Opportunities and hurdles in Ethiopia’s mining sector

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The practice of mining in Ethiopia is as old as the written history of the country dating back to antiquities. However, even today, despite the potentials of the mineral resources the country possesses, the sector has failed to play a significant role in the country’s economic development.

But why is this so? I would like to share with my readers my views on some of the opportunities and bottlenecks the sector is facing and what is to be done to resolve the challenges.

According to sources from the Geological Survey of the Ministry of Mines and Energy, Ethiopia possesses huge amount of gold, tantalum, phosphorus, iron, salt, potash, soda ash, gemstones, coal, geothermal and natural gas, apart from many industrial and construction materials. Platinum, niobium, copper, nickel, manganese and molybdenum; marble is extensively found in most parts of the country.

Despite the lower level of exploitation of the country’s gold resources, a number of gold mines in Lega Dembi, Sekro and Youbdo areas of Oromia produce less than five tons or slightly more amount of gold every year. Besides tantalum is also mined in Kenticha area while this mine also produces quartz, feldspar, kaolin and dolomite used in industries.

As a major process of establishing the legal framework for the mining sector, In June 1993 “Mining and Mining Income Tax Proclamation” was issued as a regulatory framework of coordinating and mainstreaming the operation of the mining sector in the country. Some of the licenses issued in accordance to the proclamation cover mining of gold and base metals and also manufacture of cement, potash, diatomite and also covering industrial and construction materials.

Licenses have been issued to 250 foreign firms of countries such as China, South Africa, the UK, the US and Canada. The license stipulates that every mining company should allocate 5% free equity shares apart from 8% royalties and 35% income tax. The initial validity of the lease is for 25 years extendable for further ten-year period.

Though Ethiopia is rich in mineral resources reports indicate that its exploration and extraction has contributed only about 1% of its GDP with an investment of 14 billion birr. To give a boost to the five-year Growth and Transformation Plan (GTP) for the mining sector launched by the government, incentives were proposed to be offered in terms of tax reduction from the present level of 35% to 25%.

During 2013, a draft document has been placed before the House of Peoples’ Representatives for approval so that the sector becomes more competitive than of those offered by neighboring countries.

In the mean time potash mining has triggered foreign miners’ interest in recent years. Allana Potash, a Canadian mining company is poised to start mining for potash in the Afar Region while the Indian Sainik Potash has been working in Dallol depression of the same region.

Prospecting for iron, gold and base metals is also in progress in many regions of the country. More and more gold mines are being located, such as in the Afar region and in the Konso woreda in south western Ethiopia.

While more than 80 companies are in the process of exploration, only four have obtained extraction licenses, according to Ethiopia Extractive Industries Transparency Initiative (EEITI).

Mineral export is one of Ethiopia’s major foreign currency earning. Several years back the country earned more than 600 million dollars from minerals export, gold contributing the lions share.

A total of 170 companies were engaged in mineral exploration over the past couple of decades.

Reports indicate that in the year 2011-2012 the mining sector generated 618 million dollars from an annual exports—two-third of that coming from artisanal mining.

Artisanal miners used to generate 400 million dollars from the export of nine tons of gold annually. There are more than one million artisanal miners in five regional states-Tigray, Oromia, Benishangul, Gambella and Southern Regions.

However, minerals export revenue dropped to 340 million dollars in 2013 following the global gold market crash. That has further declined to 230 million dollars over the next year. The government had planned to garner 800 million dollars from mineral exports yearly in GTP I and a staggering two billion dollars in end of GTPII. In utter contras, however, the revenue from the sector continued to diminish over the years.

The decline was mainly attributed to falling gold price in the international market. An ounce of gold which was sold for 1,700 dollars is now traded at just 1,200 dollars in the global market. Contraband gold trade has worsened the situation.

MIDROC Gold, the sole large scale gold producer, exports pure gold and silver to Europe, mainly to Switzerland. On the other hand, artisanal miners’ cooperatives supply their gold to the National Bank of Ethiopia (NBE).

The country trade law instructs artisanal miners and traders to supply gold to NBE. The bank buys gold from traders and cooperatives adding five percent to the international market price.

However, a large amount of gold produced by artisanal miners is smuggled to neighboring countries. The situation has been getting worse in recent years depleting the foreign currency earning which the government needs badly.

Now, what are the major challenges that the sector is facing. For one thing, the challenges, some of which I would mention are not entirely new.

To begin with, low networking with stakeholders and lack of meaningful coordination by the ministry has led to not only lower national earning from the sector but also led to unprecedented illicit trade in the major mineral resources of the country including gold and other industrial minerals.

It is also difficult to conclude that the government is in full control of local traditional miners whose amount and type of mineral products are not exactly known to the government owing to the considerable lack of transparency.

The ministry has already come up with a long-term strategy document to revive the contribution of the mining sector to the country’s GDP and some legal hurdles that have reportedly hindered the development of the sector are already under review. The ministry is striving to revive the sector in the current fiscal year but still there are more challenges to be addressed.

I think shortage of well trained manpower in the operations of the mining sector is another outstanding problem that needs to be addressed in cooperation with stakeholders like the universities in the country.

The need for technological improvement remains a critical factor.

Notwithstanding the challenges that I have mentioned, the sector’s vulnerability to corruption and contraband have continued to not only disallow the revenue that the country could have generated from the sector but have surprisingly inhibited the normal operational functioning of the sector.

Although the Ministry of Mines and Energy has labored a lot to introduce reforms in the sector, due to the fact that challenges in the other sectors of the national economy have seriously affected the progress in the sector.

The disruption of peaceful working environment due to the occurrence of ethnic conflicts has also to a certain extent affected the process of fast tracking positive developments in the mining sector.

In my opinion, whatever the situation is, the mining sector needs to restore its position and role in Ethiopia’s national economy by considering the following critical issues.

Strict coordination in the sector, collaboration with stakeholders in curbing illicit contraband in mineral trading, further automation of activities in the sector, commissioning a specially organized training institute to fill the existing gaps in the sector are to be considered.

The Ethiopian Herald October 3, 2019

 BY SOLOMON DIBABA