Despite its long history in Ethiopia, mining is one of the least developed sectors; its potential is vast and untapped.  The government has taken multiple initiatives to expand the sector, setting supporting policies and providing incentives to investors both local and foreign to engage.  The improved mining regulation that was rolled out in 2010 by the Ministry of Mining and Energy has created a favorable condition for private investors to explore and develop the country’s natural resources.

The industry also remains one of the priority sectors in the new economic reform agenda set by the new government with main strategic directions including formalizing and supporting artisanal and small-scale mining.  The plan addresses technical and institutional barriers against large-scale mining, developing policies and institutional capacities to create a sustainable and inclusive mining sector with strengthened geological information. Overall, this will attract sizable foreign direct investment (FDI) for exploration and extraction of minerals, increasing foreign exchange earnings of the sector.

Mining operations within the country are expected to be an important economic catalyst for the Government’s export-orientated development strategy in the upcoming years.  Gold, gemstones and industrial minerals are important commodities to be delivered to foreign markets.  Ethiopia has been endorsed with underdeveloped hydrocarbons’ and minerals’ wealth, which provides an opportunity for future economic development and is envisaged as a possible significant economic driver for the country.

This article will briefly discuss the current state of the mining sector in Ethiopia and assess the investment and business potential of the industry.

Current state of the Ethiopian Mining Sector

Ethiopia’s geological formation showed extensive mineral resources with wide-ranging potentials for continuing development.  Minerals found in Ethiopia includes gold, platinum, niobium, tantalum, nickel, cooper, chrome, manganese, limestone, sandstone, gypsum, clay, lignite, opal, oil and gas, laterite iron ore, bentonite, clay, perlite, diatomite, potash, halite, decorative and dimension stones such as marble, granite and other coloured stones.

The mining sector in Ethiopia generates revenue for the country from sales, taxes, royalty as well as foreign currency earnings and also saving of hard currency in substituting the imported mineral related inputs of the country.  The mining service sector activities are also contributing for employment opportunities.

According to information from the Ministry of Finance and Economic Development the contribution of the mining sector to the GDP before the 1990s was less than one percent; however, there is statistical worked out data from this ministry that the mining sector contribution has increased to 5.8% in recent years, which comparatively is still low

Research shows that gold and tantalum are dominant minerals in Ethiopia with a lion share to the contribution of the economy.  In the year 2008 Ethiopia was ranked the 9th producer of gold in Africa, accounted for 4% globally and 5th largest from Africa for tantalum production.  Ethiopia has earned US$618 million from mineral exports in the year 2011 and 2012 with the intent to increase this revenue to US$1.5 billion by the year 2024.  However, foreign exchange earnings from mineral exports in recent years showed a decline.

Besides the economic benefit, the mining sector had brought some additional social benefits to communities living around the mine.  Mineral-related employment opportunities are becoming significant for the local communities as there are mineral development activities nearby both for skilled and semi-skilled citizens.  The total estimated direct employment of skilled and unskilled human resource in the mineral sector is in hundreds of thousands, reducing the poverty level of millions, 30 to 40 percent of which are women.

Roads, electric power from national grid and telecommunication infrastructures have been developed and/or upgraded due to the development of Gold, tantalum, salt and other major mining projects in various parts of the country.  Different levels of health service centers, schools as well as airstrips were built by the developers of the mines that provide service to the local community as well as the employees of the mining communities.

The Ethiopian Geological Survey has completed extensive geological mapping coverage of the country, up to 80 percent, gravity survey 95 percent, hydro-geological mapping 62 percent, and engineering geology 21 percent coverage of the country’s landscape.  In general, the government is working to improve policy, legal and regulatory frameworks of the sector, improving the working systems and expanding the geo-sciences mapping coverage of the country both in quality and accessibility.

Comparing Ethiopia’s fiscal incentives to investors in the mineral sector with that of other African countries, Ethiopia is found to be favorable. Royalty rates in Ethiopia are similar to that of African counterparts while corporate tax rates and equity participation are lower—in some circumstances, significantly lower—than its comparators.  For instance, required state ownership in Ethiopia is only 5% while Angola requires 10% ownership, Zambia increases interest from 20% to 35%, Zimbabwe 51% ownership by indigenous Zimbabweans (not necessarily the state), and Namibia plans for 100% of mining projects to be awarded to state owned companies going forward.  The Ethiopian Mining Proclamation states that all investments incurred in exploration and development are costs deductible.  The government requests 5% free equity shares with every licensed mining company operating in the country as well as 35% income tax and 8% royalties.  All these and other factors make Ethiopia a very favorable location for investors engaged in the mining sector.

