Nigeria seeks $7bn in mining and steel over next decade
Nation needs to diversify from oil
NIGERIA is looking for investments of $7 billion in mining and steel over the next decade as it seeks to develop gold and iron ore extraction industries to diversify its oil-dependent economy.
One of the government’s priorities was to meet its annual steel demand of 6.8 million metric tons, from a current output of a third of that, produced mainly from scrap iron, solid minerals development minister Kayode Fayemi said.
“About $5 billion will kickstart the mining sector,” Fayemi, 50, said in an interview in his Abuja office last week. “In two to five years, we want to have started production of iron ore, lead, zinc, bitumen, nickel, coal and gold at a serious scale.”
Companies considering investments in Nigeria’s mining industry included Lagos-based Multiverse Mining & Exploration and Kogi Iron, based in West Perth, Australia, he said.
Boosting mining output, along with developing agriculture and infrastructure, is part of plans to broaden the economy of Africa’s second-largest oil producer.
Crude accounts for around 70 percent of the Opec member’s revenue and for 13 percent of gross domestic product, according to finance minister Kemi Adeosun.
Slumping global oil prices, from more than $100 a barrel of Brent crude in 2014 to under $50 a barrel currently, and reduced output due to militants attacks on pipelines in Nigeria’s Niger River delta, have squeezed state finances and caused a chronic dollar shortage.
Fayemi will this month present a mining plan to President Muhammadu Buhari and later a bill proposing the creation of a regulator for the sector.
“Currently, the ministry does everything: licensing, monitoring, inspection, and it shouldn’t be like that,” Fayemi said. Prospective investors had expressed concern about an uncertain regulatory environment, he said.
An autonomous agency would be better positioned to focus on performance and efficiency of the sector, according to the minister.
The new legislation would include incentives such as allowing full foreign ownership of mining projects in order to attract investments, Fayemi said.
“There is competition for funds, and investors will go where they can get the best deal. So if having full foreign ownership can attract them, then that’s a good move by Nigeria,” Pabina Yinkere,a Lagos-based head of research at Vetiva Capital management said.
“However mining for Nigeria is a long-term plan, that shouldn’t be looked at as delivering fruits in three to five years.”
Nigeria will also require about $2 billion (R27bn) to revive Ajaokuta, a steel complex which was supposed to have an installed capacity of 5 million tons a year.
Situated on the Niger River, in Kogi state, its construction began in 1979 but work was delayed by the government’s failure to pay builders on schedule and it is yet to be completed.
By 2004, when it was taken over by India’s Global Steel Holdings, then a subsidiary of Ispat Industries, it still hadn’t produced any steel.
Global Steel’s concession was revoked in 2008. After an eight-year legal dispute, it was agreed on August 3 that the government would take over Ajaokuta, while the Indian firm retains Nigeria Iron Ore Mining, which it would rehabilitate to supply the steel mill within two years.
Looking ahead The ministry was hiring an adviser for investments needed to increase Ajaokuta’s current capacity of 1.3 million tons of steel a year fourfold, Fayemi said. The complex also includes a 110 megawatt power plant, a 60 kilometer railroad and an air strip.
Just 18 of some 30 steel manufacturers in Nigeria were active, producing about 2.2 million tons a year and leaving the government with a $3.3bn annual import bill, Fayemi said.
It planned to create a $1bn mining exploration fund from state and private capital to improve data on Nigeria’s mineral wealth. Each exploration project will be supported with about $5 million, Fayemi said.
Nigeria aimed to increase mining’s contribution to gross domestic product to 7 percent within a decade, from 0.3 percent last year, according to the minister. – Bloomberg
Debt crisis
KEY TO the implementation of the ambitious 17-point Sustainable Development Goals (SDGs) is the question of how the estimated cost of between $614 billion (R8.15 trillion)and $638bn that will be required annually will be financed.
The UN Conference on Trade and Development has produced a report assessing the relationship between Africa’s capacity to finance the 15-year SDGs and maintaining debt sustainability. The report ignores critical deficiencies in the approach to the continent’s development agenda.
The report highlights the fact that official development aid alone will be inadequate to sustain the development needs of the continent. Instead, it recommends a three-pronged approach:
– Up-scale the use of domestic debt that is market oriented to supplement external debt and development aid.
– Use complementary financing such as private-public partnerships and diaspora remittances.
– Curtail flows.
