PAYNE INSTITUTE STUDENT COMMENTARY SERIES: COMMENTARY

By Edikan Udofia

February 29, 2024

1           Abstract

Nigeria is endowed with more than 2 billion metric tons of iron ore reserves and is striving to position itself as a key player in the worldwide steel sector. Despite encountering challenges in the past regarding enhancing its steel manufacturing capabilities, Nigeria is currently well-placed to harness its abundant mineral wealth and enhance its steel production capacity. This study delves into Nigeria’s evolving role in the global steel market by evaluating its present status, the importance of its iron ore reservoirs, the effects of governmental strategies aimed at revitalizing the steel sector, and the existing challenges and prospects. Specific governmental initiatives emphasized include the refurbishment of the Ajaokuta Steel Company Limited [Bappah and Isiaka, 2019] and the National Industrial Revolution Plan [Central Bank of Nigeria], which seeks to elevate the manufacturing sector’s contribution to the GDP [National Bureau of Statistics, Nigeria, 2022]. The examination explores how Nigeria can exploit its strengths such as mineral resources, a burgeoning local market, and a favorable geographical position to amplify steel output. Nonetheless, the study also addresses the need for Nigeria to upgrade insufficient infrastructure, tackle technological shortcomings, and enforce regulatory modifications to fully capitalize on its potential in the global steel industry. The fundamental argument posited is that through targeted interventions and policies, Nigeria has the potential to establish itself as a competitive steel manufacturer on a worldwide scale.

2           Path to Global Impact

The global steel market, serving as the backbone for economic development across nations, supports pivotal industries including construction, automotive, infrastructure, and manufacturing. Highlighting the sector’s worldwide significance, the World Steel Association reported in 2021 that global steel production had exceeded 1.8 billion tonnes [World Steel Association, 2023], underscoring steel’s critical role in economic advancement and sustainability. Its versatility and recyclability position steel as a key material in achieving sustainability goals, particularly in constructing energy-efficient buildings and infrastructure, and facilitating the transition to renewable energy sources. Amidst this global backdrop, Nigeria, Africa’s largest nation, stands on the brink of significant advancement within the steel industry. Historically challenged by operational inefficiencies and unrealized potential [Oyelaran-Oyeyinka and Adelaja, 2017], Nigeria is uniquely poised to make a considerable leap in the international steel market. The country’s journey toward harnessing its steel production capacity not only highlights its abundant mineral resources, especially in iron ore, but also reflects a shifting policy environment and investment landscape aimed at unlocking these resources [Uzonwanne, 2015][Federal Ministry of Mines and Steel Development, 2017].

Central to Nigeria’s potential in the steel industry are its substantial iron ore reserves, which are estimated to exceed 2 billion metric tonnes[Federal Ministry of Mines and Steel Development] [National Bureau of Statistics]. These reserves, alongside an expanding local market driven by extensive infrastructure and construction projects, and a strategic geographic location conducive to exports, form a solid foundation for Nigeria’s ascent in the global steel market. However, realizing this potential is contingent upon overcoming a myriad of challenges, including infrastructural deficits, technological gaps, and the need for regulatory reforms [Salisu and Abu, 2020].

The foundation for steel production in Nigeria was laid in the late 20th century, marked by the establishment of the Ajaokuta Steel Mill in 1979 [Uwakonye et al., 2020]. Envisioned as a catalyst for Nigeria’s industrialization, the mill was expected to position Nigeria prominently on the global steel stage [Adeolu, 2017] [Oyelaran-Oyeyinka, 2022]. Yet, due to various impediments such as mismanagement, corruption, and technical setbacks, the facility has remained largely underutilized, symbolizing the missed opportunities within Nigeria’s industrial narrative [Soludo, 2021]. Despite these setbacks, Nigeria’s steel industry has seen some level of activity, primarily through smaller steel rolling mills that cater to a portion of the domestic demand. The World Steel Association noted that Nigeria produced approximately 950,000 tons of crude steel in 2021 [Federal Ministry of Mines and Steel Development]. Although this figure represents only a fraction of global output, it serves as a base for potential expansion. The reliance on imported steel billets for re-rolling processes underscores a lack of vertical integration in the sector, pointing to opportunities for growth and development [Olawuyi and Onifade, 2018].

