Prospects and red-tape in the mining sector

Nature has bestowed upon Ethiopia various mineral and hydrocarbon resources. Gold, gemstone, metallic and industrial minerals are found in different parts of the country. Oil seepages are noted in various regions. However, Ethiopia has not been able to extract its mineral and petroleum resources the way it was supposed to, writes Kaleyesus Bekele.

Ethiopia is not very much known in the mining world. Except for the small scale gold, tantalum and gemstones exports the country is not in the list of major mineral exporters in Africa. There are no large-scale mines in Ethiopia. The only large-scale mine is operated by MIDROC Gold in southern Ethiopia. The company annually produces four tons of gold in the Lega Dembi mine in the Oromia Regional State. It mainly exports the gold bullions to Switzerland. MIDROC’s Lega Dembi Gold mine is ranked 170th in the world in terms of value of production in 2012. 

The state-owned Ethiopian Minerals Development SC (EMDSC) mines tantalum concentrate in the Kenticha mine in the Oromia Regional State in the Guji zone. The tantalum concentrate is mainly exported to China.

In the south, there is also a small state-owned mine called Adola, where placer (alluvial) gold has been mined for over half a century. Placer gold has been mined in Ethiopia for more than 2,000 years, but a significant large-scale mining sector has not been developed yet.

More than one million people are engaged in artisanal mining primarily focused on gold. Artisanal miners pan eight tons of gold every year fetching a significant amount of foreign currency.

Gemstones, mainly opal, is produced by artisanal miners. Rough gemstones are exported to India, Europe and the United States. The Ethiopian Ministry of Mines, Petroleum and Natural Gas (MoMPNG) is encouraging and assisting artisanal miners. Tantalum is also produced by artisanal miners. Artisanal miners generate more than 400 million dollars, the lion’s share coming from gold export.

The country has a vast geological formation bearing gold, “Green belt”, covering a large area in the northern, southern and western parts of Ethiopia but little is explored and extracted.

Ethiopia is also endowed with a range of industrial minerals deposits including potash, lime-stones, coal, iron ore, tantalite, field spar, quartz, dimension stones and dolomite, among others. Speaking of minerals most people think that only gold, diamond and oil are the essential ones. However, industrial minerals also play a pivotal role in economic development.

“The country spends hundreds of millions of dollars to import products that could be produced locally,” Lemma Bayissa, a local mining consultant, says. “For instance, take glass sheets, glass and bottles. These products are made of silica mineral which is abundantly found in the rift valley. However, since we do not have the factories, the country annually spends millions of dollars to imports these products,” Lemma told The Reporter. According to information obtained from the Ethiopian Revenues and Customs Authority, Ethiopia spends more than one billion birr only on glass and bottle imports.

Iron ore is found in Western Wellega, Oromia Regional State, and  the Shire area in the Tigray Regional State. These resources have not yet been surveyed thoroughly and it has not been extracted. And yet a huge amount of foreign currency is spent on iron steel imports. 

A huge deposit of potash mineral has been found in the Afar region, Dalol depression. During the Italian invasion of 1936-1940 the colonizers used to transport potash to Italy via the port of Massawa. But the owners of the wealth have not been able to utilize the resource to date. Potash is mainly used to produce fertilizer. The Ethiopian government spends more than 100 million dollars on fertilizer imports yearly.  While nature has stored huge coal deposit in western Ethiopia, factories use furnace oil imported with foreign currency.

In the past 25 years no new mine was opened in Ethiopia. The Lega dembi Gold mine was discovered and became operational by the former Union of Soviet Socialist Republics (USSR) when the Derg regime was in power some 30 years ago.

Ethiopia has a significant petroleum potential. Oil seepage has been reported around Gelemsso, Gewane, Jijiga, Bale and Wereyelu localities. Oil and gas shows were noted in the exploration wells drilled in the Ogaden basin. A natural gas reserve was discovered in the Calub and Hilala locality estimated at four trillion cubic feet (TCF). Forty years have elapsed since the gas discovery was made but the resource has not been developed for various reasons.

Why did Ethiopia fail to utilize its mineral resources?

Ethiopians who watch officials of the MoMPNG signing mineral and petroleum exploration agreements on national TV often ask why they do not see the projects come to fruition.

Lemma says that mineral and petroleum exploration and development work takes a long time. “It could take more than ten years to conduct an exploration work on a particular exploration project,” Lemma said. According to him, a sound mining policy, enabling investment environment and peace and stability are of paramount importance.

“Regime change has an impact on the mining industry. When government changes the mining and investment also change. Western companies engaged in mineral and oil and gas exploration projects during the imperial rule were expelled by the Derg. The Russian companies prospecting for minerals and petroleum during the socialist era pulled out when the Ethiopian Peoples' Revolutionary Democratic Front (EPRDF) came to power,” Lemma says.

Mineral and petroleum exploration is capital-intensive. Poor countries such as Ethiopia have limited financial resources to invest on mineral exploration projects. Most African countries, including Ethiopia rely in foreign mining firms to conduct exploration, and development work.

