Legal: Mining Sector.

Trajectories: From ‘Undermining’ to Resuscitating Mining in Nigeria

Famakinwa Fikayomi

INTRODUCTION

Are we travelling in the right direction (towards the ‘promised land’ of mining’s sizeable contribution to GDP), at what (‘the right’) speed, and in the appropriate vehicle(s)?

How much progress have we made in loosening the fetters of impediments on the sector to make it attractive for ‘decent’ investment? When will our solid minerals sector eventually become competitive? If, as they say, 24 hours is a long time in politics, nine years is a very long time in bedding down then extant and subsequent reform initiatives towards making the sector stand up to be counted/pull its weight.

Left in the ground, our minerals are not as valuable.

This article evaluates and provides a commentary on the current state of Nigeria’s solid minerals narrative, not the least because ‘all sectoral hands must be on deck’, in order to deliver a resurgent, vibrant and diversified Nigerian economy. To start us off, a graphic representation from a comparative global study of solid minerals contribution to national economies over a twenty year period (1996 – 2006).

Some African countries relative to Nigeria, that either ‘moved the needle’ or sustained high solid minerals sectoral performance over the period.

Downturn of the Nigerian Mining Sector: The Issues

Government gets more revenue from mining activities despite challenges.

“Mining remains a small contributor to the Nigerian economy, accounting for less than 1% of the country’s over US $400 billion GDP in 2012. The government appears to be a long way off its goal of 5% of GDP by 2015”.

However, the sector is becoming better organised and more information is becoming available. Strengthening the sector’s contribution would require addressing the legal and fiscal bottlenecks as recommended in the report. To ensure maximum revenue collection from mining activities in the States, the report recommends that tax officers develop a comprehensive database of mining companies and routinely assess that the amounts paid by them are inline with their tax obligations.

There are no large scale mining operations in Nigeria. Cement manufacturers and construction companies produce limestone and granite for their own use. Small scale mining, which accounts for 90% of activities in the sector is regulated by Artisanal and Small Scale Administration (ASMD). ASMD, along with the Nigeria Customs Services (NCS), did not provide payment information on mining activities for the 2012 report.

Despite the abundance of mineral resources in Nigeria, the country is not on the list of the top global destinations for mining investment or exploration,5 however it is part of West Africa that accounts for 5% of mining exploration destination. Not one mining company from Nigeria is one of the top forty (40) mining companies in the world.

This contribution was unfortunately truncated by (Late) President Yar’Adua upon the reversal on the sale of some FG assets.

In 1980 and 1983 the then FG stated that it had achieved 84 percent completion of Ajaokuta steel plant, having completed the light mill section and the wire rod mill. Erection work on equipment was said to have reached 98 percent completion around 1994. However, since then Nigerians have been made to believe that Ajaokuta is 98 percent completed. Ajaokuta being 98 percent complete still cannot produce a sheet of steel for over 35 years after its establishment and has since been shrouded in concession controversies .In a recent Senate Committee hearing on the state of Ajaokuta steel plant, it was revealed that the country had spent more US$8 billion on the moribund plant.

The effect of petrodollars, lack of infrastructure, antiquated regulatory regime also affected the development of the mining sector. There has recently been a minute but significant turnaround in the mining industry caused by the reduction in the revenue generated from oil and the FG clamour for the elimination of illegal mining activities and the advocacy by the FG for proper monitoring and regulation of the mining industry with the aim of increasing revenue generated from this sector. These notable significant changes in the mining sector can be noticed from the National Bureau of Statistics’ report on “Nigerian Gross Domestic Product Report (Q4 2019)” where it was recorded that the contribution of Mining and Quarrying sector to Nigeria’s Gross Domestic Product (GDP) in the fourth quarter of 2019 stood at [number], higher than the [8.24%] recorded in the corresponding quarter of 2017, and also higher than the second quarter result of 2018 which was revised to [9.19%].

Additionally, the spate of insecurity in the mining industry - where miners are usual preys of devastated community members –has left investors with no other choice than to forgo the mining business.

Weakening and volatility of prices, reduction in demand and increase in cost; spike in global energy prices directly impacts the cost of operating mines. Lack of skilled workers, equipment shortages and the fact that many new mines are in remote locations or inaccessible areas with no infrastructural facilities distracts investors from the mining sector. In 2012, the Permanent Secretary of the Ministry of Mines and Steel said that from precious metals alone specifically gold exploitation, Nigeria losesN8 trillion ($50 billion) annually.

