Introduction
Nigeria is richly endowed with abundance of mineral resources. The country boasts of more than 40 valuable mineral deposits including clay and kaolin, gold, gypsum, iron ore, lead and zinc, phosphate, and tin across the 36 States. Baryte, bitumen, coal, gold, iron ore, and limestone, lead-zinc and coal have been identified by the Federal Government through the Ministry of Mines and Steel Development as Nigeria’s strategic mineral deposits on grounds of their economic value[1]. Quarrying dominates the output of the Mining and Quarrying sector by over 90 percent o[2] and recorded a growth of 21.16% in full year 2020 from -5.63% in 2019 and 10.33% in 2018, in contrast with Metal Ores which contracted by -5.85% in full year 2020 from -14.38% in 2019 and 26.34% in 2018, and Coal Mining which contracted by -20.5% in full year 2020 from 13.15% in 2019 and -5.81% in 2018.[3] Products such as granite, gravel, marble, sand, and other construction materials are in high demand locally because of a combination of a growing housing deficit and infrastructure development projects[4]. However, notwithstanding the growth in preceding years, Nigeria has barely scratched the surface of its enormous geological potential, taking into consideration the contribution of less than 1% by the mining sector to her GDP[5].
Although the productivity level of the sector is insufficient to meet local demands particularly for industrial minerals, Nigeria has been unable to attract significant investment in exploration of her mineral resources.[6] This constraint can be traced to the lack of attractive environment for private-sector mining, paucity of accurate and up-to-date geological information and the systems to manage the information, poor performance of institutions and limited enforcement of regulations, insecurity in the host communities, and insufficient human skills and capacity to effectively manage the sector.[7] It is critical that Nigeria positions its mining sector to attract foreign investment and partnerships as is the case in Angola, South-Africa and other African nations who have made veritable progress in creating a better business environment for investors in the mining sector.
Regulatory Framework of the Nigerian Mining Sector
Establishment of the Minerals Act and Powers of the Minister
The mineral sector is regulated by the Minerals and Mining Act 2007 (“the Act”). The Act repealed the Minerals and Mining Act, No. 34 of 1999 and vests control and ownership of all properties and minerals in, under or upon any land in Nigeria in the Federal Government[8]. It further prohibits the exploration or exploitation of minerals without the grant of requisite permit,[9] however, communities where it has been their custom to win salt, potash or soda may continue to do so, and where a mining lease is granted on that portion of community land after the commencement of the Act, a government levied value shall be paid to the community[10]. The Minister of Mines and Steel Development (Minister) is empowered by the Act to create a viable mineral resources sector. The Act makes it the responsibility of the Minister to ensure the sustainable development of Nigeria’s mineral resources, encourage the participation of the private sector by creating an enabling environment, ensure the development of the infrastructure required for mining activities, including urgent development of technical and professional manpower required in the mineral sector, creation of a geo-scientific databank for the collating of detailed data to determine the identity, quantity and quality of Nigeria’s Mineral Resources amongst others[11].
Departments of the Ministry of Mine and Steel
A Mining Cadastre Office (MCO) was established by the Act for the administration of titles and permits.[12] The agency in 2019 issued a total of one thousand two hundred and ninety-six (1,296) mineral titles to entities to carry out various operations in the sector. The titles were issued in the following proportion; Exploration License (EL), five hundred and one (501), Small Scale Mining Lease (SSML) six hundred and two (602), Quarry Lease (QL) one hundred and sixty-nine (169), and Mining Lease (ML) twenty-four[13]. The Act established the Mines Inspectorate Department, and the Environmental Compliance Department.[14] It also gave the Minister power to establish such other departments considered necessary to the administration of the Act. Further to this power, the Artisanal and Small-Scale Mining Department, the Metallurgical Inspectorate and Raw Materials Department and the Steel and Non-Ferrous Metals Department were established. The overall responsibility for the sector and monitoring of the departments rests on the Ministry of Mines and Steel Development.
Incentives and Benefit Provisions
In other to promote investment in the mining sector, the Act provides a number of incentives to operators, this includes the permission given to a license holder to deduct from its assessable profit, a capital allowance of 95% of the qualifying expenditure incurred in the year the investment was made, deduction of all infrastructure costs regardless of ownership and certified exploration costs. It also permits deduction of losses up to a period of four years[15]. Operators in the sector have also been granted the following benefits; exemption from payment of customs duties in respect of plant, machinery and equipment imported specifically and exclusively for mining operations, grant of expatriate quota for approved expatriates, and personal remittance quota for expatriate personnel, free from any tax imposed by any enactment for the transfer of external currency out of Nigeria.[16] The Act further grants the holder of a mineral title a right to retain in foreign exchange domiciliary account a portion of its foreign exchange earnings for use in acquiring spare parts and other inputs required for the mining operations which would otherwise not be readily available without the use of such earning.[17] Holders of a mining license are also guaranteed free transferability of funds for the purpose of paying a certified foreign loan, and remittance of foreign capital in event of a sale or liquidation of the mining operations or any interest therein attributable to foreign investment[18]. An investor is also guaranteed tax relief for a period of three years subject to a discretionary extension of two years.[19]
Mineral Titles and the Mineral Buying Centre
Mineral titles granted under the Act include a Reconnaissance Permit, an Exploration Licence, a Small-Scale Mining Lease, a Mining Lease, a Quarry Lease, and a Water Use Permit[20]. With the prevalence of small-scale mining, it became necessary for the government to focus on this group who make up a large proportion of miners in Nigeria. To this effect, this group of miners/artisanal miners were encouraged by the government to form and register an Artisanal Mining Cooperative[21] which would enable them obtain Small-Scale Mining Licences. In accordance with the Act, Mineral Buying Centres were also established to ensure that the proceeds recovered under small-scale mining are sold at a fair market price through these buying centres thus, maximizing the efforts of these miners. The essence of establishing the buying centres was to provide access to a regulated market which reduces the exposure of artisanal miners to middle-men who end up taking most of the profit from the mining proceeds. It is also meant to reduce the rate of smuggling and allow the government obtain royalty from products mined. The buying centres are open to artisanal miners who are registered, licensed traders or companies.
