Mineral resource management for national cohesion and progress

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By Dr. Kayode Fayemi

It is always a delight to be back in the university environment to engage in my first vocation – teaching. The university is an important and integral part of society and must be so recognised. We must continue to promote the bridging of the gap between town and gown so that higher institutions are not wholly removed from the socio-economic and political realities in which students will eventually enter. Curricula must bear relevance to current and future challenges and there must be regular interfaces such as this, between the university community and practitioners in the larger society.

As I have argued before, universities are designed to be the breeding grounds for society’s elite and are supposed to be sites of knowledge production where solutions to the challenges of development are produced. Implicit in this definition of higher institutions is the notion that theatres of higher learning are places where scholars and students reflect upon the peculiar problems of their milieu. Each environment throws up a host of unique challenges. True scholarship eschews abstraction and wholeheartedly commits to tackling the particular challenges faced by a society at a given time. It is therefore not misplaced for society to look to our universities to produce solutions to our many problems.

Let me begin by observing that the theme of this event and the subject of my lecture is coming at a most auspicious time in our national life. It is coming at a time not only of intensified fractiousness and polarisation in public life but also in a season in which we are being compelled by circumstances to reflect soberly on our track record of resource governance. Nigeria’s most pungent contradiction has always inhered in her conflicting status as a nation so abundantly blessed with natural resources and one that is plagued with profound poverty, misery and underdevelopment. A combination of attributes namely her vast population which connotes a wealth of human resources, her strategic location, fertile land, hospitable climate and wealth of natural resources instructed the belief among the early nationalists that Nigeria was destined for greatness.

No less a person than Chinua Achebe described Nigeria as “a nation favoured by providence” and argued that “the vast human and material wealth with which she is endowed bestows on her a role in Africa and the world, which no one else can assume or fulfill.” This belief in Nigeria’s exceptionalism has been a consistent theme in our national discourse since the era of the nationalists who won independence from colonialism. The statesman and Nigeria’s first president, Nnamdi Azikiwe proclaimed that by reason of “the number of its inhabitants and the extent of its resources, Nigeria will be a country of consequence and, I am convinced, a force in world affairs.” When oil was discovered in commercial quantity in Oloibiri in 1956, an event which marked Nigeria’s emergence as an oil and gas giant, it seemed a powerful confirmation of her calling to preeminence.

The initial signs seemed positive. The first oil boom began almost providentially at the end of the Nigerian civil war and the ignited a tremendous spurt in developmental and infrastructural investment which ensured that lingering discontent did not plunge the nation back into war as is typically the case after a period of civil strife. Encouraged by the influx of petrodollars, the regime of General Yakubu Gowon drew up a $100 billion development plan (1975 – 1980), the most ambitious ever conceived by a Black African government at the time, aimed at transforming Nigeria into a modern unified state in five years. The Plan unfolded components for the construction of seven new universities, thirteen new television stations, three new international airports, an overhaul of the communications grid, the building of a petrochemical plant, the construction of 13, 000 miles of paved road and a new federal capital in Abuja.

The expectation was that Nigeria would consolidate on these projects and take steps to create foundations for a sustainable prosperity, using her riches to facilitate a rapid transformation into a first world nation in the shortest possible time. Resources were certainly no object. As General Gowon himself famously remarked, the problem was not money but how to spend it. In other words, the Head of State had identified the challenge as that of resource management for national cohesion and progress. It is significant that more than four decades after he made that pronouncement, this continues to be perhaps the central problem of governance in Nigeria – how to put Nigeria’s wealth to work for all; how to ensure that the country’s riches are used to underwrite the common good and a higher quality of life for all her citizens. In this regard, the report card over the years has not been good.

Things did not and have not turned out as expected. Between 1973 and 1978, during the oil boom, oil revenue rose quickly to more than 90 percent of Nigeria’s revenue. This increase was matched by an increase in public expenditure which quadrupled between 1973 and 1975. Rather than seeing the influx of oil wealth as a summons to delayed gratification and strategic investment, Nigerian elites took it as an opportunity for unhinged self-aggrandizement and conspicuous consumption. By the early 1980s, Nigeria was gravely indebted, having borrowed against future oil revenues. The government was effectively bankrupt.

Subsequent oil booms were rendered inconsequential by the scale of official graft for which Nigeria had by then become legendary. In the field of development studies, Nigeria is one of the archetypal poster children for what has been called the Dutch disease or the resource curse. It has been proven that resource-rich economies tend to grow more slowly than other poor countries. This phenomenon is called the ‘Dutch disease’, is the name scholars gave to the difficulties that befell the Netherlands after its discovery of gas in the North Sea.

