ThinkBusiness Today - May 18th

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The Punch published a very interesting interview with Ari Aisen, the country representative of the International Monetary Fund (IMF), yesterday.

https://punchng.com/agric-sector-vital-for-nigerias-economic-prosperity-imf-country-representative/

As you can see from the headlines, the publication highlighted his point on agriculture, but I think the following two quotes in the interview summarises what is required to deliver Nigeria’s future economic prosperity, and I hope the new government, from May 29^th understands this:

“The private sector is the main engine for growth in the economy, and it needs a good macroeconomic and business environment with macroeconomic stability to help with predictability”.

Speaking on diversification of exports, he said, “The first thing that we have to recognize is that conducive macroeconomic environment, stability and predictability are very important, both on the exchange rate front and the fiscal fundamentals as well as on monetary policy because this will show the horizon and the clarity needed by domestic and foreign investors to bring resources to foster economic growth in Nigeria”.

Emphasis mine.

Markets

• Market capitalization up by N7.8bn to close at N28.64tn at the end of trading on Wednesday. The All-Share Index (ASI) which had opened on a positive note this week, gained 0.31 per cent or 161.53 base points to close at 52,580.86 points at the close of trading representing a 1-week gain of 0.71%, a 4-week gain of 1.3%, and an overall year-to-date gain of 2.59%. MRS (9.93%), NB (9.63%), CADBURY (8.24%) led the gainers table.

• Airtel Africa, despite growth in revenue, has reported a 5% dip in profit for Q1 2023. Operating in 14 African countries – East, Central and West Africa, it blamed challenging operating environment and worries about currency devaluation for the profit dip. Profit after tax (PAT) dropped by 0.6% to US $750million, compared to US $755million in the same period last year. Africa’s currencies have depreciated by 8% on average since January 2022, according to the IMF.

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National Headlines

• Siemens deal 80% complete? – Initially widely reported that the Phase 1 of the Nigeria – Siemens Presidential Power Initiative (PPI) project was 80% completed, ThisDay, early hours of this morning clarified that it was that 80% of the equipment required are already in the country. The objective of the phase 1 is to “unlock immediate constraints in the supply chain through the deployment of 10 power transformers and 10 mobile substations across the country”, increasing distributed power by 2,000 MW.

• Miserable US $1.4 billion in 13 years from Solid Minerals – The Nigerian Extractives Industry Transparency Initiative (NEITI) has said that Nigeria made only US $1.4 billion from solid minerals in 13 years. Dr. Ogbonnaya Orji, the Executive Secretary of NEITI, said this during his speech at the launch of the initiative’s 2022–2026 Strategic Plan in Abuja earlier this week. (See analysis below).

Global Headlines

• Brexit effects – Automakers in the UK warn of factory closures and job losses in the UK if current trade (Brexit) rules are not extended beyond 2024. The current rules affect tariffs on sourcing of vehicle parts, according to Reuters reports. The UK is keen to remain in the forefront of manufacturing of electric vehicles and the government remains in talks with the EU.

• The escalation of the Russia / Ukraine war – Fight continues in Bakhmut, eastern city of Ukraine yesterday, in the latest escalation of the war between Russia and Ukraine, according to Reuters. It follows recent advancement operations by the Russians. Meanwhile, The Black Sea Grain Initiative was extended by two months Wednesday, according to Turkish President Recep Tayyip Erdogan. The deal, which kept Ukrainian agricultural shipping lanes open from several major ports, was set to expire today May 18.

• Deal close on debt ceiling raise in the US? – Before he left for the G7 meeting in Japan this weekend, the US President Joe Biden assured markets that US will not default on its debt. It echoes the same line of assurance given by the House Speaker Kevin McCarthy.

• Blockchain consolidation – US Blockchain firm Ripple said on Wednesday it has acquired Metaco, a Swiss firm that holds digital assets securely on behalf of clients. This will help it expand its international footprint and broaden its range of services, according to reports by CNBC.

News Analysis - Why Nigeria’s Revenue from Solid Minerals is miserable

The Nigerian Extractives Industry Transparency Initiative (NEITI) stated that Nigeria made only US $1.4 billion from solid minerals in 13 years, a miserable average of about US $100 million per year. This was said at the launch of the initiative’s 2022–2026 Strategic Plan in Abuja earlier this week.

It follows an earlier report by the World Bank report – Africa’s Resource Future Report last month that Nigeria and other metals and minerals resource rich countries in Sub Saharan Africa (SSA) can double revenues from natural resources such as minerals, oil and gas.

https://openknowledge.worldbank.org/entities/publication/5b962927-b2d3-4ea3-a884-971c2b11bbd3

According to the report, African countries can scale, and considerably, revenues from Solid minerals by better set of policies, implementing reforms, investing in better fiscal administration, and promoting good governance.

Nigeria is blessed with more than 44 solid minerals including gold, tantalite, barite, limestone, bitumen, kaolin, and topaz, spread across more than 500 locations in the country. According to National Bureau of Statistics (NBS) data, solid minerals contribution to GDP is 0.15% between 2016 and 2021, with about 2% growth rate. In 2021, the size of the solid minerals sector was US$319 million, contributing 0.18% to the GDP, while export was US$141 million.

The Solid Minerals production in constant US $ Millions

What are the issues? First is the lack of satisfactory geo science data that captures location and scale of the solid minerals in the country. This is the most important investment required before the sector can attract major players.

Following from the first, there is significant illegal mining and fragmentation of mining firms. The latest data revealed that the Mining Cadastre Office (MCO) have issued 1,296 mineral licenses, and 702 firms paid royalties to the government, with just 74 enterprises paying $3 million or more.

Also following from the first and the fragmentation of miners, 80% to 85% of current mining activities in Nigeria is via artisanal and small-scale mining and the mining sales channel is largely unofficial, embedded with smuggling and distribution, with estimated loss to the country of US $9 billion, according to NEITI. Then, lack of infrastructure. Lack of infrastructure has cost miners. Mining relies significantly on infrastructure such as transportation, power, and rail, all of which are in poor conditions in Nigeria.

Nigeria can unlock its natural resources through the following ways. First, investment in geo-science data gathering. Although the government achieved 100% aerial geo-physical survey of the country, with data existing at the ministry of mines and steel development for would be miners.

Second, Nigeria can strengthen the mineral buying centers. Nigeria have more than 93 certified Private mineral buying centers and more than 10 prototype Minerals Buying Centers created by the federal government across the country, but these has been largely ineffective and underutilized. This has enabled the flourishing of illegal sale cartels out of the country, with resultant loss of solid minerals revenue from taxes and royalties.

Third, encourage and implement the one local government one mineral policy. In cooperation with state and local government and involvement of the private sector will help to bring out in a sustainable manner the solid minerals in each local government. In form of compensation, a 5%-7% derivative will be remitted back to the state and local government.