Mineral title holders may transfer their title in accordance with the provisions of the Act,[22] and a mineral title may also be subject to a surrender[23], suspension[24], and renewal.[25] Where necessary, it may be revoked in accordance with the Act,[26] subject to the right of the title holder to appeal against the revocation order.
Environmental Sustainability
The recent clamour regarding energy transition and sustainable development has further necessitated the need to pay attention to the sustainability of our environment. Countries with active extractive sectors are expected to ensure their laws contain provisions geared towards this. The importance of an effective environmental law cannot be over-emphasised, as lack of adherence to exploitation protocols have resulted in degradation of host communities and health problems resulting to harmful conflicts between the host communities and the license holders. Some of these problems have also been identified to be the result of illegal mining operations.[27] Holders of mineral titles under the Act are therefore required to ensure that their processes mitigate the negative impact of mining on the environment. To give effect to this, the Act provides for an Environmental Protection and Rehabilitation Program which makes mandatory, contribution by operators to the Environmental Protection and Rehabilitation Fund.[28] The fund contributed would act as guarantee to the environmental obligations of title holders.
An Opportunity for Diversification, Wealth Creation and Industrialization
A Case for Maximizing Opportunities in the Mining Sector
With more than half of the country’s revenue derived from oil exports, Nigeria’s economic progress is practically tied to the boom of the oil market. However, the uncertainty of oil prices, lack of transparency in revenue obtained, lack of proper use and accountability in proceeds generated, alongside the drive towards energy transition necessitates the need for economic diversification. Neighbouring African countries like Ghana and South Africa have found the mineral mining sector to be a good contributor to their GDP. In Ghana, for example, mining is said to account for 5% of the country’s GDP and 37% of its exports while South Africa’s solid minerals accounts for 18% of its GDP, half of its foreign exchange earnings and approximately 1 million jobs.[29] Diversification is an important element of economic growth. According to an estimate by the committee put together to develop a roadmap for the sustainable development of the mining and metals sector in Nigeria, the minerals and mining sector could generate more than US$25 billion by 2025 which makes up 3 percent of our GDP[30].
The mining sector is widely recognized as a key driver for industrial development; thus, emphasis is placed on the need to follow through the execution of the industry plan in other to obtain benefits that would accrue from the mining sector. Minerals constitute a large portion of the inputs used in manufacturing and production of numerous economic goods and is an important contributor to the construction and drilling industry, making of automobiles, ICT gadgets, solar panels, furniture, papers and rubbers, medical equipment and energy generation. There is no doubt that if the opportunities in the sector are fully maximized, it would create job opportunities and improve living standard, reduce cost of production for local manufacturers, reduce dependence on foreign exchange for imports of materials, reduce infrastructure deficit, and also enhance competitiveness of our local industries amongst others.
Challenges Ravaging the Sector
There are a number of reasons why investment in this sector has been low. Amongst those already mentioned above, these include illegal miners and the insecurity posed by these miners, perceived instability in the legal and regulatory framework, political interference, lack of transparency, ineffective management by regulatory agencies, little public knowledge of the sector, including environmental and sustainability factors amongst others. These reasons are sufficient to discourage the much needed greenfield and perhaps brownfield investors. A case in point is the ban on mining activities in Zamfara State following the uncurbed incidence of violence by artisanal miners which had a negative effect on the business and capital investment of licensed miners. Nigeria should take a cue from other African jurisdictions. The Angola mining sector for instance, has experienced significant investment flowing from the country’s purposeful investment in the stability of its regulatory framework. There is no gainsaying that a conducive business environment which includes the ease of doing business, a functional and stable regulatory framework amongst others, would be a key attraction to investors.