It is also known as ‘the curse of oil’. When a nation discovers oil reserves in her territory, the sudden avalanche of petrodollars causes the neglect of sectors like agriculture and manufacturing thus leaving oil to dominate the economy. With so much money being made with little exertion, the urge to create wealth and value diminishes as everyone focuses their attention on how to get a piece of the national cake. Oil wealth brings along with it the illusion of an infinitely abundant resource and with this also comes a culture of fiscal irresponsibility, official extravagance and outright theft.

The squandering of our riches has been well documented. The opportunity cost of our mismanagement of our most important natural resource has been catastrophically steep. In 2006, According to the World Bank, in the forty years that followed the discovery of oil in Oloibiri, Nigerian officials stole more than $300 billion of the country’s wealth. This amounts to a sum equivalent to 300 years of British aid for the entire continent of Africa.1 It also amounts to six times the American assistance given to rebuild post-war Europe under the Marshall Plan.

The most telling manifestation of this criminal mismanagement of our natural wealth can be found in the Niger Delta where decades of oil exploitation have resulted in a legacy of ecological degradation, transgenerational poverty and violence. The Niger Delta is a microcosm of our profound contradictions – the pervasiveness of poverty in the midst of plenty and the failure to use our oil wealth responsibly to maximize our human resources.

Bayelsa, where oil was first struck in commercial quantity in 1956 was connected to the national electricity grid only in 2006. For 50 years, while energy for power generation was being flared on its land, the state struggled to provide its own form of electricity at its own cost.

The militant groups in the region are largely made up of youths alienated by an inequitable social order and habitually exploited by politicians. They subsequently turned to violence as a means of extracting concessions from both the Nigerian state and the multinational oil companies, the two entities they blame for their disinheritance in the midst of plenty. By mid-2007, attacks by criminal gangs and militant groups had caused several major oil companies to shut down operations thereby cutting output by 30 per cent of national production capacity. Over the past two decades, the Niger Delta has become as synonymous with banditry as it used to be with crude oil.

The squandering of our riches has been well documented. The opportunity cost of our mismanagement of our most important natural resource has been catastrophically steep. In 2006, According to the World Bank, in the 40 years that followed the discovery of oil in Oloibiri, Nigerian officials stole more than $300 billion of the country’s wealth. This amounts to a sum equivalent to 300 years of British aid for the entire continent of Africa. It also amounts to six times the American assistance given to rebuild post-war Europe under the Marshall Plan.

The most telling manifestation of this criminal mismanagement of our natural wealth can be found in the Niger Delta where decades of oil exploitation have resulted in a legacy of ecological degradation, transgenerational poverty and violence. The Niger Delta is a microcosm of our profound contradictions – the pervasiveness of poverty in the midst of plenty and the failure to use our oil wealth responsibly to maximize our human resources.

Bayelsa, where oil was first struck in commercial quantity in 1956 was connected to the national electricity grid only in 2006. For 50 years, while energy for power generation was being flared on its land, the state struggled to provide its own form of electricity at its own cost.

The militant groups in the region are largely made up of youths alienated by an inequitable social order and habitually exploited by politicians. They subsequently turned to violence as a means of extracting concessions from both the Nigerian state and the multinational oil companies, the two entities they blame for their disinheritance in the midst of plenty. By mid-2007, attacks by criminal gangs and militant groups had caused several major oil companies to shut down operations thereby cutting output by 30 per cent of national production capacity. Over the past two decades, the Niger Delta has become as synonymous with banditry as it used to be with crude oil.

Nigeria’s tragic odyssey as an oil and gas-rich nation is a cautionary tale in the annals of resource governance. Far from being a means of cementing national cohesion, oil riches became a source of discord and a toxic bone of contention in our politics so much so that it has been said that oil has been a curse rather than a blessing. There is a consensus among scholars that Nigeria ought to be a regional power since it is a major oil exporter and therefore has the revenues to build structures for projecting influence. But the its oil wealth has instead inspired enduring internal strife. Oil wealth has not been invested in building national capacity but has been diverted and squandered by parochial rivalries. Rather than enabling national cohesion, the struggles for access to and control of oil revenues by rival elite factions have, in fact, aggravated Nigeria’s cultural, ethnic and religious differences.2

