Industrialisation of Mumurity in Nigeria: The Ajaokuta Example

Some context will be useful before we get into the meat of the matter.

You may have heard, sometime in October or November last year, about the steel giant ArcelorMittal’s decision to close a steel plant in Florange, France. The closure was going to lead to the loss of around 700 jobs. ‘Zut Alors!’ cried the French industry minister, Monsieur Arnaud Montebourg who practically insulted Mittal and told them to leave the country.

The French minister is not stupid but he is a politician looking for votes so it is important to discount what he says and look at the real reason why the plant needed to be closed. Since the beginning of civilization  human beings have managed to extract around 40 billion tonnes of iron ore from the ground. Half of this amount has been extracted since 1990 suggesting that we are getting really good at digging up the stuff from the ground. But something else has also happened at the same time. I am coming to this shortly.

Stage 1 of this process involves turning iron ore into steel i.e. ingots. Stage 2 is where these ingots are then turned into what we need like steel sheets to make cars and other things. How does Stage 1 work? Well you need to have a blast furnace that heats up the iron ore to something like 2000 degree Centigrade or thereabouts to turn the iron ore into ingots. As you can imagine, it is energy intensive and rather costly. For Stage 2 you simply use a steel rolling mill to turn the ingots into steel. This technology is pretty standard and hasn’t really changed in a long time.

So what has happened that I alluded to above? Well because we have already extracted so much iron ore from the ground, by extension we have so much steel in various forms – cars, building materials etc. Concern for the environment is also now a very big deal everywhere. These 2 factors now mean that recycling of existing steel is a BIG industry. The implication of this is that Stage 1 which I described above is becoming more and more redundant in the process of steel making i.e. we don’t really need to dig up so much iron ore anymore and then melt it into ingots in a blast furnace. This point is incredibly important. Technology has changed and continues to change to the point where the old way of doing things is now very expensive and uncompetitive.

Back to France. What type of plant is the Florange one that ArcelorMittal was trying to shut down? You guessed it – it’s a blast furnace.

See this quote from The Economist (emphasis mine)

Like many other steelmakers in an industry plagued with overcapacity, ArcelorMittal is hurting. It wants to close two uneconomic blast furnaces at Florange in Lorraine and concentrate its French steelmaking at its coastal sites at Dunkirk, on the English Channel, and Fos-Sur-Mer, on the Mediterranean. But it wants to keep its rolling mills at Florange

This is a business at the end of the day and there really is no point in keeping a blast furnace when you can get the same steel to feed into a rolling mill from scrap cars and such like.

So what has provoked this article I am writing? I saw something in the papers today from a couple of days ago and I was alarmed by the ignorance. It seems Nigeria is in the process of once again ‘reviving’ the Ajaokuta Steel Company (ASCO). The Guardian interviewed a ‘top management official’ of ASCO who unsurprisingly sought anonymity. Here is his ignorance in all its glory (emphasis again mine)

This has been the stand of the World Bank/IMF and their imperialistic agents against the (ASCO) project. They earlier advised us in 2001 to turn the entire steel plant into a power generation plant as in the Hatch Associates report. We were equally advised at a certain time by Kobe Steel in the guise of an investor to demolish the blast furnace plant to enable them to install a fast-melt facility in another location in the steel plant. This was vehemently and wisely rejected by the Presidency at that time

Goodness Gracious, Great Balls of Fire. The man is so convinced of his ignorance that he is certain that the recommendation of the World Bank and IMF is an ‘imperialistic’ one. Who is this President that ‘wisely’ rejected this decision at the time? Isn’t it amazing how ignorance can hold us back so much especially by people who are so dead certain of what they are doing they couldn’t possibly be wrong? Of course it is the white man who does not want anything good for us! Note that the consultants from Kobe Steel advised us to install a fast melt facility which is essentially a way of recycling steel i.e. bringing us up to speed with the world. But No! We don’t want that one!

At the time ASCO was conceived, the idea of a blast furnace possibly made sense. But like everything else, we messed up and delayed for so long on it that time and technology have since left us behind. Where is this going to take us? Well from the same article we get this

Vision 20:2020 economic blueprint as approved by the Federal Executive Council clearly recommended that the nation shall produce 12.2 million tonnes of steel per annum by the year 2020 out of which Ajaokuta steel plant is to produce 5.2 million tones/annum

Just like the bone headed policies that got us into the cement palaver we are currently in, we are about to embark on another adventure that will produce nothing other than expensive steel which no one will buy. As I’ve stated previously, the trouble with Dangote, Lafarge and other made in Nigeria cement is mainly that they don’t add anything new to the production of cement. They simply cannot make it cheaper. The world was never waiting for us to make cement just like they are not waiting for us to make steel. However the world will be interested in us if we can make cheaper cement or steel. This a crucial distinction. (You can do some research on an American company called Nucor which perfected the technology for recycling steel and has been a pioneer in the move away from blast furnace technology).