The landscape of Nigeria’s steel sector is shaped by a mix of state-owned enterprises and private sector players. The Delta Steel Company, following its privatization [Humphreys, 2019], along with various smaller steel rolling mills, contributes to the country’s steel output, predominantly producing reinforcement bars for the construction industry. This reflects the influence of the domestic market on the industry’s focus. Nigeria’s current standing in the global steel industry is not solely defined by its production capabilities but also by its vast but underexploited iron ore reserves, particularly in the Itakpe region [Ogbuenyem and Smith, 2021] [Adekeye and Badejoko, 2012]. The full utilization of these resources, coupled with necessary infrastructure improvements, could significantly elevate Nigeria’s status from a marginal player to a significant contributor on the global stage.

In terms of international trade, Nigeria’s steel industry is characterized more by importation than exportation, with imports meeting a substantial portion of the domestic demand for finished steel products. This reliance underscores the gap between potential production capacity and actual output, presenting both challenges and opportunities for growth [Olawale and Garwe, 2010].

The narrative of Nigeria’s steel industry is one of untapped potential and cautious optimism. With the fundamental elements for a thriving sector in place, the path to realizing Nigeria’s aspirations in the global steel market involves addressing historical, logistical, and financial challenges. This paper aims to explore Nigeria’s evolving role in the global steel market, analyzing its current state, the strategic significance of its mineral resources, the impact of government policies, and the challenges and opportunities that lie ahead. As Nigeria strives to maximize its steel production capabilities, it faces the dual task of overcoming existing barriers and leveraging its strengths to foster economic development, regional growth, and global competitiveness in the steel sector.

3           Addressing Challenges

Nigeria’s pursuit of establishing a prominent position in the international steel market is underpinned by a complex interplay of opportunities and significant challenges. The path to harnessing the country’s substantial natural resources, improving infrastructure, and optimizing government policies is fraught with obstacles spanning technological, financial, operational, and regulatory domains. Addressing these challenges is pivotal for Nigeria to realize its steel industry potential and secure a competitive stance globally.

3.1         Technological and Operational Challenges

A critical barrier to Nigeria’s steel industry advancement is the reliance on outdated technology across its existing mills, notably at facilities like the Ajaokuta Steel Company Limited. This technological lag not only undermines production efficiency and product quality but also inflates operational costs, diminishing the global competitiveness of Nigerian steel [Olawale and Garwe, 2018]. The deficiency of local expertise in modern steel manufacturing further exacerbates the situation, necessitating reliance on foreign technical assistance and, consequently, additional costs.

3.2         Financial and Investment Hurdles

Nigeria’s high inflation rate, peaking in 2024, has escalated cost of living concerns and put pressure on households and businesses. Meanwhile, the volatile Nigerian naira continues to fluctuate significantly against major currencies due to Nigeria’s economic challenges, as experts argue the Central Bank’s policies have yet to stabilize the exchange rate. This economic downturn has been further exacerbated by low oil prices reducing foreign exchange earnings, which combined with the unstable naira, presents ongoing difficulties for Nigeria’s economy [Daniel].

The capital-intensive characteristics of the steel industry necessitate substantial investments in technology, infrastructure, and raw materials. However, the Nigerian sector encounters obstacles in attracting these investments due to the unpredictable economic environment, marked by high inflation rates and fluctuating exchange rates. These economic hurdles not only discourage both local and foreign investors but also increase the expenses associated with importing cutting-edge technology and raw materials, placing additional financial burdens on Nigerian steel companies [Oyelaran-Oyeyinka and Adelaja, 2017].

Local businesses, especially, face challenges in obtaining funding because of inflationary pressures that result in high interest rates and strict borrowing criteria. These circumstances limit their ability to finance necessary technological advancements and expansions required to remain competitive. The unpredictable global steel prices further contribute to uncertainty, complicating the prediction of investment returns and increasing the industry’s risk profile.

In order to navigate the challenges in the financial sector, it is essential for the industry to explore creative funding options like utilizing mineral-based assets as collateral or forming beneficial partnerships with better terms. Moreover, governmental intervention can be crucial by implementing financial protections and stability measures to shield the industry from severe economic fluctuations, thus enhancing its appeal for potential investments.

3.3         Infrastructure and Logistical Issues

Infrastructure deficits, particularly in transportation and power supply, severely impact the steel industry’s operational efficiency. The lack of a reliable rail system for material transport and frequent power outages compel steel plants to generate their own electricity, significantly increasing production costs. Additionally, the absence of specialized port facilities for bulk material handling poses logistical challenges, affecting the timely and cost-efficient procurement of raw materials [Okereke, 2017].

