Nigeria’s mining sector blessed with a vast wealth of solid minerals, boasting over 44 different types scattered across 500 locations nationwide. These resources fail to attract the much needed FDI the nation requires to boost and grow its economy.
A recent report by KPMG, highlights the immense potential of the Nigerian mining sector, however, the report also identifies several challenges that hinder the sector’s growth and ability to attract foreign direct investment (FDI).
Current State of the Mining Sector:
As of May 2024, over 7,182 companies and individuals held licenses to operate in the Nigerian mining sector, encompassing exploration, mining leases, and small-scale mining activities.
Despite its rich mineral endowment, the Nigerian mining sector faces several challenges that impede its growth. KPMG identifies a lack of critical infrastructure, particularly reliable electricity supply and access roads to mining sites, as a major hurdle. Additionally, limited and outdated geoscience data makes it difficult for investors to assess the viability of mining projects.
Breakdown of Challenges
Infrastructure Deficits: A lack of critical infrastructure, particularly reliable electricity supply and access roads to mining sites, creates significant obstacles.
Limited Geological Data: The scarcity of reliable and up-to-date geological data on mineral resources and their locations makes it difficult for investors to assess opportunities. While the Nigerian Geological Survey Agency launched the Nigerian Mineral Resources Decision Support System (NMRDSS) in May 2024, further improvements in data accessibility and quality are needed.
Security Concerns: Insecurity, particularly in mineral-rich areas of the northern and central regions, poses a significant challenge for mining operations. While recent efforts to address illegal mining and strengthen security offer hope, sustained progress is crucial.
Project Funding Constraints: Attracting investment remains a challenge due to a combination of factors, including limited bankable projects stemming from a lack of geoscience data, policy uncertainties, security concerns, and global economic dynamics.
Unattractive Fiscal Framework: The current fiscal framework for mining investors is not considered competitive enough. The report suggests a need for a more attractive and harmonized fiscal regime that caters to the long-term nature of mining projects and provides clarity to investors.
Project Funding and Unattractive Fiscal Framework
Attracting investment is another major challenge. The combination of limited geoscience data, policy uncertainties, security concerns, and global economic factors discourages investors. KPMG also points out that the current fiscal framework for the mining sector is not competitive enough. The long gestation period of mining projects necessitates a more investor-friendly environment with clear, harmonized fiscal policies and attractive incentives.
“In addition, incentives for miners appear to be scattered in pieces of different and independent fiscal legislations, which urgently calls for harmonisation, to provide clarity to operators as to which should prevail.”
KPMG Recommends Joining International Mining Organizations
According to KPMG, Nigeria can significantly improve its prospects for attracting foreign investment by joining renowned international mining organizations.
“Therefore, in addition to its continuing efforts to mitigate the identified domestic challenges and to improve the ease of doing business in Nigeria, the federal government (through the relevant ministries or key mining associations) should consider becoming a member of renowned international mining organisations.”
These organizations include the Committee for Mineral Reserves International Reporting Standards (CRIRSCO), the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF), and the International Council of Mining and Metals (ICMM).
Benefits of Membership:
KPMG outlines several benefits Nigeria can reap from membership in these organizations. These benefits include:
Validation of Mineral Deposits: Membership can validate the existence and accuracy of reported mineral deposits, especially critical metals. This builds trust with potential investors.
Enhanced Reporting Standards: Adherence to international reporting standards fosters confidence by ensuring transparency and accuracy in the reporting of mineral estimates.
Improved Social and Environmental Performance: Membership encourages best practices in social and environmental responsibility, aligning with the growing focus on ESG (Environmental, Social, and Governance) considerations in investment decisions.
Recognition for Local Communities: International recognition can highlight the positive contributions of the mining sector to local communities and society as a whole.
Strengthened Regulatory Framework: Collaboration with international organizations can lead to stronger laws and policies promoting sustainable development in the mining sector.
Signaling Readiness to the Global Community
KPMG highlights the recent strides made by the Nigerian government, such as the launch of the Nigerian Mineral Resources Decision Support System (NMRDSS) to provide access to geoscience data. These efforts, coupled with membership in international mining bodies, would send a strong signal to the global community that Nigeria is ready to do business. Certifications obtained through these organizations would further strengthen investor confidence and position the country as a preferred destination for mining investments.
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Looking Ahead
Nigeria’s solid minerals sector holds immense potential to contribute to the nation’s economic growth and diversification. By addressing the identified challenges and implementing the recommendations outlined in the KPMG report, Nigeria can unlock this potential and attract much-needed foreign investment. Joining international mining organizations can play a crucial role in this process by enhancing transparency, attracting expertise, and boosting investor confidence.
