As Ethiopia continues on its trajectory of growth catalyzed by reform, the mining sector more than ever is becoming pivotal to the economy as a diversification from agriculture. The country has deposits of coal, opal, gemstones, kaolin, iron ore, soda ash, and tantalum, and gold, which is mined in significant quantities.
Since 18 August 2020, the Ministry of Mines has been led by Eng. Takele Uma, who prior to his appointment as minister, served as the 31st Mayor of Addis Ababa. During his time as mayor, Takele came to prominence for his transformational way of doing business and his visionary leadership roles after Ethiopia’s reform government rejuvenated the country from 2018.
As the Minister looks to revitalize the mining sector, Capital’s Muluken Yewondwossen reached out to Takele for in depth insights on his ministry’s activities amongst other pertinent topics of import substitution and domestic production of cement and fertilizer. Excerpts;
Capital: How would you best describe the overall alignment of the mining sector to the ten year development plan?
Takele Uma: The mining sector is one of the main pillars of the ten year development plan. Import substitutions of mining items are very much integral to the manufacturing industries and agricultural sector. It is one of the five pillars in the plan. To unlock our sector’s full potential we have been and still are preparing clear policies and regulations. The Home Grown Economic Reform (HGER) plan emphasizes two things, one of which is using local resources whilst the other is strongly considering these local resources as sources of capital to increase local productivity. Additionally, this ten year plan focuses on job creation specially in connecting both skilled human resource with industries and also in expansion of digital economy and technology. The mining sector is a baseline for agriculture, manufacturing and other sector development. That is why mining is stated as one of the pillars for the in demand growth for the coming years.
Capital: What are you doing in terms of planning to increase productivity and value addition of local production?
Takele Uma: Some of the main issues in increasing production and productivity are technology, capital and skilled human resource. We have been trying to export mining products especially gold, lithium, tantalum and gemstones in limited levels even at a time when we didn’t have a clear mining policy and regulation.
The main goal in the economic reform is building a strong value chain in the sector to increase local productivity. Here for example if we take coal, government used to spend more than 750 million dollars to import coal. However, after the revision of the plan it dropped to 300 million dollar and now we are almost fully covering the demand with local production. We can find coal in every region of the country and this coal is a source of energy for several industries including cement, steel and textile too.
For quite a while it was considered that despite the country’s colossal resource of coal, its quality was lesser than the heating quality of the import.
We have changed this rational.
Even though studies show that Ethiopian coal has high moisture, sulfur content and changes to ash firmly rather than steaming which has impact on its worth of giving energy; now as part of the plan of changing resources to capital, we are conducting beneficiation to comb impurities out of local coal to improve its heat value. This in turn makes it more effective and enables the substitution of the imported coal.
Beside coal, the steel industry is also one of our focus areas. On this, the country spends billions of dollars annually to import billets for the sector despite there being a huge number of scraps stored in back yards of both government and non-government premises. Currently, in our short run plan, we have decided to collect scraps from all government, regional and private premises including the old railroad steel which will fill the demand of steel industries for two or three years.
For the long run, we have prepared research that proves that Ethiopia has huge potential with regards to the iron ore. As we all know, the northern part around Sekota and in the west part of Gimbi, the country has an ore reserve, which has a content of 40 percent.
However, the latest exploration result at Guji area shows a huge potential of iron ore with content of 85 percent of the ore. Recently, we have found out through a series of activities carried out by a Turkish company that Gambella has been identified with enormous potential which is about 99.5 percent of iron ore from hematite resource.
From these positives, I can confidently say that the future prosperity of our country will be propelled by our mining sector. Currently, our factories are steel smelting plants and in the near future we are planning to build industries that can produce inputs for the existing factories using local resources.
The other focus area is fertilizers which has high impact to our country since 85 percent of the population depends on the agricultural sector. Similar to the other sectors, we spend in billions of dollars to import fertilizer yet we have the resource to produce locally.
Ammonia, a feedstock for fertilizer, which is produced from natural gas to which we have a huge potential of natural gas in Ogaden basin, in Gambella, in the Abay basin and the Rift Valley. For Ogaden basin alone, we have a certified potential of 7trillion cubic feet of natural gas in two fields. Now we are in talks with different companies that have shown interest including the Russian company GAZProm, Turkish company Çalik Energy, UAE Company ADNOC and a few American companies. We expect the coming company to do more researches and feasibility studies. Of course we as government will work with them in partnership with the Ethiopian Investment Holding. Without fertilizer production, we will not reap the full benefits of modern agriculture, so we have to produce fertilizer to revolutionize the agricultural sector.
