After a decade long period of lacklustre performance, the mining sector is finally “going for gold” as its revenue profile increased by an unprecedented 500% in 2017 — under the leadership of Kayode Fayemi as minister of mines and steel development. 

This is according to the latest occasional paper series released by the Nigeria Extractive Industries Transparency Initiative (NEITI) on Thursday.

The fourth issue in the series, the report assessed the sector’s performance and revenue profile relative to the extractive industry which also comprises of the oil and gas sector.

The report revealed that in the period under review (2007 to 2016), the mining sector made only $1.78 billion dollars out of the $476.8 billion dollars recorded in the extractive industry.

The bulk of earnings recorded in the industry was in the oil and gas sector which contributed $475 billion within the 10-year period.

This shows that the revenue government generated from solid minerals averaged a mere 0.41% of the total earnings from the extractive industry, compared to the 99.59% earned from oil and gas.

Although it seemed there was a temporary reprieve between 2008 and 2009 when the sector’s revenue contribution increased by 0.23%, the next two years witnessed some form of latency.

Contribution to revenue in 2010 and 2011 remained at 0.25% but marginally increased to 0.32% in 2012.

In the 10-year review period, the NEITI report said mining’s contribution to the extractive industry was less than 1% when compared to the oil and gas sector’s dominance.

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Where Nigeria stands in Africa

The NEITI report revealed that the mining sector has the potential to “sharply contribute to the GDP” but this is not the case as it is currently lagging behind its peers in Africa.

Nigeria’s mining sector’s contribution to GDP is a paltry 0.55% compared to the 40%, 25% and 18% that Bostwana, Democratic Republic of Congo, and South Africa contribute to their national GDP respectively.

The poor performance is recorded despite the fact that the nation is endowed with about 44 different minerals comprising of high-value commodities and are found in commercial quantities in 450 locations around the country.  

Some of the problems identified as a bane to the sector’s development include dearth of relevant information, poor funding, weak fiscal regime, poor inter-ministerial and inter-agency collaboration, inadequate technical capacity, illegal mining operations and opacity of industry laws and regulations.

These issues, especially the governance aspect, have in no small way affected the influx of investments to the mining sector, leading to a poor perception among foreign investors.

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From comatose to thriving?

In a welcome turn of events, the mining sector’s revenue profile increased by 500% in 2017 from the 0.94% contribution in the previous year, according to NEITI.

The 2017 fourth quarter (Q4) and full year GDP report released by the National Bureau of Statistics (NBS) showed that coal mining, a sub-sector, grew by 2.86% in Q4 2017 from -38.49% in Q3 2017 and 0.44% in Q4 2016.

Metal ores, another sub-sector, grew by 31.86% in Q4 2017 from 10.70% in Q3 2017 and 7.03% in Q4 2016.

Listing some of the factors that led to an improved revenue profile, the report said: “It is however noteworthy that with some efforts, the revenue profile for 2017 has been reported by the office of statistics to have improved by 500% over the previous years.

“This positive development has largely been due to improved logistics provision for mines inspectors, and reshuffling and strengthening of the relevant departments.

“However, even these latest improvements fall short of performance projections at the start of the reforms, considering the enormous mineral potential and endowment of Nigeria, as such steps should be taken to attract major miners to the sector by improving the policy environment.”

In its recommendation, NEITI said that the government should boost investors’ confidence for the mining sector to maintain a robust revenue profile, thereby leading to sustainable growth and development.

“Nigeria’s low score in Policy Perception Index should be reversed through further removal of barriers to investment,” the report read.

“While efforts have been made by the current government to improve the ease of doing business score, further attempts should be made to increase the ease of access to critical information, not only about minerals deposits but even about ownership of mineral titles in the country.

“Mining policies should also guarantee predictability and consistency of application of rules.”

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The Federation Allocation Account Committee (FAAC) disbursed a total of N8.52 trillion to the three tiers of government in 2018.

The amount disbursed exceeded N2 trillion in three consecutive quarters — the first of such occurrence since the third quarter (Q3) of 2014.

This information is contained in the 10th issue of the Nigeria Extractive Industries Transparency Initiative (NEITI) quarterly review.

A break down of the figures revealed that the highest quarterly amount of N2.299 trillion disbursed in Q4 2018.

This is the highest quarterly disbursement since Q2 2014 which recorded N2.520 trillion.

The lowest quarterly disbursement within the four year period was recorded in Q2 2016 with only N886 billion shared among the three tiers of government.

This was the period Nigeria eased into its worst recession in the last 29 years, on the back of low levels of crude oil prices which reduced to $50 per barrel between January and July of 2016.

Drawing comparison between the amounts disbursed between 2017 and 2018, the report said there were “striking increases” within the one year period.

For Q1 2018, total disbursements were N1.938 trillion, while total disbursements in the first quarter of 2017 were N1.411 trillion, representing an increase of 37.3 percent over the 2017 figures.

Total disbursements in Q2 2018 were N2.008 trillion while corresponding figures for 2017 were N1.377 trillion, an increase of 45.8 percent.

Total disbursements of N2.278 trillion was recorded in Q3 2018 and increased by 18.1 percent over the 2017 figures of N1.929 trillion.

Total disbursements in Q4 2018 was the highest at N2.299 trillion while corresponding figures for 2017 were N1.7 trillion, representing an increase of 35.2 percent.

“With the exception of the third quarter of 2017, there has been a consistent rise in quarterly disbursements since the second quarter of 2017,” the report read.

“These figures suggest that the nation might be getting back to the levels of revenue observed prior to the drastic fall in oil prices that started in 2014.

“However, disbursements have not yet reached the levels recorded in 2013 and 2014.”

FAAC disbursements to the three tiers of government were highest in December and lowest in February, with the exception of the record low of N128.30 billion local government councils received in April.

Oil revenue boosts FAAC allocation

The NEITI review gave an insight into the significant rise in FAAC disbursements to the three tiers of government, recorded in 2018.

Oil revenue was said to be the major contributor to the increase in FAAC allocation.

Going back to average daily oil production and prices from January 2015 to August 2018, the report explained that while prices started falling in 2015, production was still relatively stable.

However, oil production started falling in 2016 as a result of consistent attacks on oil facilities by militants and the subsequent shut-ins that major producers had to enforce as a result of the attacks.

This contributed to the plunge in the nation’s revenue and resulted in the drastic fall in FAAC disbursements which started in the fourth quarter of 2014.

In a remarkable turnaround, both oil production and oil prices started rising around the same time in 2017.

“The sustained rise, particularly in oil prices, has led to the continuous increase in FAAC disbursement,” the report read. 

‘FAAC disbursements will keep rising in 2019’

Using trend analysis, the review projected that FAAC disbursements will keep rising in 2019.

Renewed optimism as a result of an increase in Nigeria’s oil production together with consolidated efforts by the Organisation of Petroleum Exporting Countries (OPEC) to keep oil prices from falling is expected to maintain the rise.

“With the concerted efforts by OPEC to limit oil production, coupled with sanctions on Iran and Venezuela oil exports, it is expected that oil prices will not fall to the very low levels experienced from 2014 to 2017,” the report read.

“Oil production is also expected to increase in 2019. An important offshore field – Egina – started production in late December 2018.

“With an optimum capacity of 200,000 barrels per day, production from this field and other shut-in fields whose production is expected to come back on-stream will increase the nation’s oil production.

“Increased oil prices and oil production bode well for government revenue.

“Thus, it is anticipated that FAAC disbursements will continue rising in 2019.”