Transforming the mining sector

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Transforming the mining sector

(Wondaferash Alemu)

03/19/14

It has been said time and again that Ethiopia's natural resources are barely utilized, even though nature endowed her with a large number of mineral resources. Recent geological studies and explorations have confirmed the presence of deposits of platinum, tantalite, soda ash and phosphate rock as well as gemstones such as diamonds and sapphires; industrial minerals including potash; and other precious and base metals.

Ethiopia's geological setup is favorable for the occurrence of metallic, industrial, and construction minerals, dimension stones, and precious and various types of gemstones. Gold, platinum, tantalum, potash, salt, limestone, marble, granite, iron, bentonite, diatomite, phosphate  rock,  coal,  gypsum,  clay,  opal,  mineral  water  and  construction  minerals  are  the  major  minerals  identified through exploration works carried out so far. A gas condensate field has been  also defined in the eastern part of the country and is under development.

Ethiopia’s mineral wealth, combined with its skilled and low cost labor promises a thriving and profitable mining production. However, the revenue from mining and other valuable natural resources that found in the ground account for less than one percent of GDP, yet, that mainly depended on gold which has been produced from placer deposits mainly by the artisanal miners for several thousand years.

Even if gold mining is a relatively better performing sector, Ethiopia earned only about USD 1.7 billion in 2012 from five tons of gold per year. However, according to recent data, Ethiopia's gold reserves are estimated above 500 tons. The government estimated that production could rise to 40 tons a year from just over four tons in 2012. Development of these resources is a cornerstone of the government's export-oriented growth strategy and means there is less reliance on agriculture for diversifying the economy.

The first major change of direction in the development of the mining sector took place in 1991, when  the  government  adopted  a  free  market  economic  policy,  limiting  the  role  of  the  public  sectors  in  economic  activity. In accordance with the economic policy, the mineral sector was opened up to private investors in 1991, stimulating large investments, advanced technology and trained manpower.

Liberalized Mining and Income Tax Proclamations in 1993 and supporting Mineral Operations. Regulations in 1994 helped Ethiopia create an environment conductive to private capital investment by local and foreign companies in the mining sector. The Mining Proclamation provided the license holder with a number of incentives such as low royalties, exemption from customs duties and taxes on equipment, machinery, vehicles and spare parts necessary for mineral operations, and a 10-year loss carry forward.

As a result, the sector expanded at double digit rate for consecutive years. Today about 265 domestics and international companies have hold prospecting, exploration and mining licenses for hard minerals.

The second major shift started taking place in 2010 with the launch of the five years Growth and transformation Plan. The GTP set ambitious targets for the mining sector in five aspects. The Geo-science Data Coverage and Mineral Exploration program is one of the main ones. The main aim of this program is to collect, generate and disseminate geo-science data. To realize this aim, various activities have been planned and performed under the GTP.

As disclosed a few months ago, under the five year Growth and Transformation Plan, the Ethiopian Geological Survey has been working to boost the country’s geological mapping coverage from 51 percent in 2009/10 to 80 percent by 2015. On the other hand, coverage of gravity survey, hydrogeological mapping and engineering geology reached 95 percent, 62.6 percent and 20.9 percent respectively. These geological surveys help delineating areas where minerals are found which will facilitate the engagement of governmental organizations and mining companies. Similarly, collecting vital information on minerals, ground water, engineering geology and geo-hazards information enables to identify localities where natural disasters such as volcano, earthquake and landslide could occur.

The other major program of the GTP's mineral sector development program is the Mineral and Petroleum Investment Expansion Program. Various activities were performed under this program.

The other major area of transformation is the Artisanal Mining and Marketing Promotion Program.

The federal government enacted a Mining Proclamation  678/2010, which is hailed as a model legislation for other African countries as it provided clarity  and formal recognition of artisanal  mining. Different activities to formalize informal miners and smugglers. Accordingly, the government provided technical assistance provided to traditional miners and legalization of the activities of gold miners, among others. He said over 80 vendors and over 50,000 labourers have benefited from the mining activity. Efforts are underway to mine one quintal of gold valued at over 840 million birr in this Ethiopian fiscal year.

On the other hand, the Geosciences Sector Research and Development Program is aimed to undertake problem-driven  research and technology transfer across a broad range of geosciences and introduce appropriate  technologies and new methods in the mining sector. New technologies and  working methodologies have been introduced; published documents and books have been collected  and distributed to all stakeholders. The national scientific instruments inventory of the sector have been accomplished, while the integrated Geo-scientific research in Blue Nile basin and integrated project in same basin and urban geosciences program are on track.

One highly notable progress in the extraction of Ethiopia's mineral resources is the works to produce fertilizer for the next cropping season. As per the GTP, Ethiopia envisions building eight fertilizer companies in the Oromia Regional state. Out of the envisaged fertilizer producing companies planned to be constructed in Oromia, five are for Dap and the rest are for Urea.

