Dear Governors, You Don’t Have to Run Broke States

In August of 2012, I undertook a trip with a group of people to the village of Nahuta in Alkaleri Local Government Area in Bauchi State, a community so inaccessible from Bauchi town that we had to go to Gombe State and then back into Bauchi State. What we saw in the village were commercial mining operations of lead, zinc and limestone – not just by small-scale artisanal miners, but also by large-scale miners, mostly Chinese, using heavy mining equipment.

It gets more interesting here – all of the mining, both small-scale and large-scale, is illegal. Not a dime accrues to any government at any level. There are no permits given to any miner there, and of course, requisite procedures such as Environmental Impact Assessments (EIAs) which ought to be conducted before mining begins in order to determine how much impact it will have on the environment, whether the mining should actually take place or not and how to minimize the impacts are not done.

Such illegal mining is not unique to this village – it happens all across Nigeria. The Senate estimates that Nigeria loses as much as N8trillion to illegal mining yearly. This is not to mention the damage done to the environment and health effects, such as the lead poisoning incident that happened in Zamfara State in 2012, killing about 400 children.

What does this little story of mine have to do with our current situation of states being broke?

It is common knowledge that Nigeria is a country rich in solid minerals – literally every state has many minerals in commercial quantities. It is also common knowledge that we are not utilizing this natural resource for our economic benefit – mining currently contributes only 0.3% to the GDP of Nigeria. So why isn’t Nigeria harnessing our mining sector more than it is at present? Governments come and governments go, and despite promises to make the sector more happening, they never just do. Of course, the allure of cheaper revenues from oil is too blinding.

But that is also just half the story – another reason why the mining sector remains stunted in growth is due to the fact that oversight and regulation of mining is solely in the hands of the Federal Government. The Nigeria Minerals and Mining Act of 2007 (pdf) vests control and ownership of minerals in Nigeria as a whole as the exclusive preserve of the Federal Government, and also gives them the power to issue mining licenses. Of course, this also means that all mining royalties, taxes and levies accrue solely to the FG.

Although the law is filled with mouth-watering incentives such as tax holiday of three years for miners, waiver of import duties on mining equipment, deduction of capital allowance of 95% of qualifying capital expenditure from assessable profits, etc, there has not been much increase in investment in the mining sector, at least, not legally.

Why is it so easy for illegal miners to get away doing things illegally? Simple – the Federal Government cannot be everywhere to monitor and stop them from their illicit activity. Yes, there is an obvious lack of political will, but political will can only do so much in administering a territory as large as Nigeria in this regard.

So why are the states and local governments in whose domains these activities are happening not doing anything too? There is no incentive for them to do so, especially knowing that all the monies that can be earned from legal mining goes to into the federal pool before further being shared down.

For this to change, we need to start by giving states more control over the mineral resources within them so that they earn the bulk of the revenues earned from these activities in their domains, remitting a portion to the federal purse, which Senator Lanre Tejuoso (APC – Ogun Central) rightly suggested in his contribution to the debate on the floor of the Senate regarding illegal mining. Doing so will incentivize the states to not only stop illegal mining, but to go all out to attract investments in the sector.

The Federal Government can set national policy regarding mining and oversight

This is an excellent time for governors to start pushing for the amendment of the Mining Act and the constitution removing mineral resources from the Exclusive Legislative List rather than having them run cap-in-hand to the FG looking for bailouts. This is a more sustainable, win-win solution for the country, as it will spur the development of the sector, create jobs and raise revenues for the states and the country. It will also be the first step in moving to the next stage in the value chain of mining by processing the extracted minerals rather than just commodity exports.

States can also go beyond just surviving on rent from mineral extraction but also from taxation, although that will require a reform of the current tax code, as brilliantly put here by Nonso Obikili – making states responsible largely for value added, company income and capital gains taxes.

This is also the start of achieving fiscal federalism as the self-sufficiency of states can then go hand in hand with reduction of federal allocations to the component units, and the elephant in the room – applying the same principle of states controlling solid mineral resources and tax revenues in their areas – to oil producing states and crude oil production.

Without such reforms taking place, I am hard pressed to say that it is unlikely that Nigeria’s economy which is the aggregate of the economies of its component units will realize its full potentials, as the economies of most of those component units will remain in the comatose state it is today.

The ball is now in the court of the governors – it is up to them to mobilize themselves and begin to push for these reforms, especially using their lawmakers at the federal level to amend or introduce the necessary laws to make this happen and avoid future periods of being broke, as dependence on crude oil whose price yo-yos has shown likely to happen time and again.

3 Comments on this post

  1. Removing mineral mining from the legislative list means removing crude oil too. So, what you are asking for is dead on arrival

    Oj / Reply
    • Under the constitution, solid minerals is separate from petroleum resources. For me, I will like this to happen all in one fell swoop – states keep 50% of earnings from solid minerals, petroleum resources and taxation and send the other half to the centre. But in the absence of that happening, we can do this staggered approach.

      Mark / (in reply to Oj) Reply
  2. […] a year ago, I wrote this blog post on how governors did not have to run financially broke states and advocated for states to be given […]

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