Main Minerals In Ethiopia

1. Gold

So far the most developed large-scale gold mine in the country is the Lega-dembi gold mine (MIDROC Gold), located in the southern greenstone belt region, being operated by a private company with an estimated reserve of 82 tons and an average annual production of 3.6 tons of gold.  Secondary enriched (placer) gold has been mined traditionally (artisinaly) for years back to biblical times.  Formalization of the artisanal miners has been strengthened since the early 2000s, which led the local miners and dealers to sell about 1000 Kg of gold annually to the National Bank of Ethiopia, in turn increases the generation of foreign currency.  New large-scale gold and silver mining and processing companies such as KEFI Minerals have been granted licenses for exploration, development and a production plant.  KEFI acquired concession in the western region of Ethiopia in April 2015 and planned to install a gold processing plant with a capacity of 1.5-1.7 million tons of gold ore and produce up to 115,000 ounces (3,565kg) of gold per year.  Additional, four companies have been engaged in primary gold exploration and at least two of them are expected to start production in Ethiopia within three to four years.  The Ethiopian government is also engaged with more FDIs in gold exploration and extraction, such as mining giant Newmont Mining Corporation, that have shown interest in gold exploration and extraction projects in the Tigrai Regional state.

2. Tantalum

The U.S. Geological Survey, in its January 2016 updated Minerals Yearbook, showed that Ethiopia’s role in the world’s production of tantalum has increased and the country’s share of global tantalum production amounted to about 1% in 2013.  There is also a small-scale open pit mine of columbo-tantalite at Kenticha in the Adola belt.  The deposit is both a weathered crust ore (the top 60 meters) with proven reserve of 2400 tons of tantalum pentaoxide and 2300 tons of niobium pentaoxide, and primary ore with proved reserve of 2393 tons Ta2O5 and 2362.5 tons Nb2O5.  The Mine has been operating since 1990 with a pilot plant producing about 20 tons per year.  At present, it is producing over 190 tons of tantalite concentrate of tantalite columbite ore per annum.

3. Gemstones

Gemstones, including amethyst, aquamarine, emerald, garnet, opal, peridot, sapphire, and tourmaline occur in many parts of Ethiopia, mainly in Amhara and Oromia Regions.  In 2013, gemstone exports were 25,078 kg and Opal accounted for 98% of gemstone exports by value.  Almost all gemstone mines are dominated by artisanal, low-tech mining systems.  Miners collect and sell rough gems to the local market.  Currently, nearly all gemstones are exported as rough.  The challenges are mainly lack of knowledge in sorting and grading, shortage of finance, absence of continuous supply of rough material as well as very few numbers of established lapidary shops.

4. Oil and gas exploration

A number of international and few local companies are currently undertaking petroleum exploration in various parts of Ethiopia.  Oil companies actively involved in the petroleum exploration and development undertakings are: Africa Oil Ethiopia B.V. (Subsidiary of Africa Oil Corp.), Calvalley Petroleum Inc., Epsilon Energy Ltd., Falcon Petroleum Ltd., Southwest Energy, Tullow Oil, Pexco Exploration (east Africa) N.V. and GPB Global Resource. Many of the companies have been engaged in acquiring geophysical data including airborne gravity and magnetic, some have done 2D seismic surveys covering large areas and have accomplished geological studies.

Calub and Hilala gas-condensate fields in the Ogaden Basin have an estimated reserve of 4.7 Trillion Cubic Feet.  POLY-GCL a joint venture between state-owned China POLY Group Corporation and privately owned Hong Kong-based Golden Concord Group, is set up to develop oil and gas in the Ogaden Basin and POLY-GCL signed an agreement with Ethiopia in late 2013.  The project involves developing the fields and building a pipeline from landlocked Ethiopia to the coast of neighboring Djibouti, where it will build liquid natural gas plants and export terminals.  It also has eight additional exploration blocks in the region.

