Nigeria: Russia-Ukraine war threatens completion of the $8bn Ajaokuta steel plant

By Akin Irede
Posted on Wednesday, 2 March 2022 18:33, updated on Tuesday, 8 March 2022 15:48

Russia's President Vladimir Putin meets with Nigeria's President Muhammadu Buhari in Sochi
Russia's President Vladimir Putin shakes hands with Nigeria's President Muhammadu Buhari during a meeting on the sidelines of the Russia–Africa Summit in Sochi, Russia October 23, 2019. Sputnik/Mikhail Metzel/Kremlin via REUTERS

Nigeria entered an agreement with the Russian government to complete the Ajaokuta Steel Complex, which has already cost more than $8bn over the past 40 years. However, the new sanctions Russia is facing in the light of its invasion of Ukraine are putting the project in jeopardy, experts say.

In October 2019, Nigeria’s President Muhammadu Buhari and Russia’s Vladmir Putin met at the Russia-Africa Summit in Sochi and agreed to revive the uncompleted Ajaokuta steel mill. Many Nigerians were optimistic that 40 years after it was initiated, the complex – which has the potential to create some 100,000 jobs – would be inaugurated at a time when the country’s unemployment rate had reached an all-time high.

The Nigerian government subsequently set up the Ajaokuta Presidential Project Inauguration Team with a view to revamping the project based on a government-to-government agreement with funding from the Afreximbank and the Russian Export Centre.

They were expected to modernise the project and complete the project before Buhari leaves office, but we know it is no longer going to be possible for the project to be completed within this time frame.

However, before the Russian team that was expected to carry out the technical audit could arrive, the Covid-19 pandemic struck, stifling international travel and trade. This subsequently forced both governments to delay plans by over a year. However, Olamilekan Adegbite, Nigeria’s minister of mines and steel development said in July 2021 that the steel complex would function to capacity before 2023, when Buhari’s term ends.

Can Nigeria salvage the situation?

Russia invaded Ukraine in February. With Moscow now facing sanctions from the West and its currency in free fall, the Ajaokuta complex is not a top priority.

“There will be a delay because we cannot even communicate with them (the Russians) at the moment. It is very difficult right now. It is going to affect their coming. That is the truth,” says a top official at the steel plant who asked to remain anonymous because he is not authorised to speak to The Africa Report.

The source adds: “The presidential committee will take this into consideration and look at options that are available. They [Russians] were expected to come do the technical audit this first quarter.”

Nigeria-Russia relations

Nigeria remained neutral in conflicts between the Western bloc and the East throughout the Cold War and beyond and has continued to benefit economically from both sides.

According to the Nigeria’s Bureau of Statistics, the value of Russia’s exports to Nigeria between 2020 and 2021 stood at about $2.3bn. Most of the imports were mackerel, wheat and herring.

Nigeria has taken sides with Ukraine. So, even if there is no resource challenge for Russia, Russia will not take Nigeria’s position lightly. By asking Russia to withdraw, Nigeria is implicitly saying that Russia is the aggressor and guilty.

Last year, the Nigerian government and Russia also signed a military cooperation deal providing a legal framework for the supply of equipment and the training of troops amid an impending arms embargo on Nigeria by the United States congress.

However, the Nigerian government recently condemned Russia’s invasion of Ukraine and promised to abide by any sanctions levelled against Russia by the United Nations.

Former director-general of the Nigerian Institute of International Affairs Bola Akinterinwa tells The Africa Report that Nigeria should not have taken sides with the West, as doing so could put the steel complex and other projects at risk. “Nigeria has taken sides with Ukraine. So, even if there is no resource challenge for Russia, Russia will not take Nigeria’s position lightly. By asking Russia to withdraw, Nigeria is implicitly saying that Russia is the aggressor and guilty.”

Akinterinwa continues: “The Russian foreign minister cannot reckon with that kind of diplomatic gaffe because Nigeria knew what it was to benefit from Russia rather than Ukraine. Ajaokuta is the industrial base for development. The steel complex is such that if completed, Nigeria will be a major giant in industrial development.”

Time to look elsewhere?

There is no way Russia would prioritise the Ajaokuta project with all it is currently facing, West Africa tax leader at PwC Taiwo Oyedele tells The Africa Report. 

He argues that the Nigerian government should leave the project to the private sector to handle, adding that the government’s continued mismanagement was one of the reasons the Ajaokuta complex failed to take off after 40 years.

Meanwhile Muda Yusuf, the chief executive officer the Centre for the Promotion of Private Enterprise, argues that Nigeria could also look to China to work on the project.

“It was Covid-19 that disrupted things but now that you have this war, if there is deescalation and there is dialogue at the end of the day and this conflict is not protracted, then they can return to that path. But if that option doesn’t work, then Nigeria must look at other options like new partners because when you talk about steel. Russia is not the only one that is good in steel. […] The only advantage the Russians had was that they were the original project handlers. But if that doesn’t work, then we can look to China since they are currently the leading world leader in steel,” he said.

But the Chinese option remains unlikely, as Nigeria has been unable to get China to fund its latest rail projects.

When contacted on the telephone, Nigeria’s minister for mines and steel rejected a telephone call and requested that a text message be sent instead. However, he had failed to provide a response before publication.

40 years in the making…

Conceived as the centrepiece of Nigeria’s industrial take-off in 1979, the first phase of the Ajaokuta project was built by Russian firm Technopromexport. The project was expected to have been completed in 1986, but due to policy inconsistencies caused by coups, this target was not met. In 1994, the Russian firm abandoned the project when it was at 98% completion, citing Nigeria’s inability to meet its contractual obligations.

In 2001, Russia made moves to complete the complex. In 2004, then president Olusegun Obasanjo picked US firm Solgas Energy to complete it. The government cancelled the contract due to non-performance and subsequently handed it to Global Infrastructure Nigeria Limited (GINL), which is owned by Indian firm Global Steel Holdings.

Then president Umaru Yar’Adua terminated the contract, arguing that the agreements were skewed in favour of the concessionaire. He accused GINL of stripping Nigeria’s assets and ordered that the firm be investigated for corruption. The matter eventually ended in a London court with GINL claiming it had spent over $500m on the project.

An out-of-court settlement was reached, and the project remained largely abandoned, operating at a minimal capacity until President Buhari decided to resuscitate it in 2016 and invited the Russians to complete it.

Options going forward

With Buhari leaving office in the next 15 months and the Russia-Ukraine war raging, the fate of the steel complex hangs in the balance.

“Let the private sector do what it does best and let the government do what the private sector cannot do. Anything that has to do with business, whether it is steel or power, refining, rail, these are things that the private sector does better than the public sector,” says Oyedele.

“So, Nigeria needs to find a way to face the reality. Nigeria cannot be on a project for 40 years. Within this same period, Dubai transformed from a desert to one of the most developed destinations in the world. So, the Russian war is a temporary setback, but there is a bigger setback which is the way Nigeria does business,” he adds.

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