Mining looks good to replace oil as Nigeria’s main revenue earner in the next five years. Achieving this, according to Partner/Mining Industry Leader, PwC Nigeria, Mr. Cyril Azobu, requires managing the implementation of last year’s ‘Roadmap for the Development of the Solid Minerals Sector’ in a professional, actionable manner that can track achievements of its set objectives. In this interview with CHIKODI OKEREOCHA and AMBROSE NNAJI, Azobu insists that the private sector must drive the reforms in the sector. He also speaks on other economic issues.
Is Nigeria exploiting the opportunities in the mining sector?
First of all, you need to understand that mining is not a sector that you expect that something will happen quickly. The typical life cycle in any mining is long, the gestation period is also long. Take, for example, the entire value chain – from exploration down to processing, the exploration, which is the riskiest part of it – takes quite a long time. Take, a typical resource like iron ore for example, it takes a long time to do exploration. And you have a lot of other players in the sector that are actually investing in exploration. Number one, you are not going to have people who will invest in exploration as a result of the level of uncertainties. Two, you don’t know how much you are going to get. So, to do that, you need time, sometimes between three and five years or even more, to do exploration. When you do exploration, you have to begin to develop that area, construct, build plants to carry out operations there, you move to some level of processing. Even when you are exporting, you need to have some degree of processing, and have your export channels. But even at that, because you are exporting, that is still subject to global commodity pricing, which is only just improving at the global level.
There are also shocks that could affect your pricing. Iron ore, for example, is generally low globally. Gold is fairly okay. You also need to consider that there are other factors in the value chain. Steel, for example, how do you move from iron ore extraction to processing, and then to steel development? Those are the things that stimulate the economy because you are creating activities that actually have other people that are linked into it. That doesn’t take only one year; it doesn’t take two years or three years. What I have seen that has happened in the last few years or two is that we seem to be getting clearly our policy framework, how these things work. You know there are some things that you will need to see by now that will make other players come in. So, we need that storytelling; we need that one or two projects that will actually kick off and everybody sees it and then begin to run on it.
How far have we gone in implementing the policy framework?
There was an excitement we got when the new government came in; we would like to see that go to the next level. We have the roadmap, for example. The roadmap articulates how we intend to grow the sector. It’s actually different from the one in 2012, which, for me, was very ambitious; we wanted to grow by 10 per cent by 2020. Currently, we are still hovering around .5 per cent. We are putting the cart before the horse. You can’t just have such growth objectives without having a clear strategy on how you intend to get there. So, the roadmap in 2016, when the government approved it, seems to be a bit more articulating. It clearly determines what particular strategy we need to deploy in achieving that roadmap. So, it looks at across a chain from institution building to stakeholder management to management of players in the sector, funding etc.
There is a whole gamut of things you need to deploy. So, while the objectives have been defined, and the direction has been defined on how to achieve, say three per cent by 2025, which is modest and even better than moving from 0.5 to three per cent, there is a lot you have to do. And while some of them would be low-hanging fruits, the others could be big stimulation. And it is one thing to have a roadmap, and another thing to implement that roadmap. That is where I am saying that there could be a bit more work, there could be more action. It could be faster and going by things that are driven by public sector once you get into another round of elections; the general belief is that things will slow down. So, I think that to get this done, it is not just a government action alone, it has to be concerted, and it should be private sector driven. And the reason I see that the roadmap kind of encapsulates what should be done is that there is a Mining Implementation and Strategy Team that has been suggested in the roadmap. That team has been constituted. The responsibility of that team is now to take the roadmap and have a clear implementation plan, who takes responsibility for what. Why I like the composition of the team is that they include private players mostly and other stakeholders within the entire sector and these people can take ownership. So, to your question: it will take time, but there are expectations as to what should have happened now which has not fully taken off.
What are they?
I expect, for example, that the implementation team would have started. I expect that they take those roadmap objectives and start determining who is responsible for what. So, they take each of those strategic objectives in the road-map, how do we ensure or monitor that those actions have been implemented, who is giving feedback, who is responsible for ensuring that this aspect of the roadmap is implemented. Everybody is looking to the government, but where are the other stakeholders that are responsible for ensuring that this aspect of the roadmap is implemented, as to what the key objectives are and how these things impact the achievements of the roadmap. So, those are the kind of things I expect to see. I expect to see at least some story telling projects. For example, we know how the story of cement changed, from the production side, but we don’t tell the story from the mining side. If there was no limestone and gypsum, which are input to cement production it could not have happened.
But we opened up that space and we see from the downstream side how this thing actually paid off. It actually explored the entire value chain and then you see the end product. So, we want to see a steel industry, for example, that is not heavily dependent on the importation of billets; a steel industry that is not dependent on use of scraps that are here and there. We still import a big chunk of our steel. So, yes, we have a steel rolling complex, we should be able to move past the legal issues around the Ajaokuta Steel Complex. We also have an iron ore mining company, a national asset. The deposits are there, if we remove and address those which are still in government’s hand; and I am aware that there are on-going efforts, which are commendable.
