Speech by

H.E. Dr. Kayode Fayemi, CON

Minister of Solid Minerals Development

at the

3rd Chief (Dr.) John Agboola Odeyemi Annual Lecture

Ile-Ife, Osun State, Nigeria | Friday, April 29, 2016

Protocols and Introduction; Distinguished Ladies and Gentlemen,

It is my honour to be here with you today to celebrate a man whose life stands as a testimony to the indefatigable Nigerian spirit – of diligence, integrity and patriotic service. Having traversed the public and private sectors as a colossus, the legacy of Chief Odeyemi shines as a light to illuminate the path of those of us coming after him.

It was indeed humbling to read about this great son of Oduduwa, taking instruction from his ideals and being inspired by his core convictions. We can see from his legacy that anybody can rise from humble beginnings to accomplish such enviable educational feats as well as professional and entrepreneurial success, and still remain grounded in his faith and love for the common good – putting his weight behind such noble philanthropic causes and also faithfully volunteering and supporting the evangelistic efforts of the Anglican Church. I wholeheartedly commend Chief Odeyemi to our teeming youth in need of mentor figures, as a worthy icon to emulate.

I am always happy to be back to the Obafemi Awolowo University (GREAT IFE!) – one of my alma maters – an institution that I hold dear to my heart. It was here as a student of International Relations that my core convictions in life were deepened. It is also in this great institution that by providence many of my lifelong relationships were forged – the most important being my wife Erelu Bisi Adeleye-Fayemi, who I met at the Hezekiah Oluwasanmi library many years ago. I am therefore very excited to be back here today.

Diversification – A Long Overdue National Priority

For several decades, policy makers and observers warned that Nigeria’s continued dependence on oil as the mainstay of her economy was bound to jeopardize her long term economic growth and development. International financial institutions, development partners and knowledgeable experts at home were all in agreement that our overreliance on crude oil was an unsustainable strategic weakness.

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.[1] Prior to the war, regions had run tax-based economies and enabled growth by leveraging comparative advantage largely in agriculture. The new centrality of oil wealth altered everything. The verdict of history is that Nigeria remorselessly squandered her oil boom turning an opportunity to become an economic superpower into an age of extravagant waste almost unparalleled in the annals of developing countries. 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 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 without much exertion, the urge to create wealth and value diminishes as everyone focuses their attention on how to get a piece of the fabled 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 when not properly managed.

In 2006, the World Bank disclosed that Nigerian officials had stolen more than $300 billion of the country’s wealth over the past 40 years.[2] This amounts to a sum equivalent to 300 years of British aid for the entire continent of Africa.[3] It also amounts to six times the American help given to rebuild post-war Europe under the Marshall Plan.[4] Over the past one year as this administration has set about implementing our agenda of sustainable change, the scale of the challenge posed by corruption has become obvious. Various scandals of public theft have surfaced alerting us to the numerous ways in which our collective patrimony has been despoiled by those we entrusted with its custodianship.

These sums, while astronomical, also now sadly lack shock value. They are symbolic of the routinization of graft in a context in which public funds are perceived both to be infinite and to belong to no one because they cannot be related to any tangible productive endeavour. This sort of disconnection is symptomatic of the curse of oil. The lack of civic outrage over these disclosures is simply because over time sensational media reportage has desensitized us to the true cost of pervasive graft. It is also because a political economy based on the extraction of crude oil and the distribution of oil rents has little room to accommodate proper relations between citizens, resources and the administrators charged with managing those resources for the common good.

The End of Oil

We are now facing a future in which crude oil either ceases to be a strategic resource or one in which our status as a producer becomes irrelevant to our prospects for economic advancement within the international economic environment.

We live in a world in which new technologies, such as fracking, have unleashed a dynamic of resource abundance rather than resource scarcity and which is resulting in less power concentrated in the hands of a few suppliers. Previously import-dependent consumers like the US are increasingly on the cusp of energy self-sufficiency. By 2013, the US, a major importer of Nigerian crude, had already reduced the importation of Nigerian oil to 300, 000 barrels from 1.1 million.[5] 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.

At the same time, the naira is suffering its sharpest decline in recent years. This decline is a consequence of the decrease in our external reserves, the sharpest drop in crude oil prices since 2008 and an ultimately logical vulnerability of an economy that is too one-dimensional and insufficiently versatile to absorb global price shocks.

I have given this overview of the definitive megatrends of this era so as to give us a proper context within which to assess the efforts of the current administration. It is clear that we have come into office at a time of disruptive and disorienting change. Fundamental changes are necessary and things can no longer be business as usual. The conventional wisdom that has governed the way we have conducted politics and run our economy for decades is no longer useful. In a sense, we are now in uncharted waters.

For years, successive administrations have talked about the need to diversify the economy, moving it away from overreliance on crude oil exports. For years, this has remained just talk rather than an urgent imperative that should drive policy-making. At the moment, the collapse of global oil prices which has led to a fiscal crisis means that governments at all levels are struggling to finance capital projects and sustain recurrent expenditure. But our reaction to these facts should not be despondency. The current convergence of adverse trends is providing us with the incentives to execute just such a shift.  We may be in a season of adversity and austerity but there is also abundant opportunity. These hardships should spur us to seek innovative solutions and new ways and means of driving sustainable growth. We now have no alternative but to go beyond lip service pronouncements and begin to take the diversification of our economy seriously.

The Case for Solid Minerals

Mr. President has often said that he wants the sector to be a key source of economic growth and diversified revenue base for Nigeria. Indeed, he has stated clearly that our goal is to build a more diversified economy in which oil remains important, but its share of the overall portfolio of revenue sources declines as the whole pie grows bigger. The recently approved Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP) emphasizes the place of solid minerals in the economic growth strategy of the country.

