Ethiopia Finalizing Reforms in Mining Sector
February 5, 2019 (Ezega.com) - According to a statement by the Minister of Mines and Petroleum, Samuel Urkato, Ethiopia is in the final stages of reforming the underdeveloped oil and mining industries. In the next two months, it will have finalized everything as the country hopes to attract more foreign investors.
Regarding the changes instituted, the government has already cut taxes for mining companies as the government aims to ease the dollar deficiency in the country. Urkato said promoting the sector is a priority for the country and they’ll further adopt other tax incentives.
Mining Industry Overview:
The mining industry is important to the economy of Ethiopia, especially at a time when it is looking at ways of diversifying its agriculture-based economy. Presently, mining contributes only 1% of Ethiopia’s GDP. Gold, industrial minerals and gemstones make the bulk of the mining commodities the country exports. Tantalum is also proving to be profitable.
In the late 80s, the mining industry lacked significance because it contributed a mere 0.2% of the country’s GDP. Gold is key in the sector. In 2001, it contributed US$5 million, but by the year 2012, this sum increased to US$ 602 million.
While addressing reporters, the minister reiterated they’ll review the existing laws and national mining policy. “We are reforming all the laws, the national mining policy and the strategy that goes with that policy. These reforms include all fiscal regimes to compete for global mining investments,” he said.
The fiscal and the legal framework adopted by Ethiopia’s government allows a free market driven economy, which permits both local and foreign-based companies to participate in developing the country’s mining industry. However, they must operate in a transparent manner that helps boost the country’s economic outlook.
Some of the licenses issued by the ministry cover base metals, gold, potash, cement, diatomite, construction, and industrial material. Approximately 250 companies have been licensed to operate in the country. They come from Canada, UK, the US, China, and South Africa. In the license, the government is guaranteed a minimum of 5% equity stake in any mining project which is lower compared to other African nations. At the same time, the taxes have been significantly reduced from 35% to 25%.
The license is valid for 25 years, but upon expiry can be extended by a further ten years.
Newmont Mining is one of the companies licensed to prospect for gold in the country, while Norwegian fertilizer making company called Yara International has planned to construct a fertilizer plant and a potash mine.
Lack of Skilled Labor and Infrastructure:
Much needs to be done because there’re companies that have been discouraged by the state of Ethiopia’s infrastructure, shortage of skilled labor and the lack of transparency in licensing. For instance, in 2012 Australia’s BHP (Broken Hill Propriety Limited) abandoned their mining operations, whereas Israel Chemicals terminated its potash mining project in 2016 in the wake of a tax dispute and accusations of the state’s failure to improve infrastructure.
Since assuming office last year, Ethiopia’s Prime Minister Abiy Ahmed has made tremendous changes across state-controlled industries, including plans to open up the logistics and telecommunications industry, which critics say was once closely guarded.
The government’s commitment to improving infrastructure has helped the country become one of the continent’s promising economic giant. Nonetheless, garment and other exports continue to register minimal return, meaning the economy isn’t generating enough dollars.
Samuel contends that companies working in remote areas shouldn’t worry about infrastructure as it’s the role of the government to do that.
Apart from the corporate income tax that was reduced to 25%, more recently the government has reduced the royalty on precious metals by 7%, from the previous 8%.
While Ethiopia is keen on generating reasonable revenue from its mining industry, the minister revealed they are still reassessing and preparing to issue more incentives to push the industry that is promising to change the country’s fortunes. He said they’ll, later on, see how to improve the fiscal regimes and royalties.