How can Africa’s continental free trade agreement be moved forward from talk to action? An eventful week in Ghana ended with new promises from ... African governments and state parties to speed up processes towards the full realisation of the world’s largest free trade area – AfCFTA.
Vice President Yemi Osinbajo announced plans to revise the code in November. Critics argue that the code has stifled investment in Nigerian mining, which accounts for just 0.3% of GDP.
The country’s mineral endowment includes gold, tin, iron ore, lead, zinc, barite and bitumen. In the north, security for mining operations is undermined by Islamic insurgency and clashes between farmers and herders over land. About 80% of mining in the northwest is conducted illegally by local artisans, according to the Institute of Security Studies. The ISS says gold mining is a root cause of violence in the region.
Mining in Nigeria has “huge potential” to reduce dependency on oil for foreign exchange inflows, says Farotade Oluwaseun, a London-based investor in African mining concessions. In October, Canada-listed Thor Explorations brought the Segilola gold mine in the southwestern Osun state into commercial production. Nigeria could easily accommodate between 15 and 20 junior miners running operations the size of the Segilola gold mine, and those companies could “easily” generate $3bn-$4bn in export value, Oluwaseun says.
The issue is more complex than just regulation, Oluwaseun argues.
- “Availability of data, quality of infrastructure and security probably top the list of why sufficient investment hasn’t come into Nigeria.”
- The new code will need to be combined with a security framework that protects investors from the “banditry” in the north, as well as infrastructure to ensure access to export facilities, he adds.
“The security situation in the northern areas is probably the number one cause of low investment into the sector,” says Mapondera Mandla, an investment analyst specialised in mining at Qaphela Capital Advisors in Cape Town. Security fears are compounded by a lack of marketing of Nigeria’s mining investment potential, he adds.
- Nigeria’s mining laws, in some instances, tick more boxes than those of Ghana and Tanzania, yet both those countries have been able to secure more mining investment than Nigeria, Mandla says.
- “The government needs to address the security situation for it to experience a significant swing in investment flows.”
In the medium to long term, mining has a potential to be a larger contributor to Nigeria’s diversification strategy, says Tiffany Wognaih, an analyst at Africa Matters in London. “But only if the government plays its cards right and addresses key sector-specific and economic structural issues.”
The 2007 mining code allows the government considerable levels of control over the industry and has “stifled” investment, Wognaih says. Other jurisdictions will not stand still while Nigeria considers revisions.
- The government has tended to start reform objectives with considerable momentum, but these are then hampered by “legislative inefficiency and structural macroeconomic and domestic challenges, such as foreign exchange concerns, poor infrastructure, corruption, and heightened insecurity”, Wognaih says.
- “We are not optimistic about revisions to the mining code being made in a timely manner.”
- An updated code will need to recognise that investors face increased reputational, environmental and social risks compared with 2007, Wognaih says. “Business as usual is no longer business as usual in the face of ESG-minded investors.”
- Artisanal and small-scale mining (ASM) accounts for up to 85% of mining in Nigeria. A new mining code needs a comprehensive strategy to address ASM, illegal mining, and their root causes, Wognaih adds.
Mining code revision will only help to realise Nigeria’s potential if combined with better security and infrastructure in the north.
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