3.4         Policy and Regulatory Environment

Despite governmental efforts to foster the steel industry through various policies, challenges in policy implementation, bureaucratic bottlenecks, and insufficient protection against unfair foreign competition hinder the industry’s growth. A stable, predictable, and supportive policy and regulatory environment is crucial for the industry’s success, encouraging investor confidence and operational efficiency [Chukwu, 2020].

3.5         Competition and Environmental Sustainability

The Nigerian steel market faces intense competition from cheaper imported steel, complicating domestic producers’ ability to compete due to higher operational costs. Furthermore, the global shift towards environmental sustainability presents both a challenge and an opportunity for Nigerian steel manufacturers to adopt greener production methods, balancing technological demands with the costs of such transitions [Bakare, 2020] [Chinomona, 2013].

3.6         Actionable Insights

Addressing the multifaceted challenges of Nigeria’s steel industry demands an integrated strategy focused on technological advancements, enhanced financial mechanisms, infrastructure upgrades, policy reform, and sustainability. Key actions include promoting public-private partnerships to boost infrastructure, offering incentives to spur local and international investments, and adopting green manufacturing processes [PricewaterhouseCoopers, 2018] [Adewoye and Okelana, 2019].

The synergy between governmental agencies, industry players, and global allies is crucial for overcoming the sector’s hurdles. A united approach will enable Nigeria to tap into its extensive mineral wealth, advantageous geographical position, and growing market demand, setting the stage for significant achievements in the global steel landscape [Adebayo, 2021]. Achieving a thriving, globally competitive, and eco-conscious steel industry in Nigeria hinges on collective dedication, targeted investments, and an unwavering commitment to innovation and sustainability [Commission, 2021].

4           Strategic Growth and Collaborative Efforts

The journey toward redefining Nigeria’s steel industry encompasses a comprehensive strategy aimed at leveraging domestic demand and fostering strategic partnerships, both of which are instrumental in propelling the sector toward significant growth and global competitiveness [Okoli, 2022]. This section delves into two critical aspects of this transformative agenda: harnessing the burgeoning domestic market and integrating the steel production value chain, alongside cultivating strategic alliances and supportive policies that collectively lay the groundwork for a revitalized steel industry [of Nigeria, 2019].

4.1         Domestic Demand and Value Chain Integration

The foundation for expanding Nigeria’s steel industry significantly rests on its rapidly growing domestic market, driven by an acceleration in urbanization, infrastructure development, and industrialization efforts [Salisu and Akanni, 2021]. The government’s dedication to enhancing the nation’s infrastructure, spanning transportation, housing, and energy projects, generates a substantial demand for steel. This burgeoning local demand provides domestic producers with an invaluable opportunity to increase their production capabilities, diversify their product offerings, and diminish reliance on steel imports. The strategic expansion of production capacities to fulfill internal demands not only serves as a catalyst for growth within the steel sector but also plays a crucial role in propelling wider economic advancement [Nigeria, 2019].

Simultaneously, Nigeria’s abundant reserves of iron ore and other critical minerals for steel production lay the groundwork for an opportunity of monumental scale: the establishment of a vertically integrated steel industry. Such integration, encompassing the entire spectrum of production from mining through to the manufacture of finished steel products, positions Nigeria to realize significant cost efficiencies, elevate product quality, and bolster its competitiveness on the global stage. Moreover, the potential to transition into a steel exporter, especially targeting the West African region [Adewoye and Okelana, 2019], unveils new pathways for market broadening and diversification of revenue streams. This export potential, leveraged against the backdrop of similar infrastructure and development requirements across neighboring countries, further underscores the strategic imperative of integrating the value chain [Okere and Smith, 2022]. Together, the expansion driven by domestic demand and the strategic integration of the production value chain form the dual pillars upon which Nigeria can build a more robust, competitive, and sustainable steel industry, setting the stage for an era of industrial and economic transformation [of Nigeria, 2020].

4.2         Forging Strategic Pathways

The development and revitalization of Nigeria’s steel industry hinge critically on the formation of strategic partnerships and the implementation of supportive policies, both of which play pivotal roles in propelling the sector forward [Okorie and Ahmad, 2021]. On one hand, domestic and international collaborations are essential for infusing the industry with the necessary capital, technology, and expertise [Ogege and Zhang, 2020]. These partnerships not only promise to modernize existing infrastructures and initiate new projects but also play a significant role in workforce development, ultimately boosting the sector’s competitiveness on a global scale. On the other hand, the government’s role in crafting and executing supportive policies cannot be overstated. Regulatory reforms, alongside concerted efforts in infrastructure development, are fundamental in laying down a conducive environment for the steel sector’s expansion. Such policies are designed to magnetize investments, foster the growth of local content, and anchor the industry’s long-term sustainability.

