Monday, May 20, 2024
Money TalksThe ups and downs of the mining sector

The ups and downs of the mining sector

Almost a month ago, Takele Uma, Minister of Mines, instructed officials working under his command to suspend the licenses of over 900 mining companies. It was a decision that shocked everyone in the industry

The impact was even felt overseas when one of the companies facing revocation. experienced a fall in share value at the London Stock Exchange. The company is listed as a mining firm with extraction projects in Ethiopia and Saudi Arabia.

The suspension left many with a perception that the sector was not going in the right direction but also understand the time ahead will be difficult. From small to largescale projects, almost no one was spared from the suspension, according to industry insiders.

Officials have their own reasons, accusing firms of involving in smuggling of the country’s precious metals in search of better profit margins and foreign currency.

“We have identified firms that have fulfilled what is expected from them so far,” Takele said. “It is a must to take action against companies with exploration projects that have not showed any progress for over a decade, while the action is part of our economic reform plan in the mining sector.”

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Since Prime Minister Abiy Ahmed (PhD) took the helm as the Prime Minister three years ago, several economic reforms have been implemented in the country. A segment of the economy that was neglected for long, contributes little to the GDP of the country, despite becoming a source of livelihood for over a million people.

Its shares to GDP, even though is less than one percent, its contribution to export proceeds is not negligible. In fact, in a good year, it accounts for almost a fifth of the country’s export proceeds that has hovered around USD three billion, before seeing a USD one billion jump during the last fiscal year. However, keeping the momentum has not been easy.

2012 was the most successful period for authorities administering the mining sector. Under the leadership of the late Meles Zenawi, the year saw the biggest export proceeds the country has ever earned from mining, before a new record was set last year.

But that was short-lived. In the years thereafter, exports of mining items dwindled drastically, reaching a meager USD 27 million in 2019. Things however began to change afterwards, due to various reforms introduced by authorities.

First, the sector became a major pillar of what the new Abiy-led administration called a “Homegrown Economic Reform Agenda.” A largescale survey was followed, with tons of recommendations to be implemented in the sector. Amongst the suggestions was for adjustments to be made on the purchasing rate of gold.

The central bank on top of making the purchasing rate similar with what is paid in international markets, agreed to even pay an additional 30 percent premium for artisanal miners, which supply over 90 percent of the gold to the regulatory body. It is a costly decision since the incentive comes with a staggering expenditure, as the country tries to compete with the prices offered in the parallel market.

Abiy brought his most reformist official, Takele Uma, who was the mayor of Addis Ababa back then, as the Minister of Mines. Known for taking bold measures, Takele did not take much time to utilize the opportunity created by the reforms introduced in the sector. Takele not only transformed the compound of the Ministry but also saved the sector from falling into the abyss.

A year after he assumed power, Ethiopia registered its historic-high export proceeds from mining, adding USD 672 million to the forex stockpile of the country in 2021/22, a 242 percent jump from last year.

No commodity saw such a change in the reporting period, even higher than the historic high 54 percent jump seen in coffee exports, which brought USD 1.4 billion to the country in the last fiscal year.

The sector also saw a record-high growth. It exhibited a 115.4 percent growth in 2022, according to the National Bank of Ethiopia, which credited the change to the adjustment made on purchasing price of gold. No sector grew at such magnitude, departing from what was registered for five consecutive years before 2020, when growth averaged negative 29 percent.

There is no doubt that the surge in the sectors contribution to the economy may seem a big success. But the question should rather be whether it is possible to keep the ball rolling.

Confident with the policies, Takele seems assured that he can maintain the momentum. A case in point is the target set for the budget year, even though his office reported a USD 100 million fall in exports of gold in the just-ended fiscal year.

The Ministry plans to collect 3036 kg of gold from Benishangul Gumuz Region, a target industry insider’s call “very ambitious.” The region only supplied 36 kg of the commodity.

What makes the target even more unattainable is also the fact that only one company, Elnet, supplied the gold mined from the region.

Officials of the Region also admit the difficulty in achieving the target. Nassir Mohammed, director of the Region’s Mining Bureau said “Many mining factories are not active due to violence and shortage of foreign currency.”

Industry insiders are concerned too.

“The unpredictability of mining rules and regulations, coupled with the political instability, will make the time ahead more challenging for officials. We should not also forget that the government cannot continue to compete with the parallel market, as that would drain its budget. This is impossible at a time when it is already working under tight conditions,” said an owner of a mining company, which regained its license after it was suspended along with 900 companies last month.

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