The renowned political scientist, Samuel Huntington once contended that Nigeria’s size, location and resources make her a potential Africa’s most powerful state, but disunity, political instability, corruption and economic underperformance have greatly undermined her ability to play this role. The thread that connects these debilitating plagues is our failure to effectively manage our natural resources. Nigeria is now globally renowned as the poster child for resource mismanagement. I have always disagreed with the description of oil as a “curse”. This description seems to imply that some metaphysical causality is behind our national underperformance. That the serial squandering of chances afforded us by oil booms to make great developmental leaps forward was someone else’s fault. This amounts to blaming an inert resource for the failure of humans to manage it – a standpoint with which I strongly disagree.

The presence of natural resources in and of itself cannot and does not make a nation great. It simply represents the potential for greatness. The more the quantum of natural resources available, the greater that nation’s potential can be said to be. The critical difference between resource-rich performers and resource-rich underperformers is simply resource management. And effective resource management is the purview of competent elites and capable governments. It is ultimately about human responsibility. Our inability to manage our resources and fulfill our potential reflects our irresponsibility. We must now end this grossly self-destructive culture of governmental, economic and political irresponsibility.

Two factors have converged to make a radical change in our paradigm of resource management absolutely imperative. The first is the increasingly diminishing value of oil in the global economy. New technologies, such as tracking, have unleashed a dynamic of resource abundance rather than resource scarcity, which is resulting in less power concentrated in the hands of a few suppliers. Previously import-dependent consumers like the U.S. are increasingly on the cusp of energy self-sufficiency. By 2013, the U.S., a major importer of Nigerian crude, had already reduced the importation of Nigerian oil to 300, 000 barrels from 1.1 million. In 2014 that figure plunged to zero. Even before this technological shift occurred, we had already ceased to be Sub-Saharan Africa’s sole energy power house. New players like Ghana, Kenya and Liberia have emerged to add to the competition in the market.

Consequently, as oil prices have sharply undulated due to shocks from the global economy, revenues have fallen sharply creating a fiscal crisis as the socioeconomic needs of our rising population become more urgent. Yet, the Federal Government is under immense pressure to deliver public goods – functional healthcare, qualitative education, stable electricity, good roads etc. and to address the huge humanitarian crisis in the North East among other problems that require significant social spending.

According to the National Integrated Infrastructure Master Plan, Nigeria urgently needs huge investment inflows to finance our ERGP and close up our infrastructure deficit. Nigeria’s current “core infrastructure” stock gap (roads, rail, ports, airports, power, water, ICT). Based on international benchmarks is estimated to be USD80 billion. To fund the infrastructure needs of its growing economy over the next 30 years, Nigeria would need to spend about USD 3 trillion. This investment would allow Nigeria to close its current infrastructure gap and sustain an ideal infrastructure stock level of 70% of GDP as it builds and maintains infrastructure assets across all its seven key sectors.

The second factor is the need to diversify the economy which has grown more urgent in the light of these new trends in the global hydrocarbon economy. Over the past three decades, astute watchers have cautioned Nigeria’s reliance on oil as the cornerstone of her economy was inimical to her long term economic growth and development. The consensus among experts both at home and abroad has long been that our overdependence on crude oil had left our economy vulnerable. While previous administrations have all spoken of the need for economic diversification there is a justifiable case to be made that these pronouncements rarely, if ever, left the realm of rhetoric. At best, they were aspirational proclamations. At worst, they simply amounted to postponing the evil day.

Today, however, a confluence of positive and negative incentives, adversity as well as opportunity, have found a government with the political will and the preparedness to do what is necessary.

Early on, President Muhammadu Buhari identified the solid minerals sector as one of the critical pillars of a more broadly based and diversified economy.

The Economic Recovery and Growth Plan (ERGP), which is the administration’s medium-term plan for 2017 – 2020, and its primary economic planning framework recognises the mining sector as one of Nigeria’s most promising growth sectors, and acknowledges that its contribution to GDP doubled from N52 billion in 2010 to N103 billion in 2015. It projects to grow the mining sector’s GDP from N103 billion (2015) to N141 billion (2020) at an average annual growth rate of 8.54 per cent (2017-2020).