Simultaneously, a comprehensive strategy that involves all stakeholders is crucial for navigating the complex landscape of Nigeria’s steel industry. The government is tasked with a multi-faceted role that encompasses ensuring policy consistency, spearheading infrastructure projects, streamlining regulatory frameworks, and offering incentives to stimulate investments [Commission, 2018]. These efforts collectively aim to dismantle existing barriers and pave the way for a flourishing steel sector. Conversely, the private sector is encouraged to adopt a forward-thinking approach by investing in cutting-edge technology, venturing into new markets, and upholding high standards of product quality. This proactive stance is essential not only for domestic growth but also for carving out a niche in the competitive global market. Moreover, international partners wield significant influence through their contributions in terms of investment, technology transfer, and capacity building [Group, 2020]. Their engagement is crucial for bridging gaps in expertise and resources, thereby facilitating Nigeria’s ambitious journey towards establishing an efficient and globally competitive steel industry.

In synthesizing these diverse yet interconnected strategies, Nigeria positions itself to unlock the full potential of its steel industry. This coordinated approach underscores the importance of collaboration, innovation, and strategic policymaking in overcoming the sector’s current challenges. It promises not only to rejuvenate the nation’s steel industry but also to contribute significantly to its economic diversification and industrial advancement, marking a new chapter in Nigeria’s industrial saga.

5           Conclusion

Nigeria’s endeavor to elevate its steel industry to a prominent position on the international stage encapsulates a narrative of significant challenges juxtaposed with profound opportunities. The path forward demands an integrated and strategic approach, emphasizing the critical pillars of technological innovation, substantial financial investment, infrastructural development, and a supportive policy and regulatory framework. It is through the synergistic efforts of the government, the private sector, and international partners that Nigeria can truly harness the vast potential of its steel industry. This concerted action is poised to catalyze a transformation, enabling the industry not only to meet domestic demands but also to compete effectively in the global market.

The realization of this vision for Nigeria’s steel industry heralds a new era of economic diversification and industrial growth, marking a pivotal contribution to the nation’s overall economic resilience and global competitiveness. As Nigeria navigates this journey, the strategic alignment of resources, policies, and stakeholder collaborations will be paramount in overcoming the existing barriers. Ultimately, this endeavor will not just rejuvenate Nigeria’s steel sector but will also set a foundation for sustainable development, showcasing the nation’s commitment to leveraging its industrial capabilities for a prosperous future.

References

H. Y. Bappah and Y. B. Isiaka. Reviving ajaokuta steel company limited, 2019.

Central Bank of Nigeria. Central bank of nigeria. https://www.cbn.gov.ng/.

National Bureau of Statistics, Nigeria. Nigerian gross domestic product report, 2022.

World Steel Association. World steel in figures 2023, 2023.

B. Oyelaran-Oyeyinka and O. Adelaja. Industrial Policy in Nigeria: Opportunities and Challenges in a Resource-Rich Country. Oxford University Press, 2017.

M. C. Uzonwanne. Economic reforms and productivity growth in the steel industry: Evidence from nigeria. Journal of Economic Structures, 4(1):1–14, 2015.

Federal Ministry of Mines and Steel Development. Roadmap for the growth and development of the nigerian mining industry: On the road to shared mining prosperity, 2017.

Federal Ministry of Mines and Steel Development. Federal ministry of mines and steel development. https://portal.minesandsteel.gov.ng/.

National Bureau of Statistics. National bureau of statistics. https://www.nigerianstat.gov.ng/.

A. Salisu and N. Abu. Economic diversification for industrialization: Review of nigeria’s policy response and options. International Journal of Emerging Markets, 23(4):616–640, 2020.

U. O. Uwakonye, G. S. Osho, and N. U. Anucha. Ajaokuta iron and steel complex: Yesterday, today and tomorrow. Journal of Engineering and Applied Sciences, 15(7):1782–1789, 2020.

A. A. Adeolu. Understanding the key policy reforms that can drive nigeria’s industrial revolution. Journal of Innovation & Knowledge, 2017.

B. Oyelaran-Oyeyinka. Industrial Policy in a Changing Global Economy: Opportunities and Challenges for Nigeria. Routledge, 2022.

