Mining, including mineral fuel, contributed around 6.19% to Nigeria’s GDP in 2021 (vs 7.13% in 2020). The wide range of solid domestic mineral resources is the new focus area of the Nigerian mining industry. The government’s latest National Development Plan (covering 2021-25) has set a target of a 3% contribution of total non-oil mining to GDP by 2025 vs 0.43% in 2020.
Government’s backing and the focus on a wide range of solid domestic mineral resources are likely to augur well for the Nigerian mining industry. Nigeria has deposits of about 44 minerals. The government recognises coal, bitumen, limestone, iron ore, barites, gold, lead/zinc as ‘Seven Priority Minerals’, prioritising their development.
While Nigeria has more gold reserves than Burkina Faso and the DRC, gold production has been the lowest in Sub-Saharan Africa (SSA), underscoring the dearth of large-scale production facilities in the country. This is corroborated by the fact that Nigeria’s annual gold production was less than 15% of Mali’s in 2019, despite their similar gold reserves. Nevertheless, the grade quality of gold found in Nigeria is one of the highest in SSA, presenting a substantial growth opportunity, with gold continuing to remain in demand from the jewellery sector and extracts the highest price worldwide.
Nigeria has combined estimated reserves of around 600,000 tonnes of alluvial and primary gold deposits, generally found in north-west, central and south-west Nigeria. 90% of the gold mining in the country is carried out by small artisanal miners, employing around 85% of the workforce in the sector. Gold mining is at a nascent stage. As one of the seven strategic minerals, gold attracts significant fiscal incentives and regulatory benefits. Currently, Thor is the only large-scale gold mining company in the country (annual capacity of 85,000 oz of gold production).
Gold’s overall performance hinges on diverse demand drivers, including investors’ preference for safe-haven assets during uncertain market conditions, consumer demand for jewellery and central banks’ gold purchase. The use of gold in the technology sector, albeit small compared to other sectors, is on the rise and has far-reaching use in various critical equipment. Gold is likely to remain a strong hedge against currency movements and inflation as reflected in its demand more than doubling in the last three decades. It is still considered a safe haven in an uncertain economic environment, which ensures consistent demand for yellow metal, especially during distress.
Nigeria’s large reserves of minerals provide a good alternative for diversification away from oil. In 2020, gold was the most preferred investment asset. Gold jewellery demand represents around 50% of the total annual gold demand. The jewellery demand took a hit during the pandemic (2020-21) due to supply constraints and people reducing spending on luxury, but at the same time, investment in the gold asset as a safe haven ascended. The all-weather demand characteristics of gold will likely support Nigeria’s aim of diversifying its economy.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
When will Nigeria have sense, we need to start holding real assets and not dollars, gold can help us in terms of Western sanctions