Key Challenges facing the Nigerian Mining Sector | KPMG | NG

Key Challenges facing the Nigerian Mining Sector

Key Challenges facing the Nigerian Mining Sector

This article highlights the key challenges facing the Nigerian Mining Sector

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Key Challenges facing the Nigerian Mining Sector

The Nigerian Minerals and Mining Act is the principal legislation that regulates the sector. The Act vests the control, regulation and ownership of all mineral resources in the Federal Government of Nigeria (FGN). The Minerals and Mining Regulations and the National Minerals and Metals Policy also govern the sector.

The Ministry of Mines and Steel Development (“MMSD” or “the Ministry”) oversees the mining sector in Nigeria, and administers the provisions of the Nigerian Minerals and Mining Act.
The Ministry is supported in performing its functions by the following statutory departments:
1. Mines Inspectorate Department
2. Mines Environment and Compliance
3. Mining Cadastre Office
4. Artisanal and Small-scale Mining Department.

However, the Ministry plans to set-up a super regulatory agency that would combine the key functions of the above departments, which will be independent and self-funding. In executing its mandate, some of the key challenges facing the Ministry and the sector include, but not limited to the following:

Limited geoscience data and information

Most of the available geological / geoscience data are dated. This affects the credibility of the resource information, and has impacts the bankability of mining projects.

To address this challenge, the Nigerian Geological Survey Agency (NGSA) has conducted a high resolution airborne geophysical survey of the country, and is collating information on the location and quantity of available minerals for easy accessibility. The Agency plans to have 100% geophysical coverage of the country by 2020.

Infrastructure development

A major challenge to the development of the sector is the infrastructural imbalance within Nigeria, particularly adequate electricity supply, and access roads to sites of mineral deposits.

However, the privatization of the national utility and reform of the power sector are stimuli for private investment in the sector. As capacity increases with new investments in the generation, transmission and distribution of electricity, the shortages currently being experienced will be overcome. Pending the resolution of the power problem on a national scale, mining investors can meet their power needs by engaging independent power producers for captive generation and supply of energy to the mines.

Furthermore, access roads will ultimately improve with the ongoing investments by the Federal and State Governments in road infrastructure. The ongoing rehabilitation of the rail lines will also facilitate product evacuation across the country for export.

Security

A number of the mineral rich communities in the Northern region of Nigeria have now been liberated from the occupation of the terrorist group – Boko Haram. However, a number of communal and religious conflicts occur intermittently in the mid-belt region of Nigeria, which is known to be rich in minerals and metals.

The security agencies are equipped to respond appropriately to social conflicts as and when they arise. Also, the Ministry is strengthening the operations of the Mines Surveillance Task Team to tackle the challenges of illegal mining. Security concerns are, therefore, not of the magnitude that should discourage investors in the Nigerian mining sector.

Illegal mining and community challenges

There are pockets of Illegal mining activities in some of the regions, with attendant risks and community challenges. However, with the enactment of the Mining Act, foreign investors with the necessary permits and licences are guaranteed unfettered operation of their legitimate business in the country.

Furthermore, the Ministry is putting in place a framework for a single point of engagement with host communities, involving the respective state governments. The Ministry is also working with State Governors to revive the Mineral Resources and Environment Management Committee (MIREMCO), a statutory body provided for in the Nigerian Minerals and Mining Act, to enhance governance of the sector.

Project funding

Due to the long period of inactivity and the slow implementation of the Federal Government’s reform agenda in the sector, multinational corporations have been reluctant to fund major mining projects in the country.

However, as stated earlier, the Ministry has been able to obtain a N30 billion intervention fund from the Natural Resources Development Fund (NRDF), and
additional funding from International Development Partners through the World Bank. While the funds from the NRDF will be utilized for exploration and research, geosciences data generation, improved mines field security, etc.; the funds from the International Development Partners will be used to promote the development of select mineral exploration projects as part of the Nigeria Mineral Sector Support for Economic Diversification Project.

The above steps, and the progress made in the regulatory reform, so far, are expected to stimulate activities by new investors in the sector.

Lack of robust fiscal framework

The existing fiscal framework for investors in the mining sector is not friendly enough and does not consider the peculiar nature of the sector, particularly, its long gestation period. Therefore, Nigeria will need to revisit the entire fiscal framework for the taxation of mining operation, in order to attract mining majors and foreign investors. In 2016, KPMG published the 5th Edition of its 'Investment in Nigeria’ guide. This guide provides readers with detailed information on doing business in Nigeria, including; the requirements for incorporating a business, statutory filing requirements, regulatory agencies, etc.

This article is an excerpt from our Thought Leadership document "Nigerian Mining Sector Brief". Click here to download the publication.

© 2017 KPMG Professional Services in Nigeria, a limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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