Dig Deeper - Shaun T (Insanity)
Nigeria, the land of opportunity, hidden treasures, a very visible population, located on the coast of the Atlantic Ocean with accessible trade routes linking it to the rest of sub-Saharan Africa and yet little export activities. Nigeria has proven reserves of most of the world's precious minerals with even more industrial minerals. It is uncommon to see a country with such enormous potential not using it to the fullest.
Could this be due to misinformation? Or is everyone just not bothered to do anything?
Currently, the mining sector contributes 0.33% to the country’s GDP. There’s still ample room for growth. Nigeria is endowed with abundant mineral resources in commercial quantity with proven reserves of iron ore, gold, zinc, limestone, barite, tin and bitumen, maybe even vibranium (black panther joke ☺). One could argue that mining is Nigeria’s best kept secret.
As Economists would say, there are different stages a country must go through for meaningful economic development. A common feature in that is increased industrialization (remember what happened in the US with the steel industry?). This increase in industrialization will subsequently trigger an upswing in the use of machinery and metals in manufacturing companies, refineries, construction, automotive industry, military technology etc. It can be deduced that this would lead to an increase in the demand for Nigeria’s iron ore for steel and other similar metals.
You don’t want to be late to the party.
It doesn’t stop there, Nigeria has signed numerous mutually beneficial trade deals with many countries around the world (China, Indonesia, South Africa to name a few) worth billions of dollars. For you this means you have a market for your minerals outside the country and incentives to boot. This is great for the vulture investors ready to penetrate and expand their interests in this budding economy.
Need I say that the depreciation of the Naira increases the purchasing power of foreign companies and Africans in the diaspora? With a minimum wage of $50 per month, labor is cheap. It’s a win-win for everyone involved, more money for the investors and more growth in the economy through job creation.
For the tax freaks out there, new mining companies are granted a three-year tax holiday when they begin operating in the country which can further be extended for up to two years. Mining operators are exempt from paying customs duties and import levies relating to machinery and plant equipment for mining activities. Investors are also entitled to a capital allowance of 95% of qualifying capital expenses incurred in the investment year. Losses can be deducted from taxable income of the first year after the losses are incurred for up to a period of 4 years if losses are unrelieved. Costs incurred from environmental protection, mine rehabilitation and mine closures are also tax deductible.
Mineral title holders are also ensured free funds transfers by the central bank of Nigeria and can retain part of their foreign exchange earnings in a foreign exchange domiciliary account and use this to purchase spare parts and other equipment. This significantly brings down administrative costs and expenses for the company. It’s hard to believe that no one is moving quickly into the sector.
The Nigerian government holds mineral resources in trust on behalf of its citizens. Mining licenses can be attained either by acquisition of an existing mine from the owner with the approval of the Ministry of Solid Mineral Development, by entering into a joint operating agreement with a local partner with an already existing license or by incorporating a company and applying to the ministry for an operating license.
Entry methods into this market are quite straightforward. Joint ventures (JV) are easily the safest to say. JVs make it easier to navigate through the tedious process of acquiring a license and understanding the local market rather than starting afresh. With a credible technical partner, you’ll be sure to easily raise initial funding and recoup all your investments and then some. The only thing left to do is work on issues surrounding construction overruns, obtaining permits and approvals, gaining access to resources and skilled labor.
As the government is transforming its role in the mining sector from an ownership standpoint to a more regulatory position in the sector, there is a lot of room for investment in the sector. A company can choose to engage in selling or providing mining equipment, mineral testing or quality control methods. It can also process minerals for the local market and export these processed minerals.
So can Nigeria be the next Wakanda? The size of the market, the country’s strategic location, proven mineral reserves, tax benefits, potential for growth in the sector and position as a hub for African Markets and business all mean that Nigeria might actually be a better option?