Budget Financing: How Government Can Seek Solace in Mining

Budget Financing: How Government Can Seek Solace in Mining


For some years, dwindling oil revenue has continued to pile pressure on the national purse with government facing serious constraints in financing its budget.

Although many analyst frown at the trend, but the federal government has consistently resorted to borrowing to fund its budgets annually over the years. For this year alone, the government is to borrow N5.6 trillion from domestic and foreign resources. The amount being the total deficit for the 2021 budget which represents 3.93 per cent of Nigeria’s GDP.

Apart from the regular domestic and foreign borrowings to fund its budget, the federal government is now moving to sell some government-owned properties for the same purpose. The government has said it will sell some non-oil assets to serve as additional sources of finance for the year’s budget.

Read Also: ‘Foreigners Engage in Illegal Mining in Nigeria’ says Minister

Many non-governmental institutions have advised strongly against this, and some have advised the government to look at other sources of funding.

There are some underdeveloped sectors of our economy that can come to FG’s rescue within a few years if they are effectively harnessed for development. One of such is the mining sector.

The present administration deserve commendation for trying to massively revive the mining sector. If these efforts are elevated and sustained, this sector can single-handedly mitigate the problem of funding within a decade or less.

Nigeria’s sudden leap into oil wealth in the early 1960s caused the neglect of agriculture and solid mineral resources which sustained her economy during the colonial period and the critical years of the civil war. But the oil glut in the 1980s and the subsequent collapse of Nigeria’s economy brought about a rethink on how to reactivate these resources which laid the foundation for the nation’s fortunes. Hence, the renewed interest in the exploitation of solid minerals.

The Mining sector in Nigeria has a lot of potentials but it faces its fair share challenges, that should be tackled effectively for the nation to gain maximally. The year 2020 was a tough one for the mining and quarrying sector falling into recession with the contraction of 6.6% in Q2 followed by a deeper contraction of 13.22% in Q3.

As the country awaits to see the Q4 GDP figures, analysts are keen to see if any recovery was made at all. Recall that COVID-19 pandemic significantly reduced mining activities not only in Nigeria but across the world. However, the potentials for growth are real and the approach of the federal government and private sector will determine that.

A lot has been said about the potentials of mining and quarrying sector in Nigeria, yet, the sector’s contribution to the country’s GDP remain at 9.9% in Q3 of 2019, 10.0% in Q2 last year 8.9% in Q3. A critical look at this will expose a very sharp nose dive from Q1 to Q3 last year.

The fact is that, the pandemic played a role in this, because the whole world witnessed a depressed economy and the mining sector is not left out. There has been a decline of economic performance all over the world, and many sectors of the Nigerian economy were affected by this decline.

Though, the decline witnessed in this sector is not likely to be reversed in this recession, but there is surely going to be an improvement based on what government has done. The renewed drive and initiative of the federal government to create revenue substitution as well as create employment for the citizenry and boost Foreign reserve for the country will help the sector.

To this end, analysts believe that, there will be improvement going forward. There will be improvement in Q4 GDP performance but that improvement is going to be quite minimal. The reason for this is simple- the impact of the pandemic as well as other contributors that have affected the sector in the past few months.

The government on the other hand cannot say because of COVID-19, it will not open up the mines, they need to get people back to the mines and keep them safe and healthy so also unlock the value in this sector. Government cannot fold its hand and continue to see a declining figures because the potential in the sector is enormous.

Therefore, government should apply viable and tested solutions other African countries have used. And that includes; joint venture contracts, partnership as well as strategic alliances. These have been deployed by some African countries and it brought significant results.

For instance, Botswana understood that, they do not have adequate knowledge and  funding to explore the infrastructure needed for mining. So, they entered into a joint venture contract with one of the leading diamond companies in the world where they shared 50-50 profit, and that has turned the diamond industry in Botswana around for good. Currently, the mining sector is contributing more than 40% to Botswana’s GDP, the sector also creates more than 50 thousand jobs in the country. Currently, the country also makes about 5 billion USD from that sector annually.

But that’s Botswana, another case in point is, Ivory coast and Guinea. They entered into alliances with Predictive Discovery, a gold exploration company, and those alliances have yielded so much results.

Like what the country has done with crude oil, if Nigeria can replicate that partnership and make it simple and well structured, with joint venture agreements, the country will benefit a lot from the mining and quarrying sector.

-Joy Adams

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