11 April 2018

Ethiopia: Fostering Mining Sector for Economic Diversification

Broadly speaking, the mining sector could divide into three main sub sectors such as metals and precious minerals mining, coal mining and industrial minerals mining. Mining is being considered as vital for functioning of the society, and it has a considerable value to the domestic economy.

In Ethiopia's economy, which largely dominated by agriculture, the mining sector contributed about two percent of the Gross Domestic Product in the 2016/17 fiscal year and gold has remained the major commodity in comprising 47 million USD of the total 58 million USD revenue.

Ethiopia put in place a policy framework envisions the mineral sector to be the 'backbone' of the industry by 2020-2023, with an increase in the contribution to the GDP from the current two percent to ten percent and a ten-fold upsurge in foreign currency earnings.

Ethiopia is endowed with huge mineral resources and it has a 2,000-year artisanal history which primarily engaged in gold exploration in the alluvial deposits of the south, west and north of the country. Alluvial gold has been mined for over half a century in the mine called Adola in Guji Zone of Oromia State and the country has a considerable gem potential in the North Wollo Zone of Amhara State which enlarges its foreign currency earnings from opal export.

Information obtained from Ministry of Mines, Natural Gas and Petroleum indicated that currently Ethiopia has one operating gold mine, the Lege Dembi Gold Mine in Guji Zone of Oromia State and owned by Midroc Gold Mine Plc. Lege Dembi has an average production capacity of 4.5 tons of gold per year and it is among the largest in Africa in terms of value production.

The Company has continued its underground operation in the Lege Dembi Gold Belt and now it possessed the Sakaro gold deposit. Nearby Lege Dembi, there is the state-owned Adola Mine which has been mined over half a century and the Kenticha Mine is expanding its production capacity and comprising the lion's share in Ethiopia's tantalum production.

Mines, Natural Gas and Petroleum Minister Motuma Mekassa stated that Ethiopia has witnessed substantial success in the industrial mining sub sector and attract big local and foreign cement factories including Derba MIDROC and Dangote which significantly contributed in backing the blossoming construction industry apart from enhancing the linkage between the mineral sector and the rest of the economy. Commendable results have also gained in potash sub-sector and the French-based Allana Potash Company is working to reach its annual production to one million metric ton which is expected to boost the mining sector's relation with agriculture through fertilizer provision.

Challenges and prospects of the mining sector

Despite the mining sector's enormous potential for national economy and results it has brought in generating foreign currency and creating sizable jobs, its performance has been largely remained unsatisfactory due to contraband trade and illegal smuggling of precious metals. Furthermore, domestic companies' participation in the large-scale mining projects is low due to financial constraints they have faced in the capital-intensive exploration phase.

According to World Bank's study, lack of mining technical and vocational education centers, low productivity and land use conflicts are among the major factors artisanal and small-scale mining have been encountered. The study further noted that the linkage between the mining sector and Ethiopian economy is not reached at a desirable level partly due to the small size of the mining industry.

In this respect, the government and other stakeholders' steady effort is essential to address the sector's shortcomings and enhance the contribution of mining industry to the GDP.

The Minister stated that various policy amendments have been taking place to create a conducive environment for foreign companies and provide them with various incentives including custom fee importation of capital goods. Furthermore, the amount of money large-scale companies is expected to pay after operation (royalty fee) is five percent, among the lowest in African standards.

Concrete efforts have been made to build domestic investors capacity in the view to enhance their participation in the large-scale mining investments and the government has used its five percent ownership in mines to promote industrial policy objectives and supplement tax revenue.

According to Motuma, the government and other pertinent stakeholders' huge engagement to promote Ethiopia's mining potentials has brought about commendable results in encouraging companies with the desired capital and technology to taking part in country's investment opportunities.

Moreover, laudable activities have been made by micro and small-scale enterprises to provide a substantial employment for youth, especially for those leave nearby the mining sites.

Ministry's Public Relations and Communication Director Bacha Fuji said that Ethiopia does have the geological potential for the discovery of new and sizeable mineral deposits and promising areas are identified in the north, west and south of the country and they are geographically extensive compared to many African countries.

Exploration activities in these areas have increased over the last couple of years while they are still at a relatively modest level. The potash occurrences in the Danakil Depression in Afar State are sizeable and could support large scale production, as evident from Allana Potash's Project, Bacha indicated.

Despite the stated successes, large scale mining projects in Ethiopia is not expanded at a desirable level and the industry is largely dominated by artisanal activities with the significant exceptions in gold and cement.

Ethiopia's mining policy clearly stipulates the industry's development is driven by private sector's investment and recent attempts to privatize state-owned mines lends support to this intention. Experts in the field recommended that the government needs to consider ways to successfully coexisting its activities with the private sector.

The experts suggested that exploration investments should be supplemented by geological researches and a modern and well-functioning mining registry system is essential to attract large scale mining companies to Ethiopia. The government also needs to put a clear policy direction and formulate associated laws and regulations regarding conditions exploration and mining licenses should be granted.

They also called on companies to plan and implement projects that contribute to country's sustainable development and the government to enhance the capacity of local professionals to seize jobs and opportunities that modern exploration and mining projects would offer.

Above all, integrated efforts of all actors in the industry is crucial to enhance mining's contribution to the GDP and foster its relations with agriculture and manufacturing sectors in the bid to accelerate Ethiopia's move to become a middle-income economy, the experts underscored.

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