Attracting Responsible Investment to the Nigerian Mining Sector
The need to attract Foreign Direct Investment (“FDI”) cannot be over-emphasised as a critical vehicle for economic growth and development. Notwithstanding this benefit, it is important to consider the negative impact of mining especially as it relates to the environment. Research suggests that under appropriate framework conditions, foreign investments in mining frequently have higher environmental performance compared to domestic operations, due to new technologies and practices they bring with them. On the other hand, when these framework conditions, such as effective environmental regulation and transparent public governance, are not in place, there is a risk that serious environmental and social damage can occur.[31] Good governance is an important prerequisite for the effective management of the mining sector as many avoidable environmental impacts of mining occur due to regulatory failures.
Thus, ensuring effective assessment of potential environmental impacts before operations begin, designing integrated packages of measures to mitigate potential impacts, monitoring the effectiveness of control measures and adapting them as needed, requiring adequate provisions for mine closure, reclamation and clean-up, taking local populations’ concerns into account and ensuring that environmental requirements are applied fairly, without discrimination, to all investors are necessary.[32] Indeed all of these measures are contained in the Mining Act, the question however is the extent of effective administration of the provisions of the Act, and the effective implementation of other valuable recommendations made towards ensuring the success of the sector.
Conclusion and Recommendations
The vast mineral resource available in Nigeria is not in doubt. However, indices have shown that the level of development in the industry is at its lowest compared to other African Countries like Ghana, South-Africa, Zimbabwe, Angola etc. The sector remains unattractive currently for many reasons including insecurity in mining communities, fear of loss of investment arising from insecurity, lack of transparency, little or inadequate infrastructure, inefficient enforcement and monitoring institutions. A larger aspect of this challenge is the need to balance the stake of the host communities, the States in which these resources are situate and the constitutional powers of the Federal Government in relation to ownership of mineral resources. In our opinion, the challenges faced by the mining sector mirrors the overall challenges faced by the society at large. There is need for decentralization of various sectors of the economy in other to boost their effectiveness and contribution to the growth of the economy. We are currently seeing this play out in the electricity sector as constitutional amendments are underway to allow States generate, transmit and distribute electricity even in areas covered by the national grid.
However, as the government continues to seek ways to attract foreign investors, Nigerians must in turn prepare for the changes that would occur as a result of these investment, both in terms of the skills that will be required by nationals to stay at the cutting edge of competition as new technologies are introduced to the mining sector,, and the need to develop an effective system for geological and geophysical data, as the availability and access to accurate data is an essential component of mining operations. Notably, the Nigerian mining sector would experience significant visibility where the economic diversification project of the World Bank through its grant of US$ 150.00 million to the Ministry of Mines and Steel (MMS) through the Ministry of Finance is well utilized and the is project properly executed[33]. The project is aimed at enhancing the capacity of MMS as regulator and facilitator, facilitating sector development and enhancing its competitiveness and attractiveness to investors. Finally, more efforts should be put into formalizing artisanal mining, and policing host communities to forestall the activities of illegal miners, and there should be adequate engagement between the government, the title holders and the host communities. This would minimize hostilities and disruptions currently experienced by operators in the sector.
Footnotes
[1] Strategic Minerals; Ministry of Mines and Steel Development.
[2] IFC-World Bank Group; (2020); Creating Markets in Nigeria: Country Private Sector Diagnostics.
[3] Nigeria Bureau of Statistics; Nigerian Gross Domestic Product Report (Q4 & FULL YEAR 2020).
[4] IFC-World Bank; Supra at 2
[5] NEITI: 2019 Solid Minerals Audit Report
[6] World Bank: Nigeria: World Bank Approves $150 Million to Enhance Mining Sector Contribution and Support Economic Diversification
[7] Ministry of Steel and Development; (2016) Roadmap for the Growth and Development of the Nigerian Mining Industry on the Road to Shared Prosperity. Pages 28 – 36
[8] Section 1 of the Act.
[9] Section 2 of the Act.
[10] Section 97 of the Act.
[11] Section 4 of the Act.
[12] Section 5(5) of the Act.
[13] NEITI; Supra note 1 at 2
[14] Section 16 of the Act. More specifically, Sections 17 and 18 elaborate on the duties of the established departments.
[15] Section 24 of the Act.
[16] Section 25 of the Act
[17]Section 26 of the Act.
[18] Section 27 of the Act.
[19] Section 28 of the Act.
[20] Section 46 of the Act.
[21] The “Small Scale and Artisanal Miners Association of Nigeria” was registered with the Corporate Affairs Commission in 2019.
[22] Section 147 of the Act.
[23] Section 150 of the Act.
[24] Section 149 of the Act.
[25] Section 148 of the Act.
[26] Section 151 of the Act.
[27] Illegal mining in Abuja: Stakeholders want ministry to revisit ICIR report (icirnigeria.org)
[28] Section 121 of the Act.
[29] Oxford Business Group; (2016) Nigeria’s Untapped Mineral Reserves Could Aid the Goal of Economic Diversification.
[30] Ministry of Steel and Development; (2016) Roadmap for the Growth and Development of the Nigerian Mining Industry on the Road to Shared Prosperity.
[31] OECD; 2002; Foreign Direct Investment and the Environment – Lessons from the Mining Sector
[32] Ibid.
[33] World Bank: Nigeria: World Bank Approves $150 Million to Enhance Mining Sector Contribution and Support Economic Diversification