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BUSINESSDAY OUTLOOK 2012

Monday 23 January 2012

Mining in Nigeria: Long road from reality

While South Africa and smaller African countries have enjoyed significant contributions from the solid mineral sector, Nigeria has not. OBODO EJIRO examines the challenges facing the sector while pointing out what has been done and what is being done to make the sector more investment friendly.
taken to bring more transparency and reduce bureaucracy in the solid mineral sector through legislation. But this has not attracted the kind of external attention it was designed to attract. As of FY 11, over 4,000 exploration licenses had been granted to different companies, and about 50 international mining companies were already carrying out mining activities in Nigeria. More are expected in 2012 and there are indications that those already operating in Nigeria will increase their stakes. As indicated by the honorable minister of Mines and Steel Development, Arch. Musa Mohammed Sada, the first large goldmine (it is estimated to have a proven reserve of over 650 thousand ounces of gold) in Nigeria will be operational in Osun State in 2012. There are many more investment vehicles for investors who are ready to effectively engage the solid miniral sector in Nigeria. Nigerias bitumen reserve is estimated at over 42 billion tones the countrys Iron ore reserve which is over 3.6 billion tons is spread across five states. Various quantities and qualities of gold, cassiterite, tantalite, wolframeite, beryl, gemstone, kaolin, mica, barites, iron ore, copper ore, zinc ore, among others are available in Nigeria the daunting task is the inability of government to attract the right quantity of investment to drive the sector to become one of Nigerias cash cows. In 2012, the Ministry of Mines and Steel Developments Mineral Investment Promotion Unit will be fully operational. The unit was set up in late 2011 in response to the issue of making entry into the industry less cumbersome especially for foreign investors. When fully operational, the unit will offer both local and foreign investors the opportunity to have easy access to information, especially electronically. Traditionally, there are two problems with the solid mineral sector in Nigeria. The first is lack of exact information regarding availability of minerals. But that aspect is being taken care of through geophysical mapping (which has been conducted on over 46 percent of Nigeria). The second problem is directly linked with attracting investment into the sector and that is because investors have had to grapple with the uphill task of managing high cost of mining (occasioned by lack of infrastructure and bureaucracy). Solid mineral mining occupies a back stage in Nigeria and at best 2012 will be a year that the equation will be tilted slightly away from that position. Though the sector will not immediately become 100 percent functional and rise to be a major contributor to GDP in 2012 it willnontheless move in that direction. Indeed, data from the Ministry of Mines and Steel development indicate that extraction activities generated $135 million in 2009, as against $35 million in 2005. This is evidence that it could compete with the oil sector in no distant time. But the number of years will not be fewer that 5-10 years as even the minister of Mines and Steel Development has admitted that there is always a considerable lag between investment in solid mineral and returns to the economy.

SOLID MINERAL

y full year (FY 11), the National Bureau of Statistics estimated that Nigerias mining sector contributed less than 2.5 percent of Gross Domestic Product (GDP). A 2009 estimate put the contribution of the sector as low as 0.3 percent. This contrasts sharply with South Africa where mining contributed 19 percent of GDP and provided about 1 million jobs (500,000 jobs directly) in 2009. Nigeria has what it takes to be a solid mineral exporting colossus on the African continent. According to the governor of Zamfara State, Abdulaziz Abubakar Yari, a recent survey indicated that Zamfara has high quality mineral deposits worth $40 billion. And that is just one out of 36 states which make up Nigeria. Indeed, there is no state in Nigeria which does not wield one mineral resource and most of these resources are in commercial quantity. In 2012, efforts to build up Nigerias mining infrastructure and further attract foreign investors will take the center stage. The process of reform in the sector has assumed a drastic seriousness in the past few years; though growth in the sector has been slow. As infrastructure is a major problem of the solid miniral sector, in 2012 there will be effort to reduce infrastructural deficit (roads, railways and energy). Over $8 billion is planned to be invested in railroads alone. Four years ago, initial steps were

20:2020; from vision to mirage?

OBODO EJIRO

nlike in Judeo-Christian religion, when visions, are conceived in economies, there is need for effective econometric modeling and planning to determine the variables and necessary actions which will make the visions come true. The case of vision 2020 is that of a lofty vision which was not domiciled on the right sacrifice to make it come through. Our econometric simulations on the Nigerian economy reveal that if the current rate of growth of GDP and population is sustained in the next eight years, Nigerias GDP per capita will be a mere $2,384 by 2020. Sadly, this was the average GDP per capita of the top 20 economies (which Nigeria seeks desperately to be like) as at 1997. Our forecasts which are based on data provided by the World Bank also indicate that by 2020, if the

top economies are to maintain the average growth rate which they have exhibited in the last ten years, (that is if the developed economies can shake off the current economic doldrums) they will have average per capita income of about $60,525 by that time. If the status quo does not change in Nigeria, the country will remain far behind. The problem of Nigerias slow GDP growth and high population growth is an old one. Not that population growth is the major problem but if we continue to grow population without corresponding GDP growth and reduction in corruption, our future is threatened. Historic data from the World Bank indicates that on average, nations in the first twenty economic group attained GDP per capita in excess of $1,223 (which was our per capita income a few years ago) around 1960. France, Norway, and the UK had per capita income of $1,320, $1,441 and $1,382 by 1960 and have consistently

grown since then. One fully understands that Vision 20:2020 is a wild goose chase when one recons with the reality that the goal is to attain an economic standard which we could not attain in 50 years, in just eight years. As of 1960, Nigerias GDP per capita was a mere $91 and has just managed to grow by 25 per cent in the last 50 years. In the same period, Norway grew per capita income by 59 per cent while France gained 34 percent. On average, the High Income Countries (HIC) recorded 30 per cent increase in GDP per capita in the last 50 years, while Nigeria saw a rise of a little less than 25 per cent. Our simulations reveal that Nigeria needs to grow at an uninterrupted rate of between 9.5-12 per cent per annum in the next eight years or miss vision 20:2020 altogether. And since this is unlikely to happen we can as well come up with a better and more realistic vision. Given the current circumstances

there are two choices for Nigeria. If the country cannot automatically implement policies that will grow the economy at a faster pace, then it has the option of shifting the goal post. Clearly, the idea of merely believing that developing infrastructure will grow the economy is not good enough. Infrastructure is a necessary but not sufficient condition for development. We need to start asking ourselves the questions: From which sector of the economy will our economic miracle emerge? What policies are we putting in place to make the identified sectors realistically viable? Policy makers and governments within Nigeria need to answer these questions. Nigerias political elite should in a sense start thinking like the Chinese. What the Chinese did was to set targets for different sectors of the economy and work towards those targets.