Developing Nigeria’s steel sector

In spite of the proven link between the development of the iron and steel industry and the industrialisation and modernisation of societies, Nigeria, a country in dire need of industrial take-off, does not appear to be taking the development of this critical sector as serious as it ought to. This is notwithstanding the launch, in February 2014, of the National Industrial Revolution Plan (NIRP) which hopes to “fast-track industrialisation, accelerate inclusive economic growth, job creation, transform Nigeria’s business environment and stop the drain on our foreign reserves caused by importing what we can produce locally”.

The steel sector encompasses makers of primary and secondary aluminium products, cold rolled coils, wire rods, enamelware, galvanised iron and steel, nail and wire, steel pipes and steel. This industry is a critical input not only in agriculture, but also underlies the military-industrial complex and is invaluable for the stimulation and innovation of diverse technologies critical to the day-to-day needs of the ordinary people.

History shows that progressive development, mastery and use of iron and steel products to a large extent enabled societies in Western Europe and the Americas, as well as in Japan, to cope with their environment and provide for the welfare of their people. Put simply, no nation can get anywhere without this sector.

But the country’s dream of having a virile iron, steel and fabricated metal sector is bogged by retrogressive import duty, dollarisation of gas and high cost of acquiring mining equipment which combine to stifle the sector. Steel makers say they pay for gas used in factories in dollars rather than naira, a situation that has continued to impact their bottom lines negatively. They also face low import duties imposed on iron, steel and aluminium products which encourage import of substandard goods rather than encourage local production.

In a recent sectoral report, steel pipe makers reported that “some people have been bringing in steel pipes with wrong declaration to the Customs while paying 5 percent duty instead of 35 percent”. Nail and wire makers also complain that influx of fake finished products has made patronage difficult and put the sector in peril.

The iron and steel industry relies so much on the mining sector for many of its raw materials, but the high cost of mining equipment and lack of heavy investment in the sector are impeding the value chain segment, thus depriving the country of jobs and foreign exchange that could have been generated in this segment, according to the industry operators.

To resolve this quagmire and set the sector on a path of steady development, the industry operators have called for a consistent policy on duty rates to enable more investment in cold rolling mills in the country; increase in tariff lines for steel pipes from 178 items to 300 items; a 30 percent discount for gas users in the sector to bring it at par with the international price; increase in duty on wire rods from 20 percent to 50 percent, and upward review of duty on enamel ware from 20 percent to 35 percent. They also say to encourage investors and support growth in the sector, mining equipment and machinery for hot cold rolled coils should remain at zero percent import duty and zero percent value added tax (VAT).

“It is from cold rolling mills that base materials for making automobile panels and other components are derived, so if you encourage investment in this sector it will galvanise local auto production and generate jobs. Iron rods have been protected by 50 percent duty, cold roll has not been protected. That is the reason investors are running away from that end of the business. One cold rolling mill can sustain 50 to 100 local industries which will create jobs,” said one industry operator.

We note that an iron and steel complex is essential in kick-starting the industrial process in the country. Regrettably, in spite of over $5 billion sunk in the Ajaokuta Steel Complex Limited, the project is yet to be fully completed. As a result, over 85 percent of manufacturing equipment which could have been obtained from the complex are imported from abroad.

To attain a virile steel sector, therefore, we urge government to look into the concerns of the industry operators and work towards a speedy resolution of the issues raised. Government should also speedily remove all impediments to the full privatisation of the Ajaokuta Steel Complex as a way of making it commercially viable.