The Solid Minerals Sector
The mining sector in Nigeria, despite its potentials for improving the country’s economy, only accounts for less than 1% of the country’s GDP. In the new economic reality that Nigeria finds itself, the solid minerals and mining sector portends frontier opportunity for economic growth.
Nigeria is endowed with a variety of mineral deposits, most of which according to the data provided by the Ministry of Solid Minerals is yet to be explored. Current exploratory studies suggest a potential for exploration and exploitation of various minerals within the 36 states in Nigeria, illustrating significant investment opportunity into the sector in Nigeria. A reawakening is advised strongly.
The milestones of the roadmap for the development of the solid minerals and metals sector, set by the previous government include increasing the sector’s contribution to the nation’s GDP from the current 0.4% to at least 5% by the year 2015, and 10% by 2020.
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The milestones were set to achieve the following:
a. Creation of about 3 million direct and indirect jobs by 2015;
b. facilitation of the production of coal needed to fire coal-fired power plants that would contribute 30% of the nation’s power generation by 2020;
c. revitalization of the entire steel sector for the operation and production of 3 million tons of liquid steel per annum by 2015 and 12.2 million tons of liquid steel per annum by 2020;
d. becoming a major regional and global producer of aluminium and steel products with target of 100,000 tons per year of primary aluminium and 3 million tons per year of steel products by the year 2015; and
e. achievement of an enhanced capacity to supply 50% of the skilled manpower required for all segments of the mineral and metals sector. Producing geological maps on a scale of 1:100,000 covering the entire nation by 2020.
A cursory examination of the progress on these milestone reveals that these remain laudable objectives significantly yet to be achieved.
Our Current Realities
According to the Nigerian Honorable Minister of Solid Minerals, Dr Kayode Fayemi, Nigeria’s mineral resources has been broadly categorized according to use, into five groups, namely: Industrial minerals (such as barite, kaolin, gypsum, feldspar, limestone); Energy minerals (such as bitumen, lignite, uranium); Metallic ore minerals (such as gold, cassiterite, columbite, iron ore, lead-zinc, copper); Construction minerals (such as granite, gravel, laterite, sand); and precious stones (such as sapphire, tourmaline, emerald, topaz, amethyst, garnet, etc.).
All of these minerals are found in different parts of Nigeria in different quantities. Interestingly, it has been said several times that no corner of Nigeria today is lacking in solid mineral assets. Quoting the Nigerian Solid Minerals Minister, “It is significant to note that among the minerals which occur in significant commercial quantities in different parts of the country are limestone – for which annual national demand is 18 million metric tons and which has driven the growth of Nigeria’s cement industry; talc – over 40 million metric tonnes of talc deposits have been identified; gypsum – over a billion metric tonnes of gypsum are spread across the country; bitumen – Nigeria has the second largest deposit of bitumen in the world; coal – there are over 1 trillion metric tons of coal resources on our soil. There are also significant quantities of several other minerals in Nigeria’s natural resource portfolio of at least 44 known mineral assets.” From the foregoing quote, the potentials in the Nigerian Solid Minerals sector is no kid play.
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Challenges with the Sector
The sector has been plagued by a number of internal and external challenges such as:
• poor policy choices which was compounded by a deterioration in the fiscal regime;
•lack of investors’ confidence and derailment of stakeholders such as the Jos Mining school;
•poor frameworks for institutional governance; and
•lack of adequate support infrastructure such as transportation and electricity, with over 3 decades of little or no work
The Sector has withered and requires a lot of effort to meet its potentials.
Taxation of the sector and fiscal advantages
The global trend flowing from the 2008 market depression has been to increase the rate of taxes that apply to the mining industry, since it was generally believed that the sector is highly profitable. In Australia, the Mineral Resource Rent Tax (MRRT) became effective from 1 July, 2012.
The Australian MRRT, which excludes small miners applies to bulk commodity projects for coal and iron ore operations is at the rate of 30% of the profits derived from mining of iron ore and coal. It is also a practice in countries to limit the loses that may be claimed by miners by applying the ring fencing rule and this is applied in Ghana to the effect that losses incurred in one field will not be available as offset against the profits from another field or site belonging to the same company.
Kazhaktan and Tanzania also have similar ring fencing rules. Also, most countries apply varying royalty rates for different mineral resources. And it is also not rare to find cases where the royalty rates increase with an increase in profit. Further, most countries have different tax treatments for exploration costs.
In Nigeria, the fiscal framework for the sector can be found in a combination of laws, each of which will be addressed below:
•The Constitution of the Federal Republic of Nigeria: Item 39 of the Exclusive list empowers on the federal government to legislate on this matter. And this forms the legal basis for the Nigerian Mining Act (NMA) 2007.
•The NMA forms the statutory basis for regulating the sector and provides for the taxation or the overall fiscal framework for the solid minerals sector. It vests in the federal government the property in all minerals within the Federal Republic of Nigeria. The Federal government may, in turn, grant rights / licenses for exploration, and then the finished good is subject to royalty in its final state.
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The Act provides for Royalty at the rate of 3-5% depending on the industry in question, and this is calculated on an ad valorem basis. It also provides for an Annual Service Fee, which applies to Holders of a mineral title, other than the holder of a reconnaissance permit, and requires them to pay same to the Mining Cadastre office. Annual service rents are also paid by the holders of small licenses or leases. Additional fees may also be imposed by the mining cadaster office with the approval of the Minister.
Temitope Samagbeyi & Oluwatumininu Familusi
