Nigeria: Govt Moves to Revive Ajaokuta Steel

20 July 2020

On May 11, 2020, the Federal Government of Nigeria set up a committee to work on revival of Ajaokuta Steel. That was a commendable initiative. Due to the strategic importance of steel as a catalyst in economic development, every country strives to domesticate her steel production.

Industries have two sections: heavy industries and light industries. Heavy industries consist of the metallurgical (ferrous and non ferrous metals) industry, the electric power industry and the energy industry (fossil fuel, hydro, wind and atomic). Together, they constitute the engineering infrastructure of a nation.

Industrialisation is impossible without an efficient and cost-effective heavy industrial base. What differentiates man from animals is the ability to make tools. The iron and steel industry is the foundation for tools making. The first industrial revolution was due to invention of tools by man.

Despite its strategic necessity, the steel industry is rarely profitable, hence governments sponsor or subsidise it globally. That informed the decision of Nigerian government from independence to form strategic capital for the steel industry.

Establishment of an indigenous steel industry commenced under Dr. Yakubu Gowon's military regime in early 1970s. The strategic plan was to set up government-owned steel mills and allied establishments across Nigeria. Under the plan, a primary major steel mill was set up at Ajaokuta in Kogi State to process iron ore from Itakpe also in Kogi State, into liquid steel through blast furnace technology.

Russians were contractors for the project. Another primary but smaller steel mill was also set up at Aladja in Warri, a port city located in Delta State. It was to produce liquid steel from specially beneficiated iron ore mined at Itakpe and high grade iron ore imported from Liberia, through direct reduction technology. A consortium of contractors from Germany and the US handled the project.

The Federal Government also set up inland steel rolling mills in Katsina, Jos and Oshogbo to process steel bars from Ajaokuta and Warri into rods. Additionally, government set up a machine tools factory at Oshogbo to produce tools for manufacturing of machines and spareparts. Finally, the Federal Government set up a Metallurgical Institute at Enugu in Enugu State to train the manpower needed by the steel industry.

All the projects took off fully and were continued under subsequent administrations, except Ajaokuta Steel whose development was incomplete. That was a major blow to the success of the entire integrated steel project. Ajaokuta was the core of the plan because of its huge anticipated capacity and nearness to the sources of raw materials (iron ore and coal).

Apart from the handicap caused by Ajaokuta's underdevelopment, the standard-guage rail project meant to link the various steel mills failed to take off. That adversely affected movement of raw materials and billets around the integrated network so as to facilitate the industry's cost effectiveness. As a result, government resorted to movement of these heavy materials by road which damaged several highways in Nigeria.

At various times, especially during the administration of President Shehu Shagari, the public steel industry became a cesspool of corruption. It was utilised as a conduit pipe by the administration and subsequent ones to loot the national treasury. President Obasanjo remarked during Shagari's tenure that three A's (Ajaokuta, Abuja and Army) were vehicles used in plundering the national treasury with nothing on ground to justify the huge expenditure in those areas. President Obasanjo subsequently privatised several aspects of the public steel industry, but that of Ajaokuta was mired in controversy.

If government intend to revive the Ajaokuta steel mill, should it be under their ownership? This administration may have laudable intentions just like Dr. Yakubu Gowon who pursued the national integrated steel project with fanatical zeal. What is the guarantee that subsequent administrations will be honest and patriotic enough to sustain their existence, considering how regimes after Dr. Gowon and Dr. Obasanjo ruined all the public economic infrastructures they laboured to build.

Nigerian managers of public enterprises have over time demonstrated their lack of integrity and penchant for colluding with public officials to steal the financial resources of their organisations. There is no rule that prohibits government from owning and managing steel works. China has demonstrated that government-owned steel mills can be viable, but the reverse is the case in Nigeria.

Therefore, if this Committee wants Ajaokuta project to materialise in a sustainable manner, they should advise the Federal Government to let the Russians who are injecting funds into the company to own 60 per cent, Dangote Steel 30 per cent and Bank of Industry 10 per cent. The management should be constituted by the Russians and Dangote Steel.

Besides Ajaokuta, government needs to issue a steel dvelopment bond to finance development of the integrated rail link to connect all the units of the publicly established steel industry. Finally, in recognition of the disgraceful Nigerian factor of insincerity deeply ingrained in public service culture, the future metallurgical industry should be organised under the private sector, supported only by sound public policies and appropriate subsidy.

Adonri is Executive Vice Chairman, Highcap Securities Limited.

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