Can Ethiopia’s Resource Wealth Contribute to its Growth and Transformation?
January 26, 2015
Women artisanal miner in Ethiopia´s Benishangul-Gumaz Región.
The World Bank Group
Ethiopia’s resource wealth can be a key driver of the country’s growth
A recent study of the mineral industry developed by the World Bank Group (WBG) and other development partners offers recommendations to help the country develop its unrealized geological potential
The WBG is supporting the government with technical assistance to help build a competitive, predictable, and responsible strategy, legislative and institutional framework for the Oil, Natural Gas and Mining industry
ADDIS ABABA, January 26, 2015 – Ethiopia has averaged a 10.7% economic growth rate over the last 10 years, more than double the annual average of countries in Sub-Saharan Africa, which was around 5.2%. However, despite having a huge potential to contribute to Ethiopia’s economy, the development of oil, gas, and mineral resources are not among the key drivers of the country’s growth.
Although the country has geological potential for the discovery of new, sizeable oil, gas and mineral deposits, most of its extractive industry is still in its infancy stage. Currently, there is one large-scale gold mine in operation, while a growing number of large mining projects are under development and exploration for oil and natural gas is intensifying after significant discoveries in neighboring countries. Ethiopia also has an extensive and unique artisanal mining sector; the government estimates there are around 1 million miners, making it an important source of job creation, and an important source of foreign currency.
Although the industry is in its infancy stage, the contribution to the country’s exports is already significant. In 2012, mining was responsible more than 19% of the total value of exports, and up to 10% of foreign exchange earnings. Gold makes close to 100% of mining exports and most of it, about 2/3, comes from artisanal mining, according to a recent World Bank Group (WBG) partner study, Strategic Assessment of the Ethiopian Mineral Sector.
In 2012, the Ethiopian mining sector accounted for 19% of the country’s exports revenues- mainly from artisanally mined gold- while in comparison, coffee, Ethiopia’s largest export commodity, generated 26% in export revenues.
World Bank Group Washington, DC, 2014
Strategic Assessment of the Ethiopian Mineral Sector
The report notes that resource wealth can potentially have a positive impact on the social and economic development of Ethiopia if the industry is developed and managed in a sustainable and transparent manner, following international good practices.
What can Ethiopia do to ensure that its resource wealth contributes to sustainable development? The report highlights the following recommendations:
Obtain good-quality geo-data and put in place an effective data management system: To to manage and plan for the industry, the government needs to know what is actually in the ground. Effective acquisition, maintenance and dissemination of geo-data can help to attract investment and can help governments to make informed decisions and negotiate more effectively. Currently, only 74% of Ethiopia is mapped at a low-quality scale.
Put in place an effective management system and a governance framework: This will ensure that the benefits are distributed as fair and widely as possible, and social and environmental risks are minimized:Ethiopia was admitted as a candidate country to the Global Extractive Industries Transparency Initiative (EITI) in March 2014,one step towards that goal.
Diversification of Ethiopia’s economy and facilitation of economic linkages to avoid heavy dependency on the resource wealth: The linkages that are being created between the potash and agricultural industries in the Afar Region is just one example of potential economic partnerships; supporting the production of potash fertilizers in order to increase small holder farmer’s crop production.
Balance short-term and long-term development priorities, and reinvest the resource wealth into productive investments including high-quality health and education
Past experiences of other resource-rich countries provide a roadmap that can inform Ethiopia’s decision-making as the government start to put institutions, policies and laws in place to ensure that resource wealth contributes to sustainable development.
Developing the untapped potential of the extractive industry is not without its challenges, which include the possibility of increased corruption and the need to manage the potentially significant social and environmental impacts. Recognizing this, the WBG, along with other development partners, have joined together to support Ethiopia’s efforts to develop the industry in a clear and viable way.
“As highlighted in the study, if well managed and well supported, the Ethiopian mineral sector has the potential to make a difference in the economic development of Ethiopia and to contribute to the poverty reduction agenda,” said Christian Moller, WBG lead economist. “This will require a strong public sector. As the World Bank Group, we are committed to contribute to this process.”
In October 2014, the WBG and the Ministry of Mines jointly organized the 2014 Ethiopia Extractive Industries Forum, one of the major recent initiatives. It was organized with support from other key partners such as the UNDP, the Australian Government, Department of Foreign Affairs, Trade and Development (Canada), UK Department for International Development (DFID), and the African Minerals Development Center (AMDC). The event, the first of its kind, was held to help raise awareness about opportunities and challenges in the extractive industry, as well as to share good practices for its sustainable management. It included a broad-based representation of stakeholders with about 120 participants from industry, government, development partners, and civil society.
The forum also provided the opportunity to discuss the findings of the “Strategic Assessment of the Ethiopian Mineral Sector” study, which was jointly published by the Ministry of Mines and other development partners. The report represents the first comprehensive assessment of the Ethiopian mining industry, examining the primary opportunities and challenges for growth and transformation in mining, while also providing an initial analysis of policy options for Ethiopian decision makers.
“In today’s global village the Ethiopian government by itself cannot overcome the challenges facing the mining sector,” said His Excellency Ato Tolosa Shagi, Minister of the Ministry of Mines, in his opening speech during the forum. “Therefore, we would like to underpin our co-operation with development partners and best performing countries in the areas of building up the indigenous expertise with more emphasis in regulating the mineral and oil and gas resources to properly administer contracts as we are dealing with nonrenewable natural resources.”
The WBG is providing technical assistance to the Ethiopian government to support them in translating the recommendations of the report to build a competitive, predictable, and responsible strategy, legislative and institutional framework for the Oil, Natural Gas and Mining industry. This will allow the Ethiopian government to conclude better deals for the extraction on their oil and mineral resources in a way that maximizes the benefits to the country, reducing the risk of costly or politically difficult remediation at later stages. It is supported by the Extractive Industries Technical Advisory Facility (EI-TAF), a demand driven multi-donor trust fund. The EI-TAF will be launched in the beginning of 2015 and will help to structure extractive industry development projects and related policies.