The other focus is the construction sector. In this sector, besides the demand of the steel industry, cement is also the other focus area. Ethiopia has 100 percent of inputs or resource to cement production; and based on our GDP per capita, Ethiopia is expected to produce a minimum of 52 million tons per annum. However, our factories are producing only 8 million tons. Now that is a far stretch in gap, plus if we want to be sat at equilibrium, we have to produce 100 million metric tons of cement per annum.
By 2050 there are predictions that the Ethiopian population will be more than 200 million. So with this statistic, there are two home works needed to fill the expected demand; the first one is sustaining food security and job to combat possible challenges in the future to which we have to make sure to accelerate production and productivity.
So regarding cement, we are observing shortage in the market even when the northern and western parts of the country are excluded from economic activities.
One of the reasons for low production of cement is instability in different parts of the country. Now things are improving especially in the northern part and we expect current shortage of cement to be solved following the peace agreement.
There are 3 major challenges related with cement and its production. One is that cement factories have their own operational issues. If we compare Dangote with Derba they both have similar technologies and similar production capacity. The difference comes in the skilled human resource and management issue at factories. When look at Dangote, the management team from top management to the single packing employee, a seamless coordination system is in place. The other issue which the government is also working to solve is security and forex to spare parts. Even after solving these issues of the factories, the production capacity comes to about 14 million tons.
Likewise, if we take a look at the Mugher Cement Factory which is one of the governmental enterprises, it is not running as per its full capacity. It has 3 production lines with the first producing 2, 000 tons while the rest two production lines are working with only 1, 000 tons each. To this regard, we are planning first to solve challenges that the factory has based on our own plan or to privatize it. There is maximum possibility of privatization. As per our proposal, the government shall decide what we shall do in the coming few days.
Besides increasing capacity of the existing companies, we are also working to increase the number of factories. We have three ongoing projects; National Cement, which is efficient in its plant at Dire Dawa, (project in North Shewa Zone), Berenta Cement in West Gojam and Global Investment in Oromia region. These new in coming factories will help to fill the gap. The other note here is that we are also working to revise our cement policy in order to include several cement industries in the country.
The fourth one is our focus on the chemical industry. Ethiopia has a huge potential on chemical industry inputs and we are pooling effective efforts in Afar region, Dallol and East Shewa. For instance, we are producing and exporting sodium bromide in Afar.
Generally, we are working on both revising our policies and proclamations and also in building strong a institution in our ministry. As you may well know, building an institution is a process, but, here under our ministry there are three main institutions which mainly emphasize on; promotion and regulation, development of minerals and petroleum resources in our country.
From our USD 18 billion import, USD 14 billion dollars is directly or indirectly aligned with the mining sector that includes steel, fertilizer, chemical and fuel.
So if we are to produce some of the basic inputs locally, we can adjust our balance of payment and keep the economy healthy.
Capital: After the Prime Minister’s latest visit to the US, there are rumors that the government has decided to give the Ogaden Basin project to US companies. How much of this is true?
Takele Uma: As you may recall, we had terminated our contract with the Chinese firm Poly GCL. The company was incapable so we are directly approaching trustworthy and reputable huge companies in different countries to change the history of the sector.
As I said earlier, we are talking with Russian, UAE, Turkey and US companies including Baker Hughes and Chevron and Chinese companies who have shown their interest. All of the companies including big Chinese companies like Sinopec and China Petro have expressed their keen interest to work with the Ethiopian government. We are waiting for a company with a strong track record to table a proposal for our country. Since I wasn’t there with the team which paid a visit to the US, I am not sure about their discussion. But one thing I can assure you is that we are still waiting for the best company so as to take on the project.
Capital: Production of Gold came to an abrupt stop due to the war in the northern part; now that peace talks are on-going with the situation showing improvements, what are the plans being set to improve the mining sector in the area?
Takele Uma: The first target is building the region which was damaged due to the conflict. I am part of the ministerial committee established to work on rebuilding the Tigray region and the northern part overall. We are working on reoperation of big industries in the region including Messebo Cement Factory and other marble and gold manufacturing industries. We have given an order to mining companies, who were on force majeure to start their operation. We sent a team to evaluate the Commercial Bank of Ethiopia’s Shire branch, which buys gold from artisanal, to restart the operation.
