In November, the Nigerian government unveiled plans to revise its crucial mining law, the Nigeria Minerals and Mining Act (NMMA).
The outdated law, which hasn’t been updated since 2007, is accused of stifling growth in the nation’s underdeveloped mining sector.
Mining currently generates just 0.3% of GDP and leaves the country scrambling to import minerals, like salt and iron ore, which could be produced domestically. In contrast, the oil and gas sector produces around 10% of GDP and 65% of government revenues.
The amendments are seen as the finishing touch to five years of government measures to make mining a means of weaning the country off petrodollars.
“There is definitely an interesting story behind the mining sector in Nigeria,” says Kwadwo Sarkodie, a partner at legal firm Mayer Brown International.
Before the brutal civil war between 1967 and 1970 there was an active mining sector in Nigeria, and the country was a significant exporter of certain mined minerals including coal and tin.
“That all changed in the 1970s partly as a consequence of the oil boom, and to a large extent the oil sector crowded out the mining sector. There were various mines that were closed as a consequence of the civil war and they never reopened,” says Sarkodie.
Nigeria passed the 2007 law deregulating the mining of solid minerals in a bid to attract much needed private investment to develop the underperforming and neglected sector. At the same time, the outgoing government of president Olusegun Obasanjo awarded a flurry of mining leases and exploration licences to multinational mining companies who were guaranteed incentives and tenure security under the new law.
What are the proposed changes to Nigeria Minerals and Mining Act (NMMA)?
One of the key changes is that the law will give local governments the impetus to crack down on illegal mining by devolving responsibility from the federal to the state level of government.
“The 2007 act is very federal government-centric, so essentially the powers and ownership of mineral rights under the act rest with the federal government,” Sarkodie explains.
Under the amendment, power and revenues will be shifted from the regulating body, the Nigerian Mining Cadastral Office (MCO), which is very much an arm of the federal government, to the local level, giving both the local community and the state government incentives to abide by and enforce the rule of law in the sector.
“The states can increase their own revenue from legal and licensed mining, and that increases their incentive to combat illegal and unlicensed mining,” says Sarkodie.
“And if local communities see that their own state is benefiting economically, again that provides further reassurance that they are benefitting from the mines,” he adds.
As a federally governed nation the issue of state control versus federal control is one that crops up repeatedly in the Nigerian context, Sarkodie says.
“This is potentially an opportunity to shift that balance in the mining sector from the federal government to the state government, and hopefully address some of the underlying issues driving the illegal mining.”
“Those are the two things that the new act is trying to rebalance and trying to address. The old act wasn’t completely unsuitable for purpose, but it clearly wasn’t providing the conditions needed to develop the sector.”
Why is illegal mining a problem?
Nigeria’s north, especially Kaduna, Katsina, Kebbi, Kogi, Nasarawa, Niger, Plateau and Zamfara states, are particularly hard hit by the blight of illegal mining. An estimated 80% of mining in these areas is conducted illegally on an artisanal basis, involving over two million people who depend on it for survival.
Previous government efforts to crack down on illegal mining in northern Nigeria have failed, while the phenomena continues to provoke two worrying trends, says NGO ENACT Africa.
One is the trade of illegally mined gold in exchange for weapons, and the other is the use of women and girls in these illicit activities.
Unregulated mining also stokes environmental issues in these areas, such as water pollution, deforestation, poor soil fertility and limited access to land for agriculture productivity.
“One of the reasons that it’s considered that illegal mining is so high is that the state government don’t really have an incentive to take significant steps to stop it because it’s taking place in the states themselves,” Sarkodie says.
Will it be a game changer for attracting investment and driving resource revenues?
“No, on its own I don’t think it has the potential to be transformative,” Sarkodie says.
There are other priority areas such as security, power, transport, infrastructure and the competing energy sector that will continue to hold the mining sector back, regardless of the new terms of the act.
“One principal challenge is the size and well-established nature of the oil and gas sector in Nigeria, which is many times bigger. It does activate essentially a magnet for investment and talent and government attention due to its sheer size. That does have the effect of crowding out the mining sector,” Sarkodie explains.
“The second big challenge is transport infrastructure, that currently restricts access to mineral reserves and mines from internal and external export markets. In terms of where these mineral reserves and mines are located, and the places internal or export markets for those are positioned, there are transport restrictions and shortcomings. So improvements in transport infrastructure such as roads, rails and ports are going to need to be improved to fully realise the potential of the mining sector.”
Another challenge revolves around the limitations of power generation and capacity in the region.
“Mining is very power-intensive and so the reliability of supply is not insurmountable, but it does just add an additional cost and potential hurdle. And finally there is a security situation in northern Nigeria in an area where many mineral deposits are understood to sit. With ongoing concerns surrounding security there remain additional hurdles to large-scale new investment in the sector.”
When will the new law come into force?
To put the process into context, the Petroleum Industries Bill took about 20 years to come into force and become the Petroleum Industries Act, Sarkodie says.
“A draft might be well developed before parliament in bill stage, but it doesn’t necessarily mean that its going to come into force in the medium term.”
What are the next steps?
The bill is currently before the House of Representatives (Nigeria’s lower house) and will then pass before the Senate (the upper house) before being enacted into law.
Why is it happening now?
Gold mining can offer an effective hedge against swings in oil prices, especially as investors and policymakers adapt to the global energy transition.
“When oil prices dip that does focus minds of Nigerian economists and policymakers on the need to focus on other sectors,” says Sarkodie.
“There is a broad recognition that it’s beneficial for Nigeria to diversify its economy, away from such a high-level of reliance on the oil and gas sector.”