Absence of formal structure stalls funding of N400bn mining industry

Shortage of data and poor structuring of Nigeria’s informal sector is causing banks and other financial institutions to be reluctant to fund the  over N400 billion mining industry, BusinessDay findings show.

Banks also consider the informal sector miners as flying blind, and thus posing poor prospects for financing because there are little if any reliable geosciences or exploration data to guide them to the minerals they seek to extract from the bowels of the earth.

The position of the banks is that this reliance on probability and chance means the miners would often come up blank after much expenditure and effort, which is avoidable and unatractive in this era of advanced technologies.

Similarly, there is yet no dependable data on return on investment, which should encourage financial institutions to free funds.

The mining sector is also capital intensive and can hardly be adequately funded by deposit money banks that are hard hit by exposure to energy and public sector risks.

“There is no way we can fund an industry like mining that operates in the informal sector,” said a senior bank official who does not want his name in print because he was not authorised to speak to the press.

“Think about this, if you are a senior bank official, would you want to fund an unpredictable sector where there is some form of illegal mining? A lender wants to get back his money and this is not yet guaranteed in the mining sector,” the official, who heads an SME desk in a bank, told BusinessDay.

Razia Khan, analyst with Standard Chartered Bank, London, in a recent note,Nigeria–The rising cost of economic informality, said, “Banks comprise a key part of Nigeria’s formal sector economy, contributing even more  significantly  to government revenue . However,  the  diversion  of  economic  activity from the formal banking sector risks further eroding this revenue contribution.”

Patrick Odiegwu, partner in Anthracyte Limited, a general earth science company, admitted that the nature of the mining industry makes it difficult for outsiders to understand.

“Banks have not provided support, maybe because they do not understand the industry,” Odiegwu told BusinessDay.

Despite several activities in the mining industry, the sector contributes only 0.34 percent (about N400 billion) to the gross domestic product (GDP). There is still poor knowledge of the viability and marketability of Nigeria’s solid minerals in the global market.

The modern technology used across the world is lacking in the industry, while global prospectors do not yet see Nigeria as a mining destination, findings show.

“One of the first things we should do is to formalise the sector,” Shehu Sani, president, Miners Association  of Nigeria told BusinessDay.

“We have to pay less attention to illegal mining for now and more to formalising the artisanal miners,” Sani said.

Sani had earlier told BusinessDay that owing to financial challenges faced by miners, players were planning to unveil a specialised bank that would cater for the needs of the industry.

Africa’s largest economy has at least 44 known mineral assets that include precious minerals, base metals,  gold, iron ore, barite, bitumen, lead, zinc, tin and coal, among others. Owing to the seeming potential in the industry, President Muhammadu Buhari has identified mining as a key diversifier of government revenue, as oil revenue slumps on the back of global price decline.

“We have reason to believe that available data of our reserves understated what the almighty God has blessed our country with in many cases,” Kayode Fayemi, Minister of Solid Minerals Development, said at The New Telegraph Economic Summit in Lagos.

“Today, the Nigerian mining industry faces two sets of challenges: External and internal. On the external challenges, the global mining market is in turmoil as key sources of demand which supported prices over the past two decades have declined,” Fayemi said.

“There is continuing global decline in prices of mining products, which has put mines and mining houses under tremendous pressure.  But at present, there are eight key internal challenges we face: Limited infrastructure, insufficient geological data, limited cooperative federalism, low productivity, illegal artisanal mining community challenges,  weak institutional capacity, insufficient funding and weak ease of doing business and perception issues,” he added.

Across the world, the prices of mined metals such as coal, platinum, tin, iron ore, nickel and gold are dropping.

Global coal prices have slumped by over 10 percent since 2015, iron ore has fallen by up to 50 percent. There is also a slump in the prices of platinum, gold and other metals.

South Africa’s fortunes have dipped over the price slump and economic slowdown in China, which was its biggest metals buyer.

“There is still some prospect for Nigeria because it can be the much-needed solution to unemployment, as the development of the value chain from mining to export can create more than five million jobs,” said Seun Olatunji, president, Association of Metal Exporters of Nigeria.

ODINAKA ANUDU & CHIGOZIE EGWUATU