Mining in most African countries is accompanied by a fair degree of risk and Nigeria is no exception. The country has, however, recently implemented a number of reforms to attract more investment to the sector. Jaco Maritz looks at Nigeria's solid minerals industry
During the early part of the 20th century, Nigeria had numerous mining concerns and was an exporter of several minerals, most notably columbite, coal and tin. Mining was largely in the hands of the private sector, mostly British companies and some small-scale local operators.
The discovery of oil in the 1950s largely shifted the focus from solid minerals to the petroleum industry. In the aftermath of the country's bloody civil war, which ended in 1970, the government decided to nationalise all mines. Nationalisation however did not have the desired effect and production levels plummeted. Since the return to democracy in 1999, there has been a renewed commitment to attract private investment to the mining sector as a means of stimulating economic growth.
"Government realised that there is a lot of potential in the [mining] sector and the efficient exploitation of the minerals industry in Nigeria can rapidly contribute to national wealth. Government shifted its policy from taking part in direct operations to completely hands-off mining and encouraged the private sector to be the engine of growth," says Goni Sheikh, director of Nigeria's Mining Cadastre Office.
Nigeria has deposits of numerous solid minerals but the federal government has prioritised the development of seven strategic minerals, namely coal, bitumen, limestone, iron ore, barytes, gold and lead/zinc. The government has commissioned airborne geological surveys and one half of the country has been completed, with the data processed and analysed. A survey of the other half has been completed but is still in the process of data analysis.
Reforms in the mining sector
For Nigeria to attract a meaningful number of investments into the mining industry it will have to convince investors that their assets and businesses in the country are safe and will be for many years to come.
"When it comes to mining, there is an unique feature of a mine which is you can't pick the investment up, so you are married to your investment in a way. And consequently, the lead time for a mine is measured in many years, and the investment is typically quite front-loaded. So you are in there for a long time and you are a big investor in unproductive capital for a significant period. The certainty that you'll be able to benefit from your investment is a critical feature," says Mike Salamon, co-president of AMCI Capital and a former executive director of BHP Billiton.
He adds that "investors typically go where risk and reward are best aligned. If the risks outweigh the potential rewards, you are going to struggle for investment. There is a real opportunity for Africa. But when it comes to a specific investment opportunity, any specific investment, people will still put it through a series of tests."
With the Mineral and Mining Act of 2007, Nigeria's federal government aimed to restore confidence in the mining industry, which has historically been plagued by corruption and excessive bureaucracy. The Act introduced fresh incentives, institutional policy changes and a new enabling investment environment.
Newsflavor.com reports the main reforms included in the act are liberal and transparent access to mining assets, the strengthening of geological data generation, and institutional and human capacity building, which will hopefully ensure that the mining sector avoids the errors of the oil sector, which resulted in the conflict in the Niger Delta. There is also a reorientation of the government's role from owner-operator to administrator-regulator. Further landmark changes in the act are that mining titles and rights will be given on a "first-come, first-serve" basis. Also new are the security of tenure of mining rights, time limits on granting of rights and titles and a policy of "use-it-or-lose-it" in mining administration.
Potential investors were however recently spooked when the Ministry of Mines and Steel Development revoked 832 mining titles. According to the government the titles were held by speculators with no intention to start operations and some of the issued licences did not meet the requirements of the new mining act.
"One of the major criteria investors will look for is stability in governance and assurance that the life of the mineral title will go the whole haul without any interference even if there are changes in government," says Sheikh.
"We have a stable democracy now, running for over ten years, and the country has accepted that [democracy] is the only way to go. This should go a long way in giving confidence to investors. The new mineral licensing processes are such that mineral titles are guaranteed by law. We have some notable companies that are in the mining sphere now and many companies have also taken concessions," he adds.
Involving communities
Given the problems Nigeria has experienced in the oil-producing Niger Delta region, the government is also placing an emphasis on the involvement of local host communities in any mining operation.
"It is important that communities are engaged. It is also important that communities are educated about the various processes involved in mining. For instance, if a company is carrying out exploration, in most communities that are not enlightened enough, that is synonymous with mining as far as they are concerned. And then the chances are that they will have so much expectation," says Sheikh.
"Our approach is to encourage investors to engage communities at the various levels of the operations. There is in the law so-called Community Involvement Agreements. That is if and when a company finds an economic resource that it intends to exploit, it must be discussed with the communities as to what the benefits are to the communities, and what [the mining company] expects from the communities. So the communities are also stakeholders in the operation," Sheikh explains.
In theory it seems as if Nigeria's government has learned from its past mistakes and has the political will to transform the mining industry. Whether this translates into practical implementation of policies and an increase in mining investment remains to be seen.
Goni Sheikh and Mike Salamon spoke at a conference recently held in Cape Town.
