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Building Nigeria’s mining industry: more than money – part 1

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Mining is important for the security and prosperity of Nigeria and towards developing the sector in Nigeria, the recently concluded National Conference,  2014 recommended that the Solid Minerals Development Fund (SMDF) be increased from the present 1.68% to 5%. Drawing on more than two decades of personal experience as a solicitor and development consultant in the global mining industry, Okey Uche asks questions of the SMDF in Part 1 of his article; and in Part 2 offers opinions on how to make the SMDF succeed.

Several years ago I was in Beijing, China, negotiating a  mining investment agreement. My Dutch clients and I were  anxious to conclude the agreement that day. To my chagrin,  our Chinese hosts decided to break up the meeting to take  us for lunch. Those who know the typical Chinese worker in  China will agree they work hard but they don’t joke with their  food; and lunch breaks are religiously observed. I like good  food but this time I was afraid the lunch break might result in  our not completing the agreement that day. I argued to skip  lunch in favour of completing the agreement. The response I  got is something I will not want to forget. Mr. Wang locked  eyes with me and quietly said “we work so that we may have  food to eat, so if you will not eat, why work at all?”

Much of Nigeria’s foreign exchange earnings is from crude  oil so a developed mining sector will help diversify the  national economy not only by sector basis but also by  geographical derivation. Currently, the country’s crude oil is produced in the South of Nigeria but each of Nigeria’s 774  Local Government Areas has solid mineral deposits.

Together with agriculture, mining can become the fulcrum to  build a competitive industrial base; develop rural areas; earn  foreign currency; provide employment to millions; facilitate  development of economic infrastructure; and improve  security and social well-being of citizens. With all of Nigeria’s mineral endowment and the vital need to develop Nigeria’s  mining sector, it seems a mystery why mining in Nigeria is  under-developed 

Nigeria’s mining sector needs money to grow and it is  noteworthy that Chapter 5.15.8 (ii) of the National  Conference, 2014 Report recommends that “The Solid  Minerals Development Fund should be increased from the present 1.68% to 5%.” The “5%” refers to 5% of Federal  Government of Nigeria’s annual revenue to be dedicated to  developing Nigeria’s solid mineral resources. But there are

questions swirling around the proposed 5% Mining Fund.

Nigeria already has a Solid Minerals Development Fund  (SMDF) created under Section 34 of Nigeria’s Minerals and  Mining Act, 2007 (Minerals Act). 1.68% of Nigerian  government’s annual revenue is currently reserved for the  SMDF as a special intervention fund to develop mining in Nigeria. So, the first question is what has the SMDF  achieved so far with 1.68% of the national revenue? Raising  the SMDF to 5% infers that the volume of money currently

being spent by government on mining in Nigeria is  insufficient and therefore government should pump in more  money. But local media reports say that the SMDF has not  received a takeoff grant. If this is correct, there is therefore  no track record of performance by the SMDF to determine  whether it requires more funds than the 1.68%.

The second question comes from a historical perspective  that analyses previous Nigerian Government spending on  mining. Should the government be trusted to spend the 5%  Mining Fund? In the piece titled “Advancing macroeconomic  reforms” seen in the Vanguard Newspapers of November  13, 2012, Dr. Ngozi Okonjo-Iweala, Nigeria’s Minister for Finance and Coordinating Minister of the Economy commenting on her book “Reforming the Unreformable”  pointed out “…the Ajaokuta Steel Mill, on which $US5 billion  was spent … produced virtually no usable steel” as an example of wasteful government expenditure on mining.

Nigerian government has spent billions of dollars on the  Nigeria Mining Corporation, Nigerian Coal Corporation, Jos  Steel Rolling Mill, Nigerian Iron Ore Mining Company and  other state owned mining businesses. Government  expenses in running the mining industry includes $120  million loan from the World Bank for the Sustainable  Management of Mineral Resources Project (SMMRP) and  the billions of Naira Nigeria spends annually on capital and

recurrent expenses for the Ministry of Mines and Steel Development (MMSD). Nigerian government expenditure on mining businesses failed, but its expenditure to regulate the industry is more successful.

Contemporary Nigerian spending on regulating mining  started in 1995 by the creation of the Ministry of Mines and Steel Development (MMSD). The first Minister of the MMSD, Alhaji Kaloma Ali commissioned the Nigerian Minerals Appraisal and Monetisation Programme (NIMAMOP) to amongst other things inventorise occurrences of minerals in Nigeria; review the legislative and regulatory framework; strengthen institutions; and prepare a marketing plan to attract private capital for mining. The consortium that

implemented NIMAMOP included Global Minerals Limited (Nigeria’s first modern mining consultancy), Behre Dolbear of the USA (World’s oldest mining consultancy), and AMTEC  of France (mining database firm). NIMAMOP assembled

leading experts from Nigeria and globally. I was Team Leader for Law & Policy with responsibility to review the legislative and regulatory framework for mining in Nigeria. In 1997, when the Law & Policy Team of NIMAMOP was inaugurated, Nigeria’s mining was governed by The Minerals Ordinance of 1946 and mining regulations (which were re- enacted as the Minerals Act of 1959). In the 1990s, because mining investment had begun to positively transform economies of Ghana, Mali and other African countries that had enacted new investor-friendly mining legislation, it was believed that a new investor-friendly mining legislation for Nigeria will attract significant private mining investment. After international comparative analyses of mining legislation; internationaland local consultations; and multi-stakeholder strategy sessions my team in 1998 submitted the first part of recommendations for an investor-friendly mining legislation.

