Sunday 29 January 2012

Can Nigeria Revive its Mining Sector in 2012?



OPINION
Throughout last year and even long before, Nigeria seems to completely rely on external support in order to revive and develop its dying mining and steel sector. The rhetoric was that foreign investors would come and help the country develop the sector.
Some Nigerian officials had to travel several times to some countries in search of foreign investors. Some of those trips were even sponsored by the World Bank.
The World Bank in 2004, through its "Sustainable Management of Mining Resources Project" released $120 million grant to Nigeria to fund the activities of artisanal and small scale miners.
Last year, the Minister of Mines and Steel, Arch Musa Muhammad Sada asked the World Bank for additional $80 million for the same purpose.
Some investors from China, UK and Australia have shown interest in the sector and have paid visits at various times to the minister last year.
What attracted them mostly was the "tax holiday" offered them by the government. By the tax holiday, they are free to extract mineral resources and export same in large quantity without paying Nigeria a penny as tax for some years.
However, many people think that the Nigerian government lacks the commitment and political will to develop the sector.
There are fears therefore that apart from the tax holiday that investors are to enjoy, foreign investors may also come with their conditions which may be injurious to the revival of the sector.
It is on record that in March 2009, under what the Ministry of Mines and Steel Development titled "Taxation Breaking the Course" some African countries suffered in the hands of foreign investors who came in the name of bringing in their expertise to develop the sector but ended up looting the sector.
The report stated that "African citizens have been all too aware that while the good times were rolling for the global mining industry, they saw no increase in mining tax revenue to governments or spending on their basic development needs."
Some African countries have commissioned studies on mining taxation and transparency to save mining tax revenue.
After carrying out the investigations, reports from Ghana, Tanzania, Sierra Leone, Zambia, Malawi, South Africa and the Democratic Republic of Congo revealed that "African governments have not been able to optimize the mining tax revenue due to them before the 2003 to 2008 price boom; neither have they been able to capture the anticipated windfalls during the price boom."
The report gave two main reasons which include that (i) Mining companies operating in Africa are granted too many tax subsidies and concessions; and (ii) There is high incidence of tax avoidance by mining companies conditioned by such measures as secret mining contracts; corporate mergers and acquisitions; and various 'creative' accounting mechanisms."
These two factors, according to the report, coupled with inadequate institutional capacity to ensure tax compliance contributes in large measure to diminish the tax revenue due to African governments.
The report further stated that mining companies claim that they need to be compensated for the unique risks they face, such as price booms and bust, through special tax exemptions and concessions are fallacious.
But these tax subsidies, together with tax avoidance and alleged tax evasion practices by mining companies have robbed African treasuries of millions of dollars tax revenue from the mining industry.
The then Chairman House Committee on Steel, Representative Aminu Shehu Shagari once said in an interview that he "wept" when he saw what was invested in Ajaokuta.
Shagari accused foreign governments of sabotaging Nigerian government.
He said: "Western powers do not want Ajaokuta to work. Ironically, Nigeria is still wooing the same people to come and invest their capital in the same sector they do not want Nigeria to have.
"I also moved a motion on the floor of the House that Ajaokuta was being massively looted and we were spending money for nothing, paying billions of naira to people doing nothing as salaries and allowances.
"Interim management committee has always said they needed N400 million as take off; that they can re-open the plants and generate at least N10 billion annually. You don't give them that money and keep paying billions to the staff for sitting idle. What sort of system are we running?"
It is very clear that no foreigner would want to help in developing the mining and steel sector for Nigeria. Nigerians and government must help the indigenous miners to make this work.

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