As we begin to write a new chapter in the history of resource governance in Nigeria, for us in the mining sector, we are most gratified to be positioned as one of the frontiers of government’s diversification agenda. The Federal Ministry of Mines and Steel Development is guided in our efforts by a presidential mandate as follows:

Diversification of revenue sources: Address our economy’s strategic vulnerability to dependence on a mono-resource for sovereign revenue, which has led to fluctuating economic fortunes with periodic global shocks in the price of Crude oil.

Create employment: About 70% of Nigeria’s population is under 35 years of age.

Unemployment levels are high, in some cases approaching 30% – 50% in certain age and education categories. It is critical that we create two million jobs per annum to help absorb such manpower over the coming decade; mining can be an important part of the solution.

The mining sector is also tasked with contributing to addressing our perennial power deficit in Nigeria by leveraging our huge coal endowments to achieve a sustainable Diversification of our Energy Mix and achieve the FGN’s target of 10,000MW of electricity by 2019. The capital intensive nature of developing a gas supply network across the country makes coal-powered plants a viable alternative. Inland Gencos operating outside the Niger Delta can benefit from converting their gas-powered plants to coal due to challenges with gas supply.

We are conscious of the fact that we must be guided by the lessons learned at great cost in the oil and gas sector. We must ensure that we do not repeat the errors of the past. If indeed a curse of oil has been afflicting us, then we must usher in a new regime of ethical, transparent and productive natural resource governance in the mining sector as an opportunity to undo that curse for good. Instructed by the lessons of the oil era, there are four themes that we are emphasizing in our paradigm shift. They revolve around issues of transparency, accountability, participation and jurisdiction.

Our first successful assignment in our reform agenda was the release of a collaboratively formulated roadmap for the mining sector that was the product of exhaustive and inclusive deliberations involving representatives of every stakeholder group in the sector, subjected to a rigorous feedback/validation cycle including parleys with state governments and other industry stakeholders and only after broad-based consultation approved by the Federal Executive Council.

The wide-ranging participatory process of the framework’s development accounts for its broad acceptance. We now have an industry-wide consensus that provides a pathway for the sustainable turnaround and growth of the mining and metals sector, over the short, medium, and long term.

The constitution ordains the exclusive jurisdictional hegemony of the federal government over mining matters. The responsibility for licensing and regulating mining operations resides solely in the federal sphere. Accordingly, the very architecture of resource governance resulted in tensions between the federal government, particularly the Federal Ministry of Mines and Steel Development, state governments and communities and became the main hindrance to the development of the mining sector.

The structure of the sector was designed to relegate state governments, and offered no incentives to the states and local governments to support the growth of the industry. They have no direct access to royalties and taxes and thus, are excluded from optimally sharing revenue from the mining of resources in their respective jurisdictions.

Typically, state governments were sidelined or inadequately involved in the administration of mineral titles even though they bore the brunt of the impact of resource exploitation in the form of illegal mining activities, environmental degradation of their local communities, insecurity of mines, etc. One consequence of these ills has been the low investment in the sector largely as a reaction to the systemic hostility towards private mining operators by states.

These problems are connected to larger contentious subjects such as the proper location of fiscal domain and governmental jurisdiction in a federal system, resource rights and subsidiarity. These issues are valid, and we recognize that we cannot truly achieve sustainable growth without addressing them. This grossly limits the capacity of states to boost their internally generated revenue.

There is a broad consensus that this arrangement requires reform. A key objective would see the transfer of mines and minerals from the exclusive legislative list and therefore exclusive federal jurisdiction to the concurrent legislative list where states can exercise greater jurisdiction than is presently the case.

In the long term, fundamental legal, legislative and constitutional reforms are required to fix these problems.

These long-term solutions are in our roadmap and we wiall activate them at the appropriate time. However, in the immediate term, we have sought to leverage available administrative mechanisms that can instantly defuse the tension between the federal government and states, pending the enactment and institutionalisation of more sustainable solutions.

Since exclusive federal jurisdiction and the lack of transparency and accountability in the sector have caused disaffection between the federal government and states and communities, we have taken practical steps to address these two concerns. We have established two key oversight bodies mandated to hold our ministry accountable to following through with the provisions of the Roadmap – the Mining Implementation Strategy Team (MIST) and the National Council on Mining and Mineral Resources Development (NCMMRD).

State governments are represented on the MIST and every state commissioner in charge of the mining sector in the respective states, is a member of the NCMMRD.

This being text of a paper delivered by the Federal Minister of Mines and Steel Development, Dr. Kayode Fayemi at the fifth annual lecture of the School of Management Technology, Federal University of Technology, Akure (FUTA).

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