Reforms in the Nigerian Mining Sector

The remarkable improvement in Nigeria’s ranking in the World Bank’s Ease of Doing Business rating, was a result of various reforms by the present administration, including reforms in the mineral and mining sector. Although other sectors fare better when compared to mining, it is not ‘uhuru’ yet as there are many other challenges bedevilling the sector that calls for urgent attention and reform efforts of the FG including:

• Decoupling and Decentralising Issuance of Mining Licence and Lease in Nigeria.

Nigeria can be said to operate a centralised system of mineral ownership and control. According to section 1, Mineral and Mining Act (MMA),

“The entire property in and control of all minerals, in, under, or upon any land in Nigeria, its contiguous continental shelf and of all rivers, streams and watercourses throughout Nigeria, any area covered by territorial waters or constituency, the Exclusive Economic Zone is and shall be vested in the Government of the Federation for and on behalf of the people of Nigeria.”

In the same vein, Item 39, Second Schedule to the 1999 Constitution (as amended) put mines and minerals, including oil fields, oil mining, geological surveys and natural gas under the exclusive purview of the National Assembly. The implication of this is that all applications for mining licenses and leases are granted by the FG with advice from the Mineral Resource Committee (MRC)whilst little recourse to either the State Government (SGs), Local Government (LGs) or even the community where the mining operations are conducted.

It is poignant to note that licenses required for the purpose of carrying out mining operations in Nigeria include; reconnaissance permit, exploration license, small scale mining lease, quarry lease and water use permit. However, the centralisation of these licences has increased the bar for new and local entrants. Although it could be argued and rightly so that mining operations requires huge capital outlay necessitating the high entry requirements, however, in an economy poised for diversification, it is prescient to liberalize the sector and ensure that once licence over an area is granted to an operator, same must be utilised within a stipulated timeframe. In the same vein, given that LGs are closest to these mining areas, they should be saddled with more responsibilities as opposed to the current advisory role they play at the MRC. Nonetheless, the more commercially viable and strategic mineral resource such as oil and gas could still be exclusively controlled by the FG whilst others will be within the purview of the SGs and LGs. Apart from revenue optimisation implications at the States and LG levels, it will be instructive in monitoring and evaluation of the mining sites to ensure that environmental degradation implicit of mining activities is curtailed.

• Incentivizing Operators in the Mining Sector

In addition to the incentives provided under Part IV, MMA for operators in the mining sector,11 the FG has continued to put in place policies that seeks to create a climate investment atmosphere for operators in the Nigerian mining sector. The honourable minister of Mines and Steel Development had on several occasion reiterated the commitment of government to promote economic diversification through the mining sector.

Thus, the government is open to putting in place additional incentives to boost investment in the sector. It is therefore prescient to ask, do we have enough incentives to attract new operators and strengthen the operations of existing investors? According to the Fraser Institute Report, Nigeria was ranked at an abysmal 114 out of 122 countries surveyed in 2014 compared to the country’s 69th position out of 121 the preceding year in the investment attractiveness index whilst also ranking 117th/ 122 and 75/112 in 2014 and 2013 respectively in the policy perception index.

• Curtailing Illegal Mining Activities

Despite the numerous incentives available in the mining industry, there is high level of illegal mining activities carried out in Nigeria. Generally, illegal mining occurs where mining activities are carried out without appropriate authorisation or licence from regulators and thus outside the regulatory purview. Such activities deprive the government of the much needed resources to provide essential amenities and more so, investors are denied return on their investment.

Illegal mining is the greatest menace of the mining industry in Nigeria. About $1.54 billion is lost to illegal mining in Nigeria annually with 100 kilograms of gold exported daily with no record. In 2014 and 2015 Nigeria lost about $9 billion to illegal. Gold- producing countries are mostly affected by illegal mining as gold is easier to extract through artisanal means and global gold prices recover, offering further incentives to illegal miners.

Early 2018, eighteen (18) Chinese were prosecuted for engaging in illegal mining while thirty six (36) Nigerians were also arrested for similar crime. Mining activities naturally generates several types of negative externalities these includes pollution and pressure on other scarce natural resources let alone illegal mining. Beyond the financial loss to the country, there also is the tragic health implication of operating illegal mines, sicknesses such as skin rashes, headaches, vomiting and diarrhoea. The Zamfara tragic memory still lingers where over five hundred (500) children died of lead poisoning emanating from an illegal mine. Many people who cannot afford to go to a doctor, or who live in a village where a doctor is not accessible, are often not treated for mining activities induced illnesses.