Once the government has committed its billions to reviving ASCO as it is, the next step will then be to – drum roll – ban importation of steel to ‘protect our nascent’ steel industry. A great deal of surprise will then be expressed when the total number of countries willing to buy our expensive steel comes to zero. Even more alarm will be expressed at the smuggling of steel into Nigeria and the perpetrators of this unpatriotic act will be decried and flayed.

Let’s not forget a lot of educated analysts who will make the case for protectionism to boost our industrial base. These arguments will be made with a lot of intelligence (and zero amount of wisdom) on the pages of Business Day and across the interwebs. The arguments will be made with so much big English that some of these analysts might unwittingly sexually arouse themselves and wet their pants as they ‘protect’ our industry. At no point will the actual underlying issues be addressed. In short we are going to attempt to drive this car of economic development with the handbrake on.

My question to you is this – do we really need ‘imperialistic’ enemies when we are capable of doing so much damage to ourselves with our ignorance?

Keep an eye on this story.

FF

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13 thoughts on “Industrialisation of Mumurity in Nigeria: The Ajaokuta Example

  1. Insightful… I wish the right kind of decision makers would read.
    However, if we have so far been unable to master the basics of steel production using blast furnace when will we ever get to the point of making better or cheaper steel?

  2. Why should we get all het up over ASCO?
    I don’t blame the entrenched interests at ASCO for looking out for themselves.
    What we need are Nigerian steel companies, using cheaper and better technology. They will ultimately run ASCO (if it can get off the ground) out of the market.
    The politicking and financing that will create the environment for that competition will be no less demanding, if not more, than tearing our hair over ASCO.
    I hope our conversations will explore all the avenues open to Nigeria instead of obsessing over the folly of people who clearly are feathering their nests.

    1. Ah I wish it was that easy. The malevolent nature of the Nigerian government is such that once they have decided on a course of action for ASCO, dissent will not be tolerated.
      They will make it almost impossible for anyone else to enter the sector and challenge their anointed winners.

      What Ibeto has suffered in the name of trying to disrupt Dangote is a useful example here.

      1. I take your point.

        However, the comparison with Ibeto-Dangote only goes so far: Ibeto imports.
        What might change the game, as I commented earlier, are indigenous steel companies that use cheaper and better technology. Were Ibeto making its cheaper cement in Nigeria, I’m sure they would still have problems with Dangote and Lafarge. But, and this is important, it would be a different set of problems.

        There’s no use expecting there ever will be a friction-less political economy. Nothing is easy; there isn’t one of the three possibilities that our conversation has opened up that is easy.

        First, importing cheaper steel (as Ibeto imports cement) will all too probably lead to your projected scenario of protectionist policies. I should point out that I’m kinda glad about the favorable effect of the high import tariffs on soap manufacture in Nigeria.

        Second, it remains to be seen whether ASCO and the government will come to see things your way. Quite a number of people have been on that path for over 30 years. Unfortunately, they have nothing to show for it.

        The third possibility, to set up and profitably operate indigenous companies that recycle steel, will require significant politicking and financing, which is my way of saying it won’t be easy. The idea of a monolithic Nigerian government is false, and nothing reveals it to be so as determined politicking.

        Ibukun Awosika has, sort of, pursued all three strategies at different times in her career. The last time I heard her, on the BBC, she seemed to be glad to have adopted the 3rd one, with her Sokoa Chair Centre. But, that was a long time ago. Anyway, the question, for me, is whether the lessons she learned about manufacturing in Nigeria applies to heavy industry and steel production.

        With over 160 million people, I suppose we have more than enough people to pursue the 3 different strategies or any other ones that we might devise.

        Getting a malevolent government to anoint one’s business model seems easier than getting it to tolerate dissent.

        All the best in your campaign!

      2. Ibeto was manufacturing cement locally at some point.
        The story of how the man’s business was nearly run into the ground and he suffered a stroke during the whole wahala is perhaps best left for another day.
        But I promise you the man did try…brought his son from America who tried to implement SAP among other things as a way of increasing efficiency in the industry.