C. C. Soludo. The Political Economy of Economic Growth in Africa, 1960–2000: Nigeria. Cambridge University Press, 2021.

D. S. Olawuyi and S. T. Onifade. The steel industry in nigeria: An analytical overview. African Journal of Economic and Management Studies, 9(4):423–434, 2018.

D. Humphreys. Who benefited from privatisation? a case study of the privatisation of delta steel company in nigeria, 2019.

J. E. Ogbuenyem and R. M. Smith. Characterization of the high-grade itakpe iron ore deposit, nigeria. SN Applied Sciences, 3 (5), 2021.

J. I. D. Adekeye and O. O. Badejoko. Evaluating the quality of iron ores in the major mining districts of nigeria, 2012.

F. Olawale and D. Garwe. Obstacles to the growth of new smes in south africa: A principal component analysis approach. African Journal of Business Management, 2010.

F. Olawale and D. Garwe. Barriers to the growth of new smes in developing countries: A critical literature review. Academy of Entrepreneurship Journal, 24(2), 2018.

Joshua Daniel. Impact of money supply on inflation rate in nigeria.

O. Okereke. Analysis of infrastructure inadequacy in nigeria’s ports and its impact on sustainable economic growth. Developing Country Studies, 2017.

J. O. Chukwu. Maximizing nigeria’s economic potentials through robust policy reforms, 2020.

A.S. Bakare. Competitive and comparative analysis of steel production in african countries. Mineral Economics, 2020.

R. Chinomona. The need for environmental consciousness in nigeria’s steel industry, 2013.

PricewaterhouseCoopers. The nigerian steel industry: Opportunities, challenges and strategic actions, 2018.

O.O. Adewoye and O. Okelana. Strategies towards a sustainable steel sector in sub-saharan africa. Sustainable Production and Consumption, 2019.

O. Adebayo. Revitalizing nigeria’s steel industry: policy lessons from china and india. International Journal of Emerging Markets, 2021.

Nigeria Investment Promotion Commission. Investment opportunities and incentives in nigeria’s steel industry, 2021.

A.C. Okoli. Unlocking the potentials of nigeria’s steel industry through targeted reforms. Journal of Industrial Policy and Technology Management, 2022.

Manufacturers Association of Nigeria. Position paper on reinvigorating nigeria’s steel and metallurgical sector, 2019.

A.A. Salisu and L.O. Akanni. Leveraging domestic demand to develop nigeria’s steel industry. Journal of Industrial Policy and Economic Development, 2021.

Proshare Nigeria. Backward integration: A path to an integrated steel industry in nigeria, 2019.

W. Okere and D. Smith. Achieving integrated steel production in nigeria: Lessons from south africa. The Extractive Industries and Society, 2022.

Central Bank of Nigeria. Expanding nigeria’s steel industry to drive industrialisation, 2020.

O. Okorie and A. Ahmad. Strategic pathways for nigeria’s steel industry development. Journal of Strategy and Management, 2021.

S. Ogege and F. Zhang. International partnerships, technology transfer and the growth of africa’s steel industry: Lessons from china. Thunderbird International Business Review, 2020.

Nigeria Investment Promotion Commission. Building investor confidence through steel industry incentives in nigeria, 2018.

African Development Bank Group. Driving steel industry growth in africa through partnerships and cooperation, 2020.

ABOUT THE AUTHOR

Edikan Udofia
Ph.D. Candidate, Operations Research with Engineering, Colorado School of Mines

Edikan Udofia is a Ph.D. candidate in Operations Research with Engineering at the Colorado School of Mines. He also holds a Master’s degree in Mineral and Energy Economics from the same institution, which complements his extensive academic and practical experience in the field. Prior to his academic pursuits, Edikan spent over a decade in industries including oil and gas, mining, agribusiness, and logistics. In these roles, he honed his expertise in strategy and implementation, business development, project management, and new venture planning.
With a research focus on industrial-scale data analysis, Edikan combines principles from statistics and operations research. He is particularly interested in applying these concepts to enhance efficiency in complex systems. His unique perspective is grounded in both industry experience and academic rigor, which bolsters his approach to data-driven problem-solving.
Beyond his research, Edikan is dedicated to fostering collaboration. He firmly believes in the importance of academia and industry working in tandem to tackle complex challenges. This belief not only informs his work but also shapes his broader approach to his field of study.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne, and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

For more information about the Payne Institute please visit:
https://payneinstitute.mines.edu/

or follow the Payne Institute on Twitter or LinkedIn:

DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.