In an exclusive interview with The Reporter Tolossa Shagi, the Minister of Mines, Petroleum and Natural Gas, said that for various reasons adequate exploration work was not carried out. Tolossa claims that giant foreign companies capable of extracting minerals have not come to Ethiopia. “There are various reasons for this. Big foreign companies avoid risks. They do not abruptly enter a country. If they come once they do detailed exploration work. But before they decide to come also they need detailed geological data. Unfortunately, we do not have adequate geological data,” the minister said.

Tolossa explains that the Ethiopian Geological Survey has been collecting geological data with Ethiopian professionals, and limited technology and finance while other African countries were lucky enough to have detailed geological data collected by their colonizers. According to Tolossa, big giant mining firms prefer to go to other African countries that have detailed geological data and simple mining and investment laws.

Lemma blames the EPRDF-led government for poor performance in the mining sector. “Previously, the EPRDF leadership believed in the concept of what is known as the resource curse and neglected the sector. The government did not allocate adequate budget for the geological survey that enables it to undertake exploration work. The ministry did not have enough budget to promote the petroleum potential of the country,” Lemma said.

He also accused the ministry of sluggish working activity. “The licensing procedure is bureaucratic and non-transparent. It takes unnecessarily prolonged time to respond to exploration license requests. Companies that seek mineral exploration discouraged by the bureaucracy leave for other African countries such as Tanzania.”

Lemma claims that officials of the ministry and the geological survey are appointed because of their loyalty to the ruling party but not on merit. “Due to the lack of good governance and minimal salary, seasoned experts of the ministry and geological survey have left,” he said.

Tolossa admits that there are problems in handling applications. “There are problems in handling exploration license applications promptly. We are consulting the government to relax licensing procedures. We are encouraging and supporting companies engaged in mineral exploration projects,” Tolossa said.

However, Tolossa said there are working procedures the ministry has to adhere to. “If a company demands to be given an exploration area within two days that is impossible. We are granting a concession up to 1500 We cannot do it within two days. We need to check our cadaster system to avoid overlapping. We need to check the company’s profile, its reputation, financial position and know-how. We can not simply give licenses to any company which comes up with only money. We have learned from our past mistakes,” he said. 

Tolossa admits that the ministry is facing dearth of skilled labor. “Professionals leave our ministry in search of better payment  and at times it is challenging to promptly evaluate applications. But it is not only our fault. The companies, too, are responsible for the delay in processing licenses. There are information, documents and data we require from them. It takes them a month or two to produce the required documentation.”

The minister rejects the accusation of appointments. “We do not appoint unqualified personnel. If it is believed that we are incapable and there is a better leadership we are willing to vacate our seats.”

Last year the World Bank assessed the Ethiopian mining sector. The report released by the bank in October 2014 highlights the hurdles in the Ethiopian mining sector. According to the World Bank, inadequate promotional work, inefficient licensing procedures, dearth of trained professionals, low productivity, and border conflicts (disagreements related to land use) are some of the red-tapes in the mining sector.  The report states that there was lack of trained professionals and high staff turnover at the MoMPNG and Ethiopian Geological Survey (GSE). “While considerable competence exists in particular among many MoM and GSE long-term employees, the overall capacity at the ministry and GSE for proper promotion, supervision and regulation of the sector is limited,” says the report. According to the report, there are critical capacity constraints at the MMPN licensing department.

The way forward

The Ethiopian government wants to change the gloomy picture and enhance the contribution of the mining sector to the country’s economic development.

A total of 170 companies are engaged in mineral exploration. In 2011-2012 the mining sector earned 618 million dollars from mineral exports – 2\3 coming from artisanal mining. The revenue dropped to 340 million dollars following the global gold market crash. However, the government still hopes to boost the foreign currency earning from the sector. The mining sector is expected to generate two billion dollars by 2024 employing 8,000 citizens.

The Ethiopian government aims at building and developing an essentially new economic sector – a large-scale mineral sector. The current policy framework envisions the mineral sector to be the backbone of the industry sector by 2020-2023.

In the second Growth and Transformational Sector (GTP-II) the government hopes to generate a total of five billion dollars from mineral exports. The World Bank made a bold project of five billion dollars annual revenue from the sector. This can be achieved if the government succeeded in developing a robust large-scale mining industry, according to the bank.

Currently, a number of foreign mining firms are proposing to establish large-scale mines. Four companies engaged in primary gold exploration projects have finalized feasibility studies. These companies have asked the ministry to be given large scale mining licenses.

Similarly, three companies working on potash exploration projects have submitted their feasibility studies to the ministry. A total of seven companies are negotiating with the ministry to launch large-scale gold and potash mining. Tolossa hopes five of them would venture into the projects. However, he fears that the declining commodity prices may drag these projects.

Tolossa said that the ministry is striving to bring in giant mining companies. “We are holding talks with leading global mining giants. We need to relax the laws and we have to be flexible to attract these companies,” he said.

The ministry also expects the Chinese firm engaged in oil and gas exploration and development project in the Ogaden basin to commence gas production in the GTP-II period.

The World Bank believes that the collection of new high-quality data and the subsequent marketing of these data through a long-term strategy for investment promotion assume vital importance. “The existence of a modern and well-functioning mining cadaster and registry system and clear rules for awarding licenses are key features for the promotion of investments in the mining sector.” The bank stressed the need to have a clear legal framework both to attract investors and to facilitate regulation of the industry.