Water contaminated as a result of mining activities becomes useless for both man and animal, the displacement of gravel and mud obstruct the natural flow of river and as a result of this fish and other organisms die. Pollution from heavy metals contamination from 800 mines in 44 developing countries has been shown to lead to an increase of 3 to 10 percentage points in the incidence of anaemia among women and 5 percentage points in the incidence of stunting among children living in mining communities. Operating illegal mines can also lead to the loss of agricultural productivity by directly affecting crop health and growth as a result of the effect of mining on soil and water and through the impact of air pollution.

Anybody who operates a mine without a permit is guilty or conducts exploration or mines minerals or carries out quarrying operations otherwise than in accordance with the provisions of NMAA is guilty of an offence. A mineral title holder who is guilty of an offence under NMAA is liable to have his licence revoked and on conviction at the first instance, to a fine not less than N20,000,000 and imprisonment of not less than five (5) years. If the offence is a continuing one, whether or not it is a first offence, the person convicted shall, in addition, be liable to a fine of N20,000 in respect of each day during which the offence continues.

• Transparency and Accountability

Reducing the Negative Effects of Mining Activities

There are two sides to a coin, the mining industry is no different. Mining activities has it benefits and disadvantages. Operating a mine in a particular location may put a strain on services such as health and education in the area. Efforts are made daily to reduce the effect of mining activities on humans and the environment at large. New development in the mining industry as technology improves can also help reduce the negative effect of mining on the environment. The world number one diamond producer “De Beers” recently announced that it will start selling jewellery containing man-made stones rather than precious rocks recovered from the ground, for the first time in its 130-year history in September 2018. This in it little way will reduce the disruption of the ecosystem by mining activities.

To reduce the negative effect of mining on the environment NMMA mandates every holder of a mineral title to as far as reasonably practicable minimize, manage and mitigate any environmental impact resulting from mining activities, rehabilitate and reclaim, where applicable, the land disturbed, excavated, explored, mined or covered with tailings arising from mining operations to its natural state.

The Nigerian Extractive Industries Transparency Initiative Act (NEITI Act) 2007provides for the establishment of the NEITI charged with the responsibility of developing a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies’ revenue due to or paid to the FG. This will in turn increase revenue generated from the mining industry and encourage the FG to properly monitor the activities of the industry. A major component of the on-going anti-corruption reform in Nigeria, it is the national version of the Extractive Industries Transparency Initiative (EITI), which is a global movement aimed at ensuring that extractive resources aid sustainable development.

Establishment of the Special Mines Surveillance Taskforce made up of the Department of State Security, the Nigerian police, Civil Defence, Economic and Financial Crimes Commission and National Security Advisor’s office is also a means to eliminate illegal mining in Nigeria. There is also the Mines Police and a Commissioner of Police in charge of their activities.

Curbing illegal mining activities will increase government revenue, increase the contribution of mining industry to GDP and increase job opportunities. The recent effort to formalise small scale miners and artisan miners and placement of N5 billion in the bank of Industry to support this act is also an avenue to eradicate illegal mining. Integrated Automated and Interactive Solid Minerals Portal was also recently introduced to track mining activities of licenced miners and other mining locations.

Comparing Mining Indices – Nigeria and other Countries

According to White & Case’s survey, accelerating economic development in Africa is key to unlocking Africa's potential for minerals development in the future. The IMF, incidentally, still forecasts that Africa will be the second-fastest growing region in the world between 2016 and 2020, with annual growth of 4.3 percent from mining activities.

It is our hope that Nigeria mining industry will continue to develop with that of other countries. Taking a look at the contribution of mining to the economic development in Nigeria and Australia. Australia has almost the same mineral resources as Nigeria but the economy benefit mining activities in Australia cannot be compared to that of Nigeria, Australia’s mining industry contributes 8.5% of its GDP whereas mining contributes only 0.3% percent to Nigeria’s GDP. Reforms put in place in Australia to encourage flexibility and productivity in Nigeria by the formalization of the small and artisan miners.

In Australia, each state has its own regulations governing the extraction of minerals, Nigeria may try the option of removing the mining activities from the exclusive list and allow State government who are closer to the people be in charge of mining activities.

The present administration recognizing the need to revitalize the Nigerian economy, developed the Economic Recovery Growth Plan (ERGP) a Medium Term Plan for 2017 - 2020, builds on the Strategic Implementation Plan for the 2016 Budget and has been developed for the purpose of restoring economic growth.

Prospectively, the ERGP aims to sustain growth from the low of 1.54% projected in 2016, to 4.6% in 2017 and to stabilise at 7.0% in 2020. In order to achieve this, the ERGP seeks to focus on six priority sectors, prime amongst which is the solid minerals sector.