Sadly, our recommendations were ignored in the Minerals and Mining Decree No. 34 of 1999 enacted by the Federal  Military Government (to replace the Mining Act, 1959).

Nigeria’s return to civilian rule in 1999 raised fresh optimism for a new investor-friendly legislative and regulatory framework for mining in Nigeria. In the 2000s, President Obasanjo initiated a new mining sector reform process focused on turning government from owner, investor, regulator and operator into an administrator and regulator of the mining sector. Some of the achievements of government in the 2000s reform include: enacting the Minerals and Mining Act, 2007; “closing” the Nigerian Coal Corporation, Enugu (NCC) and the Nigerian Mining Corporation in Jos, (NMC) so that private sector investors can now take-over commercial mining operations without fear of government as  competitor; Transforming the Geological Survey of Nigeria into the Nigerian Geological Survey Agency (NGSA) and  providing baseline geological information acquired through nationwide airborne geophysical survey; Establishing a  computerised Mining Cadastre Office (MCO) where private  investors now acquire mineral rights on a first come, first serve basis; Building capacity of government officials; and strengthening the mining institutions. These achievements are part of what the SMDF is now seeking to accomplish. As the reform of Nigeria’s mining sector was done to attract private sector capital to exploit Nigeria’s mining sector, should it not now be the private sector providing money to

exploit Nigeria’s mineral resources instead of 1.68% or 5% of national revenue in the SMDF? Granted there are things  that government must still do as sector regulator, but those can be funded by the annual national budgets for the MMSD  and sector Parastatals.

The third question should have been asked earlier, what will the SMDF do with its money? Section 34(2) Minerals Act,  2007 provides for the SMDF to spend its money on the  following: “(a) development of both human and physical capacity in the sector; (b) funding for geo-scientific data gathering, storage and retrieval to meet the needs of private sector-led mining industry; (c) equipping the mining institutions to enable them perform their statutory functions; (d) funding for the extension services to small-scale and

artisanal mining operators, and (e) provision of infrastructure

in mines land.” It seems that the intention is not to put public funds of the SMDF in the hands of individuals or companies. But it was reported in a story in the Punch Newspaper on  December 23, 2013 titled “Association urges FG to release N100bn solid mineral dev fund” that Alhaji Sani Shehu, National President of the Miners Association of Nigeria demanding for the release of the “N100 billion Solid Mineral Development Fund to operators in the sector.” If this

demand is met by government, it will amount to government returning to commercial activities in the mining industry which it had abandoned through a spate of privatisations. 

The Minerals Act does not give a lifespan for the SMDF so  the fourth question is: how long should the SMDF exist? This  question queries Chapter 5.4.7 of the National Conference, 2014 Report which wants the SMDF included in the federal constitution. The SMDF should intervene for a given time to facilitate development of Nigeria’s mining sector and once the objective is achieved the fund will close. But if the SMDF is made part of the constitution it might need a tedious constitutional amendment to close it. So, the SMDF should not be inserted in the constitution. Also, the SMDF should not be just a chapter in the Minerals Act, 2007. If it must exist, it can have its own legislation similar to the Nigeria

Sovereign Investment Authority (Establishment, Etc.) Act, 2011 (NSIA Act), governing Nigeria’s Sovereign Wealth Fund (NSWF); and it should have a maximum timeframe (5- 10 years) within which to accomplish its objectives. It makes sense to consider amending the NSIA Act to make the SMDF part of the NSWF.

Nigeria is the land where it is normal for “Estate Agents” to get a whopping 10% commission for renting or buying realty (in other countries, 2.5% commission is seen as very high). So, worrying about a “paltry” 5% of national revenue might seem misplaced. Nigeria’s budgeted revenues for 2014 is N7.5 trillion, if SMDF gets 5%, that would be N375 billion and definitely not paltry in any currency. Also, the impact of dedicating 5% of annual national revenue to one economic sector will impact negatively on other sectors and services.

The negative impact will reverberate even more when put alongside other agitations for deductions (and actual deductions) from the national revenue including various percentages deducted for Stabilisation, Derivation, Ecology, Police Reform, Federal Capital Territory, Subsidy Reinvestment and Empowerment Programme, Etc. There are also statutory transfers of national revenue to Judiciary, Legislature, Niger Delta Development Commission, Universal Basic Education Commission, Public Complaints Commission, Independent National Electoral Commission and National Human Rights Commission. Not forgetting that the petroleum subsidy is still fleecing the national revenue of hundreds of billions of Naira.

Nigerian government officials are working hard to develop themining industry. However, it must sink that even with all the money required, developing a national mining industry carries significant risk of the resource curse typified by environmental pollution, social dislocation of mining communities and other human rights abuses in extractive industries. I will borrow Mr. Wang’s sentiments and ask, if Nigeria will not work to develop its mining industry for the good of its citizens, why work at all?

Okey Uche Esq., a mining law expert is of Counsel at Adroit Lex Law Firm