The project has seen false dawns in the past. It was taken over by India’s Ispat Industries in 2004 but that concession was revoked after just four years. However, since Buhari came to power in March 2015, talks have been held with several foreign companies over developing the scheme, including China’s Ansteel Group. At the time of writing, it appeared that Global Steel Holdings of India was ready to put pen to paper on a deal. It seems likely that the plant will be either fully or partly state owned, with the associated Itakpe iron ore mine offered to the successful private sector investor in return.

The Joint Committees of the Senate and House of Representatives on Privatisation held public hearings on the fate of the plant in June. At the hearings, the administrator of Ajaokuta Steel Company Limited, Isah Onobere, refuted claims that equipment installed in the plant was already obsolete. He also revealed that Ajaokuta Steel Company was currently completing proposals on how the plant could supply steel to Chinese companies contracted to develop the new railway projects in the country.

Import substitution

The Ajaokuta project has been mothballed for so long that the government’s desire to see it completed and brought into use does not appear to stem from any urgency over sorting it out. Rather, it is the result of Abuja’s desire to see the country produce much more of the raw materials and goods that it consumes. It could therefore become part of Abuja’s much wider import substitution strategy, which has seen the Central Bank of Nigeria refuse to provide hard currency to cover many basic imports. The government estimates that the country imports about $3.3bn in processed steel every year.

Abuja is currently finalising details of the new incentives to be offered for iron and steel investment, but with a large facility lying unfinished and unused, it is understandable that the government is looking to see it completed. If the drive to promote domestic steel production is successful, the government could embark on the same kind of import substitution strategy in other areas, including for glass. Nigeria has already been transformed from a net cement importer into a net exporter, thanks to investment by Dangote Cement and Lafarge, and is now the biggest cement producer in Africa, ahead of Egypt and South Africa.

However, the steel sector has not followed the same pattern, so the country is almost entirely dependent on iron and steel imports that were valued at $3.5bn in 2014, according to the World Steel Association. Until recently, the only domestic iron and steel production was controlled by the 25 small mills supplied by scrap metal. KAM Industries’ $210m mill was the most recent addition, taking domestic production up to 25% of consumption, although it is not on the scale of Ajaokuta’s production capacity of 5m tonnes a year.

Why now?

It could easily be argued that this is a bad time to enter the international steel market. Global steel consumption has failed to climb out of its recent slump, with 28.7% of total capacity unused in May. China, which accounts for about half of global production capacity, is regularly accused of dumping steel at below cost, so it is clear that the industry is oversupplied.

Yet although the global steel sector appears to be oversupplied at present, the situation is a little more complicated than that. The construction industry remains relatively strong in Nigeria and in large parts of Africa, so it would make sense to locate much more production capacity in the country. Apart from modern buildings, steel is needed for bridges and in the rail industry, while it could also be used to supply the oil, gas, power, shipping and shipbuilding sectors.

Speaking at a business forum in London at the start of July, the Minister of Solid Minerals Development, Dr Kayode Fayemi, emphasised that an enormous amount of iron and steel will be needed in Nigeria.

He cited the National Integrated Infrastructure Master Plan, which estimates Nigeria’s current core infrastructure shortfall at $80bn, with much of that infrastructure requiring steel.

He predicted “a steady increase in domestic demand for steel in Nigeria in the next decade,” which would be driven by ever-widening demand for steel from both local and international investors who wished to participate in the expansion of Africa’s largest economy.”

The benefits

Nigeria has another factor on its side: it has large iron ore reserves. Iron ore is the principal input in steel production and Ajaokuta is already connected to the Itakpe iron ore mine by rail. Given the lack of commercial mining activity in the country, relatively little effort has been put into assessing the size of the reserves but the government puts the figure at 2bn tonnes, which would give it the 12th biggest iron ore reserves in the world. Substantial iron ore development, and the infrastructure, equipment and expertise which that would bring, would also encourage the exploitation of other minerals in Nigeria, including coal, lead, zinc and tin.

The president of the Miners Association of Nigeria, Sani Seun, told the Joint Committees: “We are ready to participate in end-to-end iron production. Indigenous players are willing to participate with big players that will come into the country.”

The need for a market

However, if this is a bad time to be producing steel on a global stage, it is also a terrible time to be embarking on iron ore mining. Emerging African producers, such as Liberia, Sierra Leone, Cameroon, Congo-Brazzaville and Gabon have seen their new mine projects stopped in their tracks by plummeting international prices. Developing Nigerian iron ore will only make sense if there is a ready local market for it.

There are many other benefits of a steel industry for Nigeria, including the supply of a raw material that can be used in the domestic manufacture of countless other products.

The development of an iron and steel industry would also be perhaps the greatest manifestation of industrialisation in a country and continent that is crying out for such a process. While leapfrogging technologies and moving away from a reliance on agriculture and the export of raw materials is all very well, it will be a long time before growing economies no longer need a lot of steel.

Neil Ford, via African Business