But that has been done already, particularly for Ajaokuta?
It’s still in the process. They are discussing with the parties involved. Once we sort out these things, we get them working, get National Iron Ore Mining Company (NIOMCO) working, and get Ajaokuta working, then we are getting somewhere.
How do you propose we do that, through privatisation or conces-sioning?
You know that these things were privatised at some point.
Which never worked?
But they are still there. Again, don’t forget that when you get into an arrangement, there are contracts that you honour. So, if you understand the story around this Ajaokuta you can’t just as a nation sign a contract and then you backtrack. These things have legal implications and that is what has resulted in the tussle so far, to the extent that the government is trying to honour those contracts and find ways to sort these things out, because there are disputes, because you sign contract, so whether you have them or not is a different ball game. But I know that the government is making efforts to sort these things out. Whoever it is, but I think that for such assets, they are best run from the private sector perspective, whether you are concessioning them or not. I think that there is a way you can run those assets and make them productive. We have invested a lot in the Ajokuta Steel Complex. So, once we are able to sort that, I am hoping we do that quickly, because if we do, you are actually reopening operations in iron ore mining, you are opening up operations in steel production. And then you are actually now opening a bigger ecosystem.
How much can Nigeria realise from the mining sector if these issues are sorted out?
I will not put a figure to it, because I don’t know what the figure is. But I am a believer that a three per cent contribution to Gross Domestic Product (GDP) by 2025, according to the roadmap, is modest. We haven’t done any particular survey. I can’t quote a number that I don’t have the statistical facts to back up. We haven’t done the survey, but these are projections. When I say there are low hanging fruits, what has simply moved us from about 0.3 per cent to .5 per cent is not because we added new resources or new developments or increased mining activities. It’s just because we are just sorting out things around the framework, things that are happening. Even now you probably find a lot of mining activities going on, people are paying royalties, there is illegal mining going on. But just by fixing one or two things, we suddenly just went up. And I know that if we actually take care of a few more things, without actually adding or increasing production levels, we fix things around illegal mining, fix things around building institutions and all that, we can just easily raise these things, because I am not sure everything is imported, but I think that we can actually take advantage by fixing loopholes around illegal mining, which I believe the government is also making efforts. I think moving from .3 per cent to .5 per cent is a lot of work.
Why is the roadmap not being implemented fully?
When I say not implemented, I am talking about a concerted effort to activate them, start working. I want to see clear action plans. I want to see people monitoring and evaluating the extent of implementation. That is the active programme that I want to see run. But having said that, I am aware that there are certain aspects of the roadmap that the government is implementing here and there. For example, stakeholder engagement. States, for example. They came up and said now we have means of diversifying our economy, we can have ways of increasing our Internally Generated Revenue (IGR). The first that comes to mind is, let us control it, because the immediate gain is that if we issue licenses we will get royalties. So, the states were really keen to own it. You don’t forget that mining is in the exclusive list, the Federal Government owns the resources, either from the constitution or the Mineral Mining Act of 2007. So, they had that expectation but I think what has now happened is that you don’t need to really own or be in control of solid mineral resources, there are other ways you can earn royalties. I think what has happened is that the level of engagement at the federal level is now beginning to have those things and they are beginning to think of how to take their resources. For example, Edo State recently had its Mining Strategy Retreat, and they are beginning to think of their resources, how can we take advantage of them? So, there are other ways you can actually have interest in mining your resources.
The mere fact that activities are going on, investors are in the place; they employ people, and the people who are employed pay taxes; state taxes will belong to states. It’s the same thing when you had the 13 per cent derivation applicable to every state. So, states can actually engage, partner or have Joint Ventures (JVs). Some states are being very creative and innovative on how to get this done, yet some of the operatives are complaining about double taxes and all that. But that can be fixed. The point is that because there is more engagements and use of the instrumentality of the Mineral Resources Environmental Management Committee (MIREMCO), domiciled in the states. We actually have a say in what is happening. More people are becoming aware as to how these can be set up and put to use these resources they have at the backyard. So, that is one aspect I see that the government is taking steps to address. In terms of checking illegal mining, again I was in the state and I saw how the police were being deployed to monitor these things. So, there are some things at the government level. Data gathering is another area.
