverage on the potentials inherent in the solid minerals sector. Also, the admission by the Senate President recently that heavy dependence on oil earnings is not only a financial risk but a strategic challenge for social stability, it is hoped that the Muhammadu Buhari-led administration will bring to fruition the resuscitation of the nation’s solid minerals industry.

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