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Mining the green gold of Ethiopia’s Danakil

As companies rush to secure their claim on Ethiopia’s mineral riches, the government is keen to show it supports international transparency measures.

Ethiopia is in the midst of a gold, oil, mineral and gemstone rush. More than 250 companies are currently scouring the territory hoping to strike it rich.

We started our exploration in mining at a good time because we are not learning the hard way. We have seen what happened in different underdeveloped countries.

The Danakil Depression holds the world’s largest potash deposit – production should start by 2015. Stocktrek Images/Richard Roscoe/Getty

“Ethiopia is a very large country. There is a diversity of geology,” says Tolesa Shagi, the minister of mines. “There is huge potential for different minerals – that is what we understood after we invited foreign mining companies.”

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Just over half of the country has been surveyed so far and it already appears that there are significant reserves of gold, oil and potash as well as valuable deposits of coal, tantalum, cop- per, platinum, opals, rubies and other gemstones.

The mining sector currently accounts for around 1% of the Ethiopian economy, but the government expects that in 10 years’ time it will represent 10% of GDP. Potash is likely to be one of the first commodities to contribute to this growth.

In the remote and arid Danakil Depression, in northeast Ethiopia, lies the world’s largest potash deposit. Three companies – Allana Potash Corporation, Yara International and Ethiopian Potash Corporation – are exploring the reserves.

Allana expects to start production by the end of 2015 and Yara by the end of 2017, pending the results of its feasibility study.

Sanjay Rathore, executive director of Yara’s Ethiopian subsidiary Yara Dallo, says the company expects to extract 600,000tn of high-grade sulphate of potash every year.

“This means our project will produce about 10% of the current world market at start-up,” he says, adding that the Danakil deposit is special because all the required chemical components are naturally present in the salt mixture.

Tax incentives

Commercial mining operations like those planned by Yara are the exception in Ethiopia, where 90% of all mining activity is artisanal and small-scale.

There are only two large-scale mines: a state-owned tantalum mine in Kenticha, Oromia (production there has stopped while the government searches for an investment partner) and Lega Dembi gold mine in Adola operated by Midroc, a company owned by Ethio-Saudi billionaire Mohammed Al Amoudi.

The government is offering a variety of incentives to attract investors, including tax holidays, import-duty exemptions, lower royalty levels and guarantees on selling rights. But it is wary of the dangers associated with the exploitation of mineral wealth.

“We started our exploration in mining at a good time because we are not learning the hard way. We have seen what happened in different underdeveloped countries,” he says. “That is why we are trying our best to become a member of EITI [Extractive Industries Transparency Initiative]. We have to make a transparent system.”

In March, three years after its first application, Ethiopia was accepted as an EITI candidate despite the reservations of some board members and vociferous opposition from international organisations like Human Rights Watch.

There are concerns that the legal and political climate for civil society organisations will prevent them from being fully involved in industry oversight – a key requirement of the EITI process.

But Ethiopia has been working to build the capacity of local organisations, says Kirsten Hund, senior mining specialist at the World Bank, which has been assisting Ethiopia with the preparation of its EITI application.

She says membership is important for the sustainability of the sector: “EITI is not going to solve all the problems in the extractives industry but I think it is a very good way forward, especially because the Ethiopians are starting the process at the very beginning of the take-off of their minerals industry. They are working on a legal mechanism to enforce EITI implementation.” ●

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