Oil and gas exploration has been going on for many years, and a considerable number of companies have entered Ethiopia at different times and pulled out.  Proven natural gas reserves in the Somali Regional State in Calub and Hilala localities have been identified.  Several companies took over the concessions but abandoned the project because of various reasons including security and lack of required financing and technology.  Chinese company GCL-Poly Petroleum Investments took over the gas fields in 2013.  Currently, the GCL-Poly is drilling exploration and appraisal wells where the company acquired satisfactory results.  In April 2016, the government announced that GCL-Poly will fund the pipeline that will transport the Ethiopia gas to Djibouti for a total cost of more than $4 billion, of which $3 billion will be invested in the Djibouti section.  The project comprises placing a 700km pipeline from Ethiopia to Djibouti, a liquefaction plant and an export terminal in Djibouti.

5. Potash

The potash reserve in the Danakil, Dallol Depression of the Afar region is believed to be significant. There are three companies working on potash exploration projects, these are Israel chemical Ltd. (took over from Allana –Canada), Yara International and CERCAM. These companies have finalized exploration works and have undertaken feasibility studies. Currently, the companies are in negotiation with the Ministry of Mines and for development licenses and they are expected to enter full capacity production by 2019 and have an estimated combined production of 5.35 million ton within the life of extraction.

6. Other

There are other multiple minerals that are mined mostly for local use.  Soda ash is being mined at Lake Abiyata in the rift valley about 200 kilometres south of the capital.  The reserve at Lake Abiyata and the surrounding lakes exceeds 460 million tons of sodium carbonate at salt concentration ranging from 1.1 to 1.9%.  The plant is producing about 5,000 tons soda ash per year at a semi-industrial scale.  The consumers of the soda ash are local caustic soda factories, soap and detergent manufacturers.

Kaolin, quartz and feldspar are also being mined from the Adola belt in southern Ethiopia by the government enterprise.  The consumers of the products are the Awash-Melkasa Aluminium Sulphate and Sulfuric Acid Factory and the Tabor Ceramics Factory. Silica sand is also being mined and utilized by local industries.  The cement factories of the country are using high quality limestone, clay, gypsum and pumice as a raw material for cement production.

There is also large input of minerals to the construction industry: sand, gravel, scoria, crushed stones, aggregates, pumice, scoria, etc.  The use of construction minerals includes buildings, roads, dams, bridges, and more.  Other mineral products including platinum from laterite, industrial minerals, gemstones (opal, peridotite and other precious stones) and decorative and construction materials are also produced by licensed foreign and local mining companies in the southern, western, central and northern regions of the country.

Business Opportunities and Potentials

The external perception is that some aspects of doing business in Ethiopia are too difficult, and they   increase   stakeholders’   investment’s   risk   and   undermine   potential  benefits.  However, Ethiopia has many advantages as a destination for mining investment. These include promising geology, a well-designed fiscal regime, stable government and a growing domestic market.  Additionally, it has  a  well-managed  and successful  artisanal and small-scale mining sector.

Under   the   second   phase   of   Ethiopia’s   Growth   and   Transformation   Plan, Ethiopia   has the ambitious target for the mining sector to contribute 10% of GDP by 2025.  The recent Home Grown Economic  Reform   states   mining   as   one  of   the three   important pillars of the country’s reform.

Recent activities in mining in Ethiopia include:

• Modern geodata   to  support   exploration:  Exploration  is   so  much   easier   with   solid geodata.  Although  regional  maps   at   the   scale  of   1:250,000  have   been  produced   in Ethiopia since the early- to mid-1970s, in 2017 a major milestone was reached when 100% coverage   of   the   country’s   land-mass   at   a   scale   of   1:250,000   was   achieved   by   the Geological Survey of Ethiopia (GSE).   One hundred percent coverage of the country’s land-mass at a scale of 1:250,000 was achieved by the Geological Survey of Ethiopia (GSE) in 2017.  As part of the government’s firm commitment to encourage exploration activity, and as part of the GTP II, further activity will be significantly ramped up in the coming years.
• Ethiopia’s record growth: Ethiopia has seen astonishing growth in the last ten years.  Growing   at   an   average   rate   of   2%   between   2006   and   2016,   the   country  consistently  has one   of   Africa’s   top   performing   economies.  Ethiopian industry is projected to grow at an annual average rate of 20%, with projected Growth of 21.9% in the manufacturing sub-sector; 31.6% in electricity, gas and water; 15.4% in construction; and 32.8% in the mining sector.
• Extraordinary Mineral Potential: Ethiopia has   a   mining pedigree   dating   back more than a millennium.  Despite this long history, commercial mining is still in its early stages, providing ample opportunity for those wishing to invest in the sector.
• A Stable Legal Framework: The Ethiopian government understands that stability and predictability are key for investment. The government, therefore, aspires to deliver a regulatory regime that is both transparent and predictable.  Attracting mining investment is a priority.  That’s why both foreign and local mining companies are encouraged to carry out exploration, development, and production according to their own plans and market conditions.  It’s also why holders of exploration and mining licenses and their contractors are exempt from import duties for all equipment, machinery and vehicles that are used for the purpose of mining operations.  The holder of small- or large-scale mining licenses may   import – free   of   custom duties – the  consumables   they   require   during   the development period in order to begin  and sustain commercial production for the first three months.  The mining law also guarantees the opening and operation of a foreign currency account in Ethiopia, and retention of a portion of foreign currency earnings and remittance of profits, dividends and interest out of Ethiopia.
• Major investments   in   infrastructure   and   accessibility:   Enabling   infrastructure   is critical for mining investment. It is also vital in driving Ethiopia’s transformation into an industrial   economy   in   the   coming      The   Government   of   Ethiopia   is therefore investing extensively in infrastructure, including;  energy, road, railway and air.
• Strong commitment of the government to enhance the enabling environment: accordingly, the government is providing the required assistance for companies engaged in mineral exploration and development projects.  For instance, the government is  to develop a 130 km electricity   transmission line and build lowland roads to improve operationalization of the Dallol area  potash  project,  bringing   wider  benefits  to  a remote part of Ethiopia.
• The Ministry of Mines showed its commitment to increase the sector’s contribution to Ethiopian economic growth and envisioned to generate close to US $2.4 billion per year from export by the year 2027. Swedish Geological AB assessment confirmed that within the coming 15 to 20   years the Ethiopian mining sector can generate a critical mass, especially   from   gold,   potash,  tantalum   and    In  addition   to   gold,  potash   and tantalum, the government provides due attention to exploration and extraction of iron ore and coal as major priority minerals, which can contribute to the country’s transformation to manufacturing dominated economy with significant import substitution objectives.
• The government is working with traditional miners to boost their production capacity and assist them to access credit so as to acquire simple modern technologies that can be used in exploration, cutting, shaping and sorting/grading products. In addition, creating modern value addition, with improved quality and enhanced supply chains are the main priorities of the Ethiopian government.

Mining Sustainability and Environmental Management

For a mining company, sustainable practices are at the core of its license to operate.  More and more companies have come to realize that the only way to be economically viable is to operate environmentally and socially responsible.  The themes of climate change, resource scarcity and energy efficiency strongly resonate with the mining industry as they have been grappling with those topics in their day-to-day business.

It is inevitable that extraction of minerals from the natural earth leads to disturb the environment. When disturbing the environment there must be careful and systemic protection of the whole system of environment that assures sustainable use of the current resource and or ecosystem and that brings about either less or almost no destruction or pollution to the environment.

The mining legislation of Ethiopia, which came into effect in 1993, has provision that requires as compulsory criteria to study, submit and get approval of Environmental Impact Assessment from the respective Authority in order to develop large scale mining projects.  The common environmental issues in Ethiopia to be considered in development of the medium to large scale mining projects are the surface and groundwater system, the physical land management (soil, rock stability, deforestation grassland, farm land, etc), spillage of strange chemicals/metals, air, noise, dust, aesthetic values of the area, cultural and tourist heritages, the communities as well as all other lives surround the mine proximity.

In principle the licensees shall ensure the financial mobilization of the environmental management and mine closure plan.  Therefore, sinking funds are required to be pledged while the mining activity is going on and a management plan shall be implemented throughout the life of the mine.

Digging Deeper 

Ethiopia set out its stall as “Africa’s ideal new mining destination.”  Changes to the country’s mining

policies are expected soon.  Ethiopia aims to increase the mining sector’s contribution to GDP to 10% by 2030 from the current 5.6%.  The government cut the corporate income tax rate for miners to 25% more than two years ago from 35%, and has lowered the precious metals royalty rate to 7% from 8%.  The newly introduced initiative of the Home Grown Economic Reform, among other points, outlined macroeconomic, structural and sectoral reforms that are said to pave the way for job creation, poverty reduction, and inclusive growth with an additional emphasis to the mining sector as an untapped resource of the country. Overall, the potential and opportunities for investors gives confidence to invest in the mining sector that is very appealing and has not been exploited in Ethiopia.

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