Unleashing the potential of Nigeria’s mining

Mining revenues up 55% but major improvements recommended for tax collection and oversight.

The latest report from Nigeria EITI (NEITI) suggests that the country could get significantly more revenues from its solid minerals.

The report finds that there has been a 55% increase of mining revenue, up to US $171 million, which can be attributed to some improvements in tax collection systems. However, the Nigeria EITI 2011 mining report concludes that a set of shortcomings has caused lower government revenues than possible. 

According to the 2011 Nigeria solid minerals EITI Report, the main challenges are the lack of a robust system of oversight for macro-economic management and the weak determination and protection of property rights.

The report recommends adopting a fiscal system similar to the petroleum sector – where companies pay a petroleum profit tax. Government revenue from the petroleum sector was over US $68 billion in 2011.

The report also recommends paying attention to economic growth and the distribution of benefits, as well as the environmental and social impact of mining.

Tax collection systems needs overhaul 

According to the report, revenues are lost because companies do not register where they should, government agencies do not have the capacity to monitor, agencies use outdated market prices, and in some cases, there are no consequences for not paying fees.

Government revenue from corporate income tax, set at 20-30%, is negligible because companies deduct costs and royalty payments, fail to register with the relevant authority, and the government relying on data provided by companies.

Better monitoring necessary 

Due to illegal exporting, vast amounts of minerals slip out of the country avoiding taxation. Trading centres are not monitored properly letting many actors to export minerals without a permit and leaving royalties and export fees unpaid.

Gold and barite, a mineral commonly used in oil drilling, are among the minerals produced in Nigeria, but NEITI found no official record of production or exports of these commodities. No evidence that royalties were paid was found. The report recommends improving monitoring at strategic border crossing points to control smuggling.

There is also further potential to increase the volume of minerals produced. One company, Dangote Nigeria, accounts for over a quarter of revenue in the sector. 70% of holders of mining licenses are speculating rather than exploring or operating, which hinders the development of the sector. The report recommends regular reviews of mining license holders to expose speculators and revoke their licenses.

Making progress

The 2011 report puts forward recommendations that when implemented, could make the oil giant’s mining sector more attractive to responsible investors while improving the government’s ability to capture revenue from the sector.

Although there are considerable challenges ahead, the direction is promising. Revenue is increasing steadily and the report also shows record keeping improved since the 2010 report in both government agencies and reporting companies.

 

For further information about EITI in Nigeria, visit the country page on the EITI website.