How Nigeria aims to boost mining’s share of GDP

The Nigerian landscape holds over 30 types of solid minerals in an identified 450 locations. Deposits span gemstones, metallic ores, energy minerals and construction materials, such as granite. While the mining sector was a mainstay of the economy up until the late 1960s, the focus on oil from that point on has seen the mining’s share of GDP fall to 0.5% in 2019. To diversify economic activity and export composition, the government launched the Roadmap for Solid Minerals in 2016, a three-phase plan for sector revitalisation. The aim is to increase mining’s contribution to GDP to 10% by 2026.

Proposed Agency

After rebuilding market confidence in the minerals and mining sector as a first step, the second phase of the roadmap focuses on expanding domestic mineral processing. The final stage is to offer Nigerian minerals at a competitive price point in international markets to capture foreign exchange (forex). Good headway was being made on the second step in March 2021, when a bill to establish a state-owned enterprise – the Mineral Development Corporation (MDC) – was being reviewed by the Senate after a first reading in September 2020. A lawmaker from Nasarawa South pitched the MDC as a vehicle to properly capitalise on Nigeria’s mined resources, from upstream exploration to downstream logistics and trade. An estimated N5bn ($13.4m) for initial capital and operating expenditure is required for the creation of the agency. If the bill passes, a primary mandate of the corporation – which is envisioned to work closely with the private sector and state governments – would be to invest in mineral processing and metallurgical operations. A government body more active along every step of the value chain is also expected to incentivise private operators to establish processing facilities, as their investments would be better protected. Midstream processing has also been identified as a way to create more skilled jobs in mining communities – areas that could benefit from technology and knowledge transfer from established operators, with the added benefit of discouraging illegal mining operations. The commercial viability of exploring for and processing all minerals and metals is being considered, but the initial focus is expected to be on gold, lead and zinc, iron ore, barite, limestone, bitumen and coal.

Modular Plants

A 2016 study by Deloitte found that modular plants could be a way to jump-start mineral processing in Nigeria with less time and capital investment. Traditionally, firms conduct a financial analysis to see if a large capital outlay for a purpose-built processing plant is justified, yet the timeline from the start of evaluations to plant operation can take years. Establishing smaller, less expensive modular plants where companies can add off-the-shelf modules to process commodities to the desired level is one way to ensure that processing takes place sooner and for more added value in a lower-price environment. The government can also work to integrate artisanal miners into the value chain by providing modular processing plants to a cooperative on the condition that the government is the sole purchaser of the processed output.

Tax Incentives

Under the Nigerian Mining and Minerals Act of 2007, mining companies are also given certain tax incentives to encourage investment. Included among those is the ability for a licence holder to claim an initial capital allowance on the qualifying capital expenditure at an accelerated rate of 95% when calculating taxable profits; the potential for licence holders to claim an added allowance on unused capital allowance for expenditures incurred within the first five years of production; exemption from paying Customs and import duties for equipment and accessories used for mining purposes; permission to retain and use forex derived from their mining activities; tax relief periods of three years with the possibility of a further two-year extension if the ministry is satisfied with the rate of development of a project; and the ability for firms to establish reserves for the lodgement of funds concerning environmental protection and mine rehabilitation.