One fact that we must accept is that oil wealth has made us lazy and unimaginative given the bountiful resources with which Nigeria is blessed. As the minister in charge of the solid minerals sector, I am in a position to offer insights into what I believe to be Nigeria’s next frontier of opportunity. Our fixation on crude oil has blinded us to the immense scale of riches we have in this sector and their potential to power a new age of economic growth.

Nigeria’s natural resource portfolio has at least 44 known mineral assets that include precious minerals, base metals, bulk minerals and what are known as rare earth minerals. More specifically, our most promising mineral assets include gold, iron ore, barite, bitumen, lead, zinc, tin and coal. We have good reason to believe that the available data of our reserves understates what our country has been blessed with by providence in many instances. For one thing, some of the geosciences data collected 50 years ago or earlier have not been updated, so we are cautiously optimistic that our mineral endowments actually exceed what is currently stated.

Before the advent of Oil production in Nigeria, during the colonial era and up to the first decade after independence, Nigeria progressively carried out extensive geological surveys and had a good idea the extent of our minerals reserves. Whether it was coal, iron ore, gold, or tin, a clear view of what Nigeria had was available. In addition, we had a clear plan for putting such natural assets to work alongside private enterprise. The proceeds of such enterprise was put to work building some of the first public infrastructure in Nigeria, just as agricultural proceeds from cocoa was used to finance education and infrastructure in western Nigeria.

Today, however, based on current data, Nigeria’s solid minerals sector only makes up about 0.34% of gross domestic product (GDP). While that is significant, it is much smaller than its true potential as the vast majority of our mining assets have yet to be exploited. To put this figure in a broader context, we should note that solid minerals account for about 9 percent of South Africa’s GDP, while mineral revenues is projected to account for 34.4% of Botswana’s total revenue in 2015/2016, and about 30% of GDP[6]. Therefore, it would be accurate to say that Nigeria’s solid minerals sector has more or less been operating sharply below capacity, with many mining operations manned by small scale artisanal miners, as opposed to the large scale actors.

According to one of the major stakeholders in the solid minerals sector, the Association of Metal Exporters of Nigeria, we can generate at least N5 trillion annually from mining and exporting of its vast solid mineral deposits, with several multiplier effects on job creation, state development and social infrastructure that could position the solid minerals sector as the main catalyst for national development. Only two days ago, I was in Ilorin, Kwara state with the Vice President to witness the foundation laying for another steel plant in Nigeria.

My predecessors as ministers since 1999 made tremendous efforts to shift the sector from a state-led orientation to a more efficient private sector-led sector with clear guiding laws, regulations and activities. Their reform efforts crystallized in the Nigerian Minerals and Mining Act of 2007, a sound piece of legislation with built-in globally competitive incentives. Nigeria is once again on the path to providing a transparent and workable regulatory and policy environment for private sector led mining. And companies have started responding to all the efforts made by my predecessors. Today we have companies such as Tongyi Allied Mining, Dangote Group, Segilola Gold, Kogi Iron Mines, Multiverse Resources, Kas Industries, and Australian Mines Ltd etc. blazing the trail in the mining sector. We also look forward to welcoming more companies into the sector.

Today, the Nigerian mining industry faces external and internal challenges. Chief among the external challenges is the turmoil besetting the global mining market as key sources of demand that supported prices over the past two decades have declined. The continuous global decline in prices of mining products has put mines and mining houses under immense pressure. This is reflected in the sharp decline in the share prices of major industry players such as Glencore, Anglo-American and Rio Tinto for example.

Naturally, as the prices of metals and their assets plunge, many of the top mining houses are pulling back from investment planning, shutting down mines and optimizing current operations. All mining now has to be cost and process efficient.

For Nigeria, this trend makes attracting the large houses in the current time frame quite challenging. But even in this difficulty, there is also great opportunity. We have therefore crafted a strategy to reflect a need to jumpstart market growth using a blend of domestic mining houses, junior mining companies and large global miners. The good news for Nigeria is that we have tremendous domestic demand for industrial minerals and metals – in the construction industry for example, so we will be focusing on working with other key MDAs to ensure that demand is met by Nigerian miners and processors.

Our internal challenges consist mainly of limited or inadequate infrastructure which makes it difficult for Nigeria to export iron ore for example; obsolete geological data; archaic mining techniques and processes; illegal artisanal mining activities; weak institutional capacity that has traditionally hampered my ministry’s discharge of its regulatory mandate; and insufficient funds to drive development in the sector; and the enduring perception of Nigeria as a particularly high-risk business environment. We are presently aggressively tackling all these challenges from working with the National Assembly to receive the right budgetary provisions, and seeing to the recruitment of top quality technical experts to drive our work, to ensuring expansion in bulk handling terminals at multiple river and ocean ports. We are also leveraging technology using web applications to carry out different scenario based analyses on existing geo-databases to generate regional based potential ‘Mineral Resource Corridor Complexes’. These geo-databases incorporate datasets based on various features – mineral resources, mineral lease holdings, landuse and landcover, infrastructure details, socio-economic data e.t.c. The outcome of this presents an opportunity for stakeholders at the regional level to cooperate in optimally exploiting their mineral resources. I can therefore affirm that the sector is now fully open for new businesses while we work on strengthening a functional mineral resource development ecosystem.

[1] Claude Ake, Democracy and Development in Africa (Spectrum Books 2001)

[2] Okey Ndibe, “A Nation of Big Divine Thieves,” The Guardian, October 25, 2006

[3] Okey Ndibe, “The Answer Lies at Home,” The Guardian, July 7, 2005

[4] Ibid

[5] “America Reduces Oil Imports,” Africa Today, May – July 2013

[6] BOTSWANA 2015, www.africaneconomicoutlook.org

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