Following the recurring problem in the gold production and its market in the country, the office of the Prime Minister has directed the Ministry of Mines, Petroleum & Natural Gases (MoMPNG) to launch a study that will assess the challenges of gold extraction. The study will be used as an input for a policy reform.
The order came a week after the Ministry had a consultation forum with stakeholders of gold production and the gold market in Adama town. During the meeting, companies and artisanal miners engaged in gold production raised various issues, which they claimed as bottlenecks for stopping the decline of gold production and export earnings of the country from gold.
“The production of gold has been declining for the past three years,” said Tadesse Haile, state minister for Exports and Investment in the Economic Section at the Prime Minister’s Office.
Gold is the major exportable commodity of the country. On average the country has been earning 350 million dollars a year from gold export. Between 2011 and 2015, the country gained a total of 1.9 billion dollars from gold export.
But its share of total export proceeds has been declining over the past five years from 19.1pc in 2012 to 10.6pc last year.
“In some regional states, gold production has become almost zero,” said Tadesse.
Gambella, Benshalgumuz, Tigray, Oromia and Southern Nations, Nationalities & Peoples’ regional states are affected by the decline in gold production.
“We identified that contraband is the primary reason for the decline in foreign currency earnings of the country. Gold is sold without following the proper channel through the National Bank of Ethiopia,” said Tadesse.
Recent research launched by the Ethiopian Extractive Industry Transparency Initiative (EEITI) states that out of the total gold production of the country, 61pc of it is illegally smuggled, leading the nation to lose an enormous amount of foreign currency.
As a sustainable solution, the study sees different approaches including establishing a command post which will regulate the gold production and market, exploring incentive mechanisms, eliminate the involvement of intermediaries in the business and discovering the major areas which are cumbersome in gold production and the market value.
In the market value chain, the government might consider organising artisanal miners to form cooperatives that will collect gold from the miners and supply to the central bank, according to Tadesse.
Not only foreign exchange earnings will slump when production drops, but also the government earnings will decline. Gold producers pay five percent free equity shares, as well as 35pc income tax and eight percent in royalties.
“If change is needed, it has to be made in the process of montoring, evaluating and following up companies engaged in the production and gold market,” said Merga Kenna, director of EEITI.
Ethiopia’s geological formation shows extensive mineral resources with wide-ranging potential for continuing development including gold. And extraction is highly dominated by artisanal miners, which are known for using very traditional mechanisms to extract gold.
“The central gap is with the small-scale miners who sell the mineral to illegal traders,” said Merga.
Artisanal miners are estimated to be close to one million in number, and they produce and export up to nine tons of gold per year.
The regulatory body has to focus on working to reform the administration system and creating awareness to these small-scale miners, according to Merga.
Production decline is not only the concern of small-scale miners but also for large scale companies such as MIDROC Gold Mine Plc, one of the three large-scale mining companies, KEFI Minerals and Ezana Mining.
During the first three quarters of the past fiscal year, MIDROC Gold produced 3,800kg of gold, which is 500kg less than the amount it produced five years ago.
“For the reform, we will also consider the experience of neighbouring countries,” said Tadesse. “We are currently working on sending a team of Ethiopian experts to Ghana for experience sharing.”
As of January 2016, about 170 licensed companies were engaged in exploration and development of gold, where 51pc of the licenses are issued to foreign firms and 21pc are joint ventures of local and international businesses and the remaining are for local enterprises.
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