There is an intervention fund that the Federal Government has opened and a big chunk of it is invested in data. So, all these are things that will continue to drive the economy. But you can’t expect the ministry to drive these, because, if the ministry continues to drive it, you won’t see the expected result as quickly as you want it; you need everyone engaged, everyone switched on, which was why I said this Mining Roadmap Implementation and Strategy Team needs to get working and monitor the achievement of these things. I would like to see that we have the plan B; don’t keep it in the books, bring it out and say yes. This is what we said we will do. By week one, have we done it? By week two, have we done it? To what extent have we done it? What are we learning from these things? What benefits are we getting? For me, that is a balanced score card. That’s your measurement of your level of achievements, because you can have a reference point, and you have a delivery mandate? So, when I talk about implementation, it is fully implementing it in full ground management. Manage the programme of the implementation in a professional manner, in a way that you can track achievements of those objectives. For me, that’s what matters. And it’s not peculiar to mining, its everywhere. It is always implementation of policies. If you talk about policies, we have very good policies. We’ve got policies, we’ve got regulations. The regulatory and legal framework is actually tight, but move beyond policies, move beyond thoughts to execution and find a very good communication strategy that showcases that this is happening. So, even if it is going to take a long time, we can actually track progress. And because you are tracking progress there is continuity, and the new government that will come in can actually pick up from where the previous government stopped.
Is the government doing enough collaboration with the private sector?
Yes, they are. There are several fora. In fact, one of the things that brought us PwC to get involved to this extent was, as far back as 2011 or so, just before the 2012 Roadmap was launched, we were talking to private players and it seemed like many of them hadn’t any clue of what the government was doing. That was what initiated PwC’s first roundtable in mining in 2014. We had the very first roundtable in Lagos. You will be amazed how much people have interest in this sector, including people who are not even active miners (the ecosystem is large)-lawyers, bankers everybody was just interested and they were coming in. That metamorphosed into what we call the Nigeria Mining Week in collaboration with the Miners Association of Nigeria. Now there is a bigger collaboration; there is more engagement with the private sector. The recently inaugurated Mining Development Board; that wasn’t the first one anyway, but if you look at the composition, it’s all private sector people – there is a chairman, a Secretary to the Board, a representative of the Central bank of Nigeria (CBN0, Bankers’ Committee, and there were three miners. So, these are private sector people. What is their role? Manage the fund. There is actually a fund because funding is one of the biggest areas of concern in the sector. So, they manage this fund. There is an intervention fund; there is a statutory allocation, and a percentage of the budget that flows into the fund.
How much is the fund?
I know there is N30billion Intervention Fund that the government approved. Most of it has been used to do data. That was before this new board was constituted. And then there is a requirement for a percentage of the budget to go to the sector. There is an appropriation from the yearly budget that actually goes to that fund. And then, of course, the Board is supposed to think of alternative ways of raising fund. Part of it is doing things around data, capacity building for miners, and generally, helping the sector to grow. So, all that are the initiatives that I think the government is taking steps in engaging the private sector. I think the industry still sees the government as the biggest player; government should drive. But my view is: the private sector should drive.
Are you involving associations in the mining sector?
The event is actually the Miners Association of Nigeria in conjunction with PwC Business Intelligence. When it started, it started as PwC. This time around, we are saying let’s begin to allow the players to drive these things, which is where the Miners Association of Nigeria come in. We give it our credibility, backing and technical support, such that the miners themselves, in fact, the young the miners within the ecosystem, own and drive these things. So, the Miners Association of Nigeria is there; the President of Geological Society of Nigeria is also a part of us. The point is that any one of the stakeholders we want them to get involved. We don’t just call miners and the associations; we want to get as many people as possible. In fact, the last one we invited – the President of Manufacturers Association of Nigeria (MAN) – gave his talk as well. So, from upstream to downstream, processing, manufacturing, banks, financiers, everybody is switched on. We want to get them to work concertedly towards that sector, showcase where there are good practices, bring in our network, show how it’s done elsewhere, and then support them. At some point, we will allow these things to run on auto-pilot.
Where do you see the mining sector in the next five years?
Looking at five years’ time, even before 2025, I see a sector that is driven by the private sector. I see a sector that is gone beyond the rudiments of artisanal mining or dominated by informal players to a sector that is dominated by, at least, juniors; where you have a lot of junior players doing exploration. I see a sector where you have, at least, one or two strategic minerals being explored beyond exploration, even producing. I see a sector where there is contribution from production to industrialisation. I see a sector where there will be investors mining bitumen for road construction. I see an industry where we are looking inward for steel production. I see a bit of investors coming in, may be not majors. I don’t foresee any majors coming in, because a major will come in where a junior has taken projects through exploration and then the majors will come in during production; that’s when they come in. From a global perspective, what are we going to see and how will that impact Nigeria? We’ve had years of lull in global investment, commodity prices went down, the years of super cycles in South Africa and China industrialisation are gone. The industry globally is looking a lot more promising. What, then, will happen is that, they will start looking for where opportunities are. If you look at all these global economies, their reserves are hitting zero. What I mean by hitting zero is that they have mined and over-mined those areas. You know in South Africa, for example, they have reached the matured stage. So, where are they going to? Where there are new markets. But I don’t think our focus should be because we want to attract foreign investments; we should be doing it because we want to develop our economy; we should be doing it because we want to industrialise. We should be thinking of exploring the entire value chain. To my mind, I think mining is the next oil. In five years from now, we can begin to think of mining as the next oil. If we get the right thing done and that’s why I keep saying have a clear action, let’s see the implementation working to the later, not in bits and pieces.