Regarding gold production in our country, there are two main ways of gold production. The first one is from big companies which are authorized by the federal government to engage on gold production including MIDROC and three other upcoming companies in Benishangul-Gumuz, Gambella and Oromia regions which will start operation. This will make Ethiopia’s gold production to reach 30 tons per year in the coming three years. And the other is the artisanal which we are working to change to a modern production. Since it is subsistence, this traditional gold mining is hugely affected by contraband. On the modern production lines, both the National Bank of Ethiopia (NBE) and our ministry work closely with companies and thus there are no such instances of contraband.
Previously gold suppliers to the national bank used to get premium of 29 percent from international rate which was fruitful. However following the increase of the parallel market, it was revised to 35 percent. The 35 percent premium does not bring in any positive result as a previous study recommended 57 percent. As a result, the parallel market is dominating.
To solve the challenge, a team from both our ministry and NBE has conducted a study that will consider the premium increment between 85-95 percent. The team has already finalized its assessment and submitted it to the micro economic team. We expect the decision to be applied in the coming few weeks.
Capital: One of the main concerns in the mining industry is that companies usually don’t start their operation as they are expected to. What is your ministry doing to cope up with this?
Takele Uma: The main reason for this is lack of proper assessment and due diligence of foreign companies and their capital, technology; knowledge and credibility before giving them the license and land. Foreign companies especially engaging in gold and petroleum production usually take a longer time before starting their operation as the government expects them to operate for example Poly-GCL which has been working on the Ogaden basin on energy extraction. But as we have seen, it is not a company which has enough capital, technology and knowledge on the sector that’s why we have now terminated its license.
It has been two and half years since I came to this office and we still haven’t given a new license for gold and oil exploration companies. What we are doing now is as I said earlier, revising our policies and proclamations which can enable us to manage the sector properly. Similarly, in the past couple of years, we have been aggressively supporting companies which exist in the country in upping their production.
As far as my knowledge, one thing I can surely tell you is that the only credible foreign companies in Ethiopia are the Newmont of American gold mining company, which operates in Tigray region and Dangote Cement Factory. Most of the companies which we are now in talks with are credible and well known for their operation in their registered countries. One of the criticisms we get from parliament is in relation to the number of license we give which is always less than our plan. This is because we want credible companies which have enough capital, skill, technology that the country needs.
We have directly approached the big companies that I mentioned so as to invest on the natural gas sector. This is the real way to get reputable companies, while most of the mining companies that are knocking at our door or already in the country may not mostly be at the level of those who we approach.
If we see Tulu Kapi, which was expected to start producing gold in the western part of the country, it for the last 13 years has gone without any concrete produce. As per the assessment carried out by Koreans, 1.8 million ounces of gold has been declared but Tulu Kapi, which secured a production license from the Council of Minister valid for 25 years, could not develop the site because it does not have money, technology and knowhow, but it still exists in the area without activity.
We are working with credible companies that are not necessarily very big companies but are much more effective. For instance, we are working with credible companies to develop chlorine, bromine and lithium.
Capital: The second HGER is on the pipeline, what would be your stake this time around?
Takele Uma: We have a major stake on the HGER 2.0 since the plan is focus on the mining and agriculture sector. Export is the major one with regards to earnings and volume in the coming new economic plan. Even though there are challenges in the mining sector, it is the second hard currency earning source after agricultural commodity export. We have five pillars in the mining sector for the coming three years; import substitution, decent job creation, domestic production like cement, ceramic, granite and other is part of it. The first HGER was successful and we will work on the coming one.
The plan is expected to be given a go by the Council of Ministers in the coming few weeks.
Capital: Even though the government stated that fertilizer production is its priority, there are no tangible results to back the claim. What is your stance on the matter?
Takele Uma: The fertilizer sector is directly aligned with the development of natural gas. So if any company comes to produce the fertilizer it should need ammonia, an input which comes from natural gas, which is a critical feedstock for fertilizer production.
As per a previous study, a fertilizer factory was to be installed in Dire Dawa, but now that has changed. As per the plan, a long distance pipeline was to be constructed to transport the natural gas from Ogaden basin to Dire Dawa. The fertilizer production process also seriously requires water and energy. The proposal highlighted that water would be made available from drilled well.
However, if we install the factory at Gode, Ogaden, Somali region, we don’t need a pipeline since the new site will be located at a natural gas area with the water being available from Wabi Shebele River, while the energy will be produced from the natural gas itself. The industry demands 120 MW and to produce 2.5 million tons of fertilizer we need 10 million gallons of water which is enormous but can be got from the river.
Regarding the natural gas development, we have targeted to commence development, which is at the second stage after exploration, in the second HGER plan. Natural gas development includes the construction and installation that will be followed by production of methane gas that is transformed to ammonia which means we shall produce the fertilizer at the site.