The Nigeria Steel Industry: An Awakening?

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 Tuesday, October 20, 2020 / 12:21 PM / by CSL Research/ Header Image Credit: Bloomberg 

 

A Punch report yesterday stated that the Minister of Finance, Budget and National Planning, Zainab Ahmed, during an inspection tour of the African Natural Resources and Mines' US$1.5bn steel plant that is nearing completion in Kaduna State noted that the plant will attract automobile industries to Nigeria when completed and save Nigeria foreign exchange because importation of steel will stop. The facility is expected to produce one million metric tonnes of steel annually. The firm would be mining iron ore to produce direct reduced iron, which would enable the company produce a higher-grade steel more efficiently.

 

The steel industry is essential to the industrial growth and development of any nation. According to stakeholders in the industry, over 95% of the current steel production in Nigeria is from scrap metal, making the country currently focused on developing the upstream mining sector. The history of Nigeria's attempt to develop the steel industry in Nigeria dates back to the establishment of the the Ajaokuta Steel Project in September 1979. Designed as an integrated iron and steel complex, the first phase was designed to produce 1.3million tonnes (MT) of liquid steel per annum wth capacity to expand to 2.6 MT and 5.2MT in three phases. The Federal Government also established the Delta Steel Company in Aladja which was commissioned in 1982, (now privately owned) with a capacity of 1.0MT per annum. Both companies have however never been fully functional due to a myriad of factors including poor corporate governance.

 

Over the years, successive governments have made efforts to revive the steel company, unfortunately, such efforts have not produced significant strides. The ministry of steel and development states that its target is to increase the contribution of the total mining sector to 10-15% by 2025 from 0.1% in 2019. The major investment case for the steel sector is the abundance of the raw materials for steel production which include; iron ore, limestone, clays/silica sand. The Nigeria mining industry also allows for 100% foreign ownership. The country also has a huge potential for growth in steel demand. According to the World Steel Association, steel use per capita for finished steel products stood at 8kg in 2017, significantly below the world average of 214.5kg.

 

The Nigerian steel company has enormous potentials given its capacity to  become a major producer of industrial machinery, auto-electrical spare-parts, shipbuilding, railways and carriages. At a time when the Federal Government is exploring alternative ways of diversifying foreign  exchange earnings away from oil, the project is also a veritable source of foreign exchange earnings. Self sufficiency in steel production would also mean conserving the much needed foreign exchange expended in the importation of steel. With increasing levels of unemployment, the steel company also has the capacity to employ a large number of the nation's labour force both directly and indirectly. We are positive that increasing private investment in modern steel plants will drive the growth of the steel industry in Nigeria.

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