        I am not campaigning. I leave that to others.
        But maybe someone might read…who knows.

  3. Egbon Feyi, you’re an accountant, yet you know so much about these stuffs. Impressive!
    You’ve broken this down in simply terms that even a layman should understand. Well written.

    As for the use of recycled scrap metal, do we have enough quantity that could fuel a boom or resurgence of our steel industry? Considering the fact that we are not as industrialized as say France or India, hence may not have consumed as much steel as they had?

    I grew up close to the Delta Steel company(DSC) in Warri, in fact, I attended the DSC Technical Secondary school. I visited their production plant on numerous occasions. So I’ve a particular interest in the steel sector. Planned to work there someday. (Lol). Any info on plans for DSC? It’s equally in a dead state like the Ajaokuta one.

    Lastly, one wonders if our government people actually read these blogs.

    1. The scrap metal industry is big business. I think in the American economy alone it is worth around $60bn or more.
      Before we even enter Europe and Asia.
      The downside is that in a place like London it has encouraged scrap metal thieves to remove metal from all sorts of places for sale.

      But there’s more than enough scrap out there. And it’s not terribly expensive either.
      If you google scrap metal prices, you will find the prices per tonne all over the internet.
      We can import the scrap and turn it to steel…there is no shame in this.
      In fact, all of a sudden you will see that all those abandoned cars all over the roads in Nigeria will suddenly become useful…solving the eyesore problem as well.

      The key here is that technology has moved on. As long as DSC has a rolling mill it can still be salvaged.
      But a blast furnace makes no sense really these days. They are so expensive to heat up and then you have to cool them down again.
      Long thing.

  4. Brilliant article. I wonder what we are going to really sell to the world? Production spaces are being taken and cost effectiveness in a fierce world. Having the resource location without optimal technology and skill set to harness is a bundle of trouble. When you add that to a country that values no comeptitiveness and given to petty crony capitalism, it much more annoying. Nigeria needs a thorough competitive assessment.. With an arable land to raise cocoa, tea, coffee rubber are we putting up the right seedlings and added value chain capability to sell to the world? Whats the value in the iron ore, gold and others with optimizing production inputs? It comes to that circle again – that the resource locked under the ground profits little if our brains are not wired to think ahead,

  5. It is not as simple as you make it.

    If melting steel and building a new steel mill from ground up were that profitable why then have smart business people/capitalist not already done so in Nigeria? Well, the answer is power. Steel melting requires an astronomically higher degree of electricity to operate and steady too..Nigeria does not have it.! And not any time soon- we are 75,000 MW from optimal industrial level energy! The amount of investment to approach this level of power (which will also require a lot of steel rods to construct massive hydro and gas fired stations) will exceed what it takes to protect local blast furnace industry and revive our 50% complete ones! Even the imported scrap metal has environmental concerns as well as balance of trade downsides.

    On the other hand, Blast Furnace needs coal and the raw ore- which Nigeria has in abundance – and can source cheaper. Hence the right government policy will be a combination of privatization/commercialization of our large blast furnace mills, extreme protectionism and policing of borders to ensure the basic iron needs (not the finished product) are kept local – encouraging investors to buy the mills off their hands as is, and then massive mining campaign for coal and iron ore to boost economies locally.Combine this with a policy of encouraging small local mills and melting plants near the blast furnaces with some BoI loan, and Nigeria can out compete the world with China like policies. Why copy France when we’re not even close to them in development?

    The solutions to our economic problems are not easy. they require knowing the trade offs, committing to implementing people oriented policies that create local jobs and then execution with integrity WITHOUT stealing or corruption. That later part is the problem not the actual decision. Also our economic decision must not reflect advanced economies or so called capitalist models; we should explore other options including flagrant capitalism and nationalism HOWEVER matched with INTEGRITY.

    May be I am asking for too much. LMAO

  6. I guess we’re lucky enough in this country to have the opportunity to experience the best of both worlds (abundance of both scrap metal and ore), i hope the government can restructure the sector to ensure that they would be able to take advantage and at the same time give a change for other players to come in. Great piece, Feyi.

  7. Pingback: Industrialisation of Mumurity in Nigeria: The Ajaokuta Example | streetizens news and voice

  8. Pingback: Naija247news - Ajaokuta :  A Story of Nigeria, Not of Efficient Steel Milling, By Feyi Fawehinmi | Naija247news

  9. Pingback: Ajaokuta — The Beginning by Feyi fawehinmi – My Engineering World

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