DISTURBED that Nigeria’s steel industry has yet to take off nearly 40 years after inauguration, Kayode Fayemi, the Minister of Solid Minerals Development, has pledged to reposition it to contribute “immense growth to the economy within a decade.” The plank of his programme is to resuscitate the Ajaokuta Steel Company Limited, Kogi State, deploying state resources. There are two sides to this. The first, which is to make the ASCL and associated companies work, is laudable. The second is a well-worn path: deploying scarce public resources to moribund state-owned enterprises in the past had produced miserable returns.
Steel is reported to be an indispensable material for every aspect of the economy, including bridges, buildings and cars. Steel is the world’s most important industrial material, with over 1.5 billion tonnes produced annually. For Nigeria to reap the enormous potential benefits in this strategic industry, Fayemi should not travel that road, no matter how attractive it might appear. The minister, who assumed office last November, admitted when he toured the ASCL in December that the financial resources required to revive the company are “so humongous that the government” would need to partner private investors and local banks to actualise the plan. We recommend, instead, a full privatisation model that will transfer majority equity to a reputable international steel firm that will bring along foreign direct investment.
While not downgrading our banking industry, the kind of funding required for the project is not easy to come by locally. Commercial banks in Nigeria are still reeling from the impact of the 2013 privatisation of the power assets, in which they were exposed to the tune of about N1 trillion. They lack the resources for the high-capacity exposure that a robust steel industry would need.
Moreover, in 2008, the Federal Government cancelled the Ajaokuta concession programme partly because Global Infrastructure Holdings Limited of India, which won a bid in 2005, resorted to borrowing massively from our local banks and had no funds for further investment. This was against the contractual terms that it should invest external funds in its bid to revitalise the company. The ASCL is still battling to repay some loans, put at some N24 billion, after the cancellation of the deal.
But by selling Ajaokuta and the National Iron Ore Mining Company, Itakpe, Kogi State, to international investors, the government would overcome several obstacles at once. There is FDI from Europe, Asia and the Americas where investors seeking solid investment ventures like in our steel sector, and the technical know-how they possess, will transform the sector.
Estimates vary, but Nigeria has expended between $7 billion and $10 billion since it launched the steel project in 1979. Instead of producing its annual target of 3.1 million tonnes of steel – as in light billets, wire rods, medium section, structural mills – for domestic consumption and export, the country has gained practically nothing. Worse, the Federal Government appropriates billions of naira annually for recurrent and overheads, as the N4.58 billion voted for workers’ salaries in 2012, and the N8.8 billion for personnel in the 2015 budget showed. This is wasteful. Fayemi should end this annoying culture of wasteful expenditure for zero productivity.
Again, the efforts made by Abuja to concession Ajaokuta to Solgas in 2004 and GIHL in 2005 failed. Experts say that no country can develop industrially without a viable iron and steel industry. Modern inventions like cars, airplanes, railways, construction and armaments are manufactured with steel. Economically savvy nations realised this long ago. Thus, they gave a free rein to the industry, and enjoyed the benefits that accrued from such a liberalisation policy. One of them is Canada, which had 12 major steel companies at the beginning of the 20th Century. Before long, 11 of those companies – except Stelpipie – had been purchased by investors from the United States, England, Russia, India, South Africa and Brazil. Through this model, Canada’s steel industry employs 130,000 workers, and exports steel products worth $7 billion annually.
In other models, the mining industry contributes eight per cent to Australia’s Gross Domestic Product, with a direct job tally of 158,000 (and 505,600 indirect jobs). It fetched the government $7 billion in royalties and $21 billion in taxes (2008-09). The model in China, with a GDP of $11.38 trillion (World Bank 2015 estimates), is more remarkable because the country imports the major raw material (iron ore) for producing steel, but now has 40 per cent of the global steel capacity to drive its industrial growth.
At a time of dwindling revenues from oil and gas, which have put the Nigerian economy in a crisis, we urge Fayemi to act fast: embark on a transparent, holistic privatisation of Ajaokuta to reputable global players, who will in turn transform the loss-making enterprise, create income and jobs. A plan has already been laid out by the Bureau of Public Enterprises. The money generated from the sale should be re-directed to building the associated infrastructure in the steel companies. As it is, it is expedient to urgently pursue the privatisation model that has garnered rich dividends in other places.