The mining sector also grew by 2.24% and achieved a 300% increase in revenue (royalty and fees) between 2015 and 2016, and a steady progress and as at November 2017, the sector had already surpassed the entire revenue of about N2billion generated for the whole of 2016, with over N3.5billion contributed to the federation account.

The National Bureau of Statistics recently reported that the GDP contribution of the mining sector was 15.39% as at 2017.

The top five (5) mining countries are South Africa, Russia, Australia, Ukraine and Guinea. Nigeria can learn from these other counties by negotiating better deals with other international countries. The goal should not just be to ensure higher national revenues, but also to address concerns about environmental pollution and compensation for people displaced by mining operations. Provide adequate compensation to affected communities and the rehabilitation of land after mining operations have ceased in these areas. Negotiations between Nigeria and companies or other countries should be transparent, accessible and easily understandable by citizens.

Previous bad contracts, mismanagement, corruption and poor investment in the mining industry continue to leave Nigeria’s mining industry undeveloped. In order to have a positive change there will be need for transparency, improved planning for the use of revenues and better partnerships among companies, governments and communities just as it is in the five mentioned counties.

Conclusion (1)

George Santayana once said that “those who cannot remember the past are condemned to repeat it.”

Only if Nigeria raise their ambitions still further will they reach their full potential in the mining sector. So much more remains to be done to propel the country’s mining sector towards sustainable accelerated development.

Some of the issues affecting the mining sector includes the legal and regulatory risk, political risk, environmental and geopolitical risk, changing pattern of word trade, increasing regulation, security risk, financial risk and other risk. To retain the development and improvement of the mining industry, the FG must ensure that all the risk affecting operators in the mining sector is properly managed. The creation of an enabling environment for the private investors: both foreign and local by providing adequate infrastructure for mining activities, develop a geo-scientific databank, and collate detailed data concerning the identity, quantity and quality of Nigeria's Mineral Resources; and identifying areas where Government intervention is desirable in the mining sector.

The existence of a synergy among the Federal, State and Local government through the instrumentality of Minerals Resources and Environmental Management Committee (MIREMCO) as provided by NMMA will improve operational collaboration and enhance communication for effective execution of the roadmap for the growth and development of the mining industry. With each change of government continuity of effective projects by new elected or appointed leaders will go a long way in improving and accelerating the development of the mining sector, as such change in government should not necessarily be a change or discontinuation of effective policies that are evidently impacting the sector. Nigeria needs a liberation movement to free Nigeria investors from civil servants rather than colonial masters.

In 2015–16, Australia recorded its 25th year of continuous economic growth. Given the uncertain economic and political situation around the world, this is a remarkable achievement. Australia is now only second to the Netherlands which has the longest record of economic growth, at 26 years. Australia’s mining sector has been hailed as a saviour to the economy, protecting it from the effects of the severe economic downturns experienced in the USA, Europe and other countries during and after the global financial crisis of 2007-08.

Most notable among those interventions is ensuring that the mining sector secures an approval of N30 billion from the sector’s component of the Natural Resources Development Fund from the Federal Government.

The sector has also secured the World Bank’s approval for $150 million to support the country’s Minerals Sector Support for Economic Diversification programme. The solid minerals development fund is currently spearheading the assembling of $600million investment fund for the sector, working with entities like as the Sovereign Investment Authority, the Nigerian Stock Exchange, and others.

Successive Governments at the Federal level have demonstrated commitment to revamp the sector. For example, in 1999, a new national focus and strategy on mining evolved and this culminated in the enactment of the Nigerian Minerals and Mining Act (the Act) in 2007, amongst other policy efforts.

However, these efforts have only led to a minuscule growth in the sector; with the sector’s contributions to the Nation’s Gross Domestic Product (GDP) remaining at less than 1% as at 2015.

To demonstrate Government’s commitment to the diversification plan, the Ministry of Mines and Steel Development (MMSD or the Ministry) issued a revised sector growth and development roadmap, with the objective of addressing the key challenges identified in the sector and outlining strategies for rapid development and utilization of key minerals and metals. One of the targets of the roadmap is the growth of the sectors’ total contribution (direct and indirect) to Nigeria’s GDP to about 10% by 2026. The Government has launched a N30 billion intervention fund to open up the sector to multinational companies. The fund will be used to promote exploration and research. Government is also open to negotiation with respect to the concession of the country’s railway infrastructure to boost evacuation.