The approach is far from ideal in that the continent’s debt position – external and domestic – is bordering on unsustainable. Stemming illicit financial flows, which are sometimes overstated, requires institutional capacity-building to enforce. Private-public partnerships is one approach that could bring sustainable development in the area of infrastructure development. But it requires a different model to contribute to other sectors. illicit financial The continent’s sovereign external debt position has been rising faster than GDP in the past four years. With the dawn of the cyclical boom-bust of the commodity market, a key trigger factor for the 1980s African debt crisis, it is evident the continent is facing a renewed debt crisis.
Ghana is currently under IMF intensive care supervision, while Mozambique’s IMF support programme is under suspension. Kenya has applied for a standby credit facility, while Zambia is expected to negotiate an IMF bailout package after its general and presidential elections this month. A dozen other countries dependent on single commodities for revenue will be looking for international relief to avoid defaulting on both concessional and commercial loans. This will become more critical as they approach the repayment period between 2020 and 2025, when most capital market eurobond loans mature.
A critical factor that underscores the debt crisis is that the debt has become unsustainable even though debt ratios are below 50 percent of GDP. The debt crisis is already well under way. The only question is how deep it will cut into the development agenda of the continent.
The challenge with domestic debt is that it limits the resources available to the private sector to borrow for productive activity, which directly contributes to the country’s GDP. The private sector, which consists of at least 83 percent small and medium-sized companies, depends on this financing for expansion. These have limited access to finance but hold the key to job creation and increased tax revenue generation. They are also directly linked to the populace that is living in extreme poverty.
The extent to which curtailing illicit financial flows can contribute to creating an alternative source of development finance has been overemphasised. Between 1970 and 2008 it is estimated that the continent lost $850nn. About 60 percent of this was through trade mis-invoicing and the use of tax havens. And 35 percent was attributed to the proceeds of crime, with the balance of 5 percent apportioned to corruption.
The corporate and commercial outflows (tax havens) are legal modalities of tax avoidance and thus difficult to curtail. Mis-invoicing is a vice that cuts across borders and will require a concerted effort among trading countries.
And if national governments had the resources and capacity to eliminate crime and corruption, the proceeds from these activities would not add to government revenues.
On top of this Africa as a whole has very poor resource management capacity. This means that putting more money into government coffers won’t necessarily lead to the eradication or alleviation of poverty.
Take Nigeria. Oil revenues per capita have increased tenfold in 35 years. But Nigeria’s income per capita does not reflect this growth. The Global Finance report lists the country as the 62nd poorest country in the world.
Concessional policies associated with foreign direct investment are the single largest drain on revenue for African countries. This partly occurs when investors are allowed duty-free imports on capital equipment. The immediate effect is that it denies governments much needed tax revenue and continually bleeds the country of foreign exchange earnings.
Between 2004 and 2014 Zambia received just over $12bn in foreign direct investment. These inflows mostly came into the country in the form of capital equipment. The general effect was the immediate loss of tax revenue in import taxes, which represents a minimum net loss of $5.4bn. In addition, the externalisation of the investment amount and untaxed profits over the long term undermines the country’s capacity to have a solid foreign exchange reserve base. This represents an additional net loss of $4.2bn.
This $9.6bn loss comes alongside the depletion of the country’s natural resources. The net effect is that Zambia has not made a tangible reduction in poverty, as pointed out by the EU in its analysis of the implementation of the 11th European Development Fund.
Strengths The African continent holds a unique position on the global market. It produces more than 20 percent of the world’s gold, 50 percent of diamonds, 12 percent of oil and 6 percent of natural gas.
Yet 75 percent of the world’s ten poorest countries are in sub-Saharan Africa.
Bilateral and multilateral donors have failed the continent by piling massive public debt on governments in the full knowledge of the history to the 1980s debt crisis. This is despite the fact that they lack fiduciary accountability to their people while causing depletion of natural resources.
To come anywhere near achieving the target of eliminating poverty, as per the UN’s latest development goals, the continent would need to attain a GDP growth rate of least 16 percent. The reality is that the continent is averaging growth of 5 percent.
The solution lies in African countries taking control of their destiny by replacing foreign direct investment with local direct investment. The continent must direct resources towards production in agriculture and manufacturing, improve its capacity for global competitiveness and import only advanced technologies and expertise.
Trevor Hambay is a PhD Research Fellow – Finance, University of Bolton. This article was originally published in The Conversation. Go to: http://theconversation.com/