26 October 2017

Ethiopia: Bracing Artisanal, Modern Mining for Good

Photo: World Bank Group
An artisanal miner in Ethiopia´s Benishangul-Gumaz Región.

Addis Ababa — Mining in Ethiopia is an emerging sector with untapped potential of several types of mineral stocks throughout the country. The industry is still not a major gear in the economy with its contribution limited to less than one percent to the nation's GDP.

According to East Africa Metal, during the 1990s the Ethiopian government revamped mining law and regulations and began upgrading infrastructure that can support such operation. In 1993 the Mining Proclamation and the Mining Tax Proclamation was put in place to provide for a legal regulatory framework to promote investment in mineral exploration and production in the country.

It's indicated that these Proclamations were followed by additional series of amendment proclamations until 1996, marking a major shift from the government monopolized mining sector that existed prior to 1993. The proclamations allow for business incentives that include security of tenure, the right to sell minerals, preferential duty and tax provisions on equipment and machinery, a five to eight percent production royalty (revised in Proclamation 678/2010), a 35 percent income tax on taxable income, and a structuring to allow for repatriation of profits.

Now the nation is putting up maximum effort and has planned to transform the sector in a way that lifts its contribution to the GDP to ten percent by the end of the second Growth and Transformation Plan (GTP - II), which ends by 2025.

Gold mining has been most dominantly the leading export mineral and has been mined since ancient times. Even though traditional mining cover sixty per cent of the nation's gold mine, the gold mines of Lega Dembi in the Southern area of the country and Tulu Kapi, in west central Ethiopia are currently the biggest in the country and run by gigantic companies.

As the government opened the door to private companies, local and foreign and a number of different minerals are largely discovered in the country, companies with large investment potential have flocked in numbers to join the sector.

According to Bacha Faji, Public Relation and Communication Director at the Ministry of Mines Petroleum and Natural Gas (MoMPNG), 20 companies were given mineral exploration and test license during the past fiscal year and four are already engaged in mining and export investment.

One of the companies is Circum Minerals Ltd, a Canada based private company focused on the development of the Danakil Potash Project, one of the largest undeveloped potash reserve in the world. This company has also aimed at exporting 2.75 million MT of potash per annum and expected to create 1, 700 jobs for citizens.

Three companies were supposed to have been engaged in potash mining but one seems to have left the business for its own reason. Minister Motuma Mekassa at MoMPNG, says the nation has an immense reserve of potash. One of the companies left not because of infrastructural problems. In many countries the companies build infrastructure for the sector. But the government of Ethiopia due to its motive to develop the sector builds infrastructure by itself.

The task is handled by different developmental sectors like roads authority, Ethiopian Electric Utility, Ethio telecom etc. All sectors involved in infrastructure development has their own mandate and quality is given priority.

For instance, "The nation's standard for the roads bearing capacity is 58 tons. But in order to encourage the potash companies, roads are constructed with a bearing capacity of 78 tons. This only indicates how much attention the sector is given from the government".

However, certain shortcomings in terms of geochemical laboratories could be challenges for mineral exploration. The major problem is that the geochemical laboratory at the Geological Survey of Ethiopia (GSE) is not certified with ISO-17025 International Standards Organization. As a result, mineral samples are still sent abroad for test. The Minster says that even though the task is delayed, efforts are under way with GSE to fulfill the necessary equipment and professional manpower for the laboratory so as to get the recognition.

In cases of mineral exploration, oil is still an issue of concern. It has been started in 1940 and several companies have come and gone with no significant result. Currently eight companies have been engaged in oil and natural gas exploration. Oil remains undiscovered but one company has located natural gas.

Thus, in order to export the natural gas, agreement has been signed for a seven hundred km long pipeline infrastructure construction that stretches from Ogaden of Ethiopian Somali State to Port of Djibouti. It is expected to generate foreign currency in three or four years of time, according to Bacha.

Even though large mining companies are necessary to produce staggering amount of minerals for export, the traditional mining associations are still playing crucial role in terms of foreign currency earning. The nation has gained over 91 million USD in the past Ethiopian fiscal year, only from artisanal mining.

Traditional mining has one major significance and that is involving the local people in to the task and enabling them benefit from the business through their associations. For instance, there are more than five hundred mining associations engaged in the sector until the previous Ethiopian fiscal year and thousands of citizens have benefited.

However, it could only be labour intensive and less productive if it's not assisted with modern technologies. The government also believes that the traditional miners need to be transformed in to small scale miners.

The answer to that is technological transformation. Since the associations could be somehow financially limited to afford large machineries, providing smaller and effective machineries like gold detectors and washing machines is also a choice on the table.

As a result, the Ministry indicates that two companies are engaged in manufacturing the machineries here locally to distribute them for the associations throughout the country on a reasonable price. According to Bacha, the new machineries have eased the tiresome manual or traditional mining process. It used to take long time and consume too much energy searching for gold using bare hands. Now gold detectors have saved the time and energy of the miners. The washing machines are also playing similar role. As a result, the technologies have gained acceptance from the associations.

Not only in terms of increasing foreign currency earning but large-scale companies could also play crucial role in technological and knowledge transformation. Bacha says "One of our standards in licensing companies is to make sure that they came up with enough technology, experience and professional man power. Therefore, other Ethiopians who have the chance to be employed in these companies would learn their knowledge and technology."

The knowledge could expand to the traditional miners and enhance their activities. Traditional mining is currently concentrated in gold, opal and gemstones production and of course it's providing a great amount of foreign currency earning. But there is still a problem related to market link.

Regarding this, Motuma says there is a directorate established to facilitate market links to traditional mining associations but it's not as effective as it should be. There are markets that the associations find by themselves but the permission for export of different gemstones and minerals goes from the Ministry.

The other major problem is that the sector is more exposed to contraband export that is challenging the nation.

Sixty per cent of gold is produced by traditional miners. And the market transaction process is supposed to be through the National Bank of Ethiopia. It is obvious that there is more gold production in the country. But it is not supplied to the national Bank of Ethiopia with expected volume. That's because the gold is being smuggled out of the country, according to Motuma.

He says, the traditional miners used to smuggle gold to the illegal markets when they get a better price than the bank could provide them.

The problem used to occur because of less accessibility of banks throughout the country. Now accessibility is not a problem and the Bank is also providing the best price and the problem is declining through time. The federal government is also working jointly with the States in every structure.

Meanwhile, Ethiopia as a nation with a great potential of different types of minerals, has to put a more intensified effort in attracting the large scale mining companies and encouraging them. Besides, transforming the small-scale mining associations should be duly considered if the sector has to play crucial role in increasing the nation's GDP.

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