Following a feasibility study conducted in relation to coal deposits discovered in the area last year in Yayu wereda of the Illubabor zone, in the Oromia Regional state the plan to build the eight fertilizer companies was revised. As per the study conducted, two Urea fertilizer factories and one Dap fertilizer factory will be erected in the area. The construction of Yayu fertilizer factory number one and two will reach 65 percent and 33 percent completion rate, respectively, this year. The design work for the Dap factory is already completed, while civil work and equipment production is underway.

It has been also reported that the feasibility study to construct triple super phosphate and single super phosphate factories is ongoing. Meanwhile, the construction of two organic fertilizer producing companies is in progress in two unspecified regions of the country, bringing the total number of factories to be constructed to seven as opposed to the original plan of building eight factories.

In this Ethiopian calendar year, fifty percent of the construction of all fertilizer factories will be completed. Based on the realities on the ground, Ethiopia will produce fertilizer for the 2013/14 cropping season.

According to government reports: The construction of its first-ever fertilizer factory in its history; in Yayo wereda, Illubabor zone, Oromia Regional state, 625km West of Addis Ababa, at a cost of close to 800 million birr is has been started. The first phase of the construction of the Yayo Fertilizer Factory has been completed four months ahead of schedule. The 12 million birr feasibility study conducted by COMPLANT, a firm that studied the potential of Yayo, reported that around 100 million tons of coal was found in the Yayo area. It is estimated that the coal deposit in the area has the potential to produce 300,000 tons of Urea, 250,000 tons of Dap, 20,000 tons of ethanol and 90MW of electric power annually for decades.

Now, the government is taking another major step to transform the mining sector by seeking admission to the Extractive Industries Transparency Initiative (EITI). EITI is a global coalition of governments, companies and civil society working together to improve openness and accountable management of revenues from natural resources.

The Extractive Industries Transparency Initiative is a global initiative launched by the then PM of U.K. Mr. Tony Blair in 2002. It is an International multi-stakeholders initiative of governments, companies and civil society working to strengthen governance by improving transparency and accountability in the extractive sector.  EITI  involves  a  process  by  which  the  payments  made  by  companies  and  revenues  received by governments are published in independently verified reports. The process is overseen and  governed  by  a  multi-stakeholders  working  group  represented  from  government,  civil  society  organizations and extractive companies.

Implementing EITI will help countries to efficiently collect the revenue generated from the extractive industry, supports anti-corruption and good governance agendas of countries and establish citizen trust in public institutions and extractive companies. Citizens would be able to hold government accountable  in  the  use  of  revenues  collected  from  the  extractive  companies.  A transparent system will bring conducive investment climate and attract more direct foreign investment. 

The government of Ethiopia has recognized the contribution of EITI to reduce poverty, fight corruption and establish good governance, transparency and accountability in the country, and has decided to join and implement  the  extractive industries transparency initiative.  The  government  is  also  committed  to  work  with  the  stakeholders  for the  development  of  the  mining  industry  and  bring  sustainable  development.

The  Ministry  of  Mines  is  the  government  organ  that  is  responsible  for  the  implementation  of  EITI  in Ethiopia.  The  Minister  of  the  Ministry  of  Mines  is  the  leader  and  chairman  of  the  multi-stakeholders “National Steering Committee - NSC” assisted by the state minister of the Ministry of Mines. 

The National Steering Committee has 17 members represented from the three multi-stakeholder groups; the government, the civil society and Extractive companies. It includes the Minister and State Minister of  Mines  who  are  the  chairperson  and  deputy  chairperson  of  the  committee  respectively. The NSC is the governing body of the Extractive Industries transparency initiative in Ethiopia. The EITI Implementation Secretariat (IS) is established and  hosted  in  the  Ministry  of  Mines.  The secretariat is responsible for the day to day activity of EEITI and will assist and support the NSC. 

The objective of Implementing EITI in Ethiopia are: To  establish  a  system  through  which  companies  and  government  disclose  the  payments  and revenues generated from the extractive sector in Ethiopia; To  carry  out  reconciliation and/audit of  the  disclosed  statement  of  companies  and  government by independent administrator; To  develop  a  mechanism  through  which  the  citizens  of  Ethiopia  access  all  the  information regarding the extractive industry; To  establish  a  forum  under  which  all  the  concerned  parties;  the  government,  the  civil  society  and  extractive  companies  work  together  for  the  development  of  the  mineral  industry  of  the  country and bring sustainable development; To establish transparency and accountability in the management of mineral resources including  oil and gas and to foresee the minerals development of Ethiopia play a major role on the socio  economic development of the country for the benefit of Ethiopians.

 



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