Why Ethiopian Extractive Industries Need Impact Agenda

by Zelalem

Ethiopia has had a remarkable run in terms of economic growth. It is part of the EMICs – Ethiopia, Myanmar, Iran and Colombia – a group of high-opportunity countries identified by Impact Economy – an impact investing and strategy firm headquartered in Switzerland.

All are high-stakes countries with a history of expansion and empire, conflict, a considerable proportion of young and educated job seekers, high potential for growth and turnaround, strong foreign direct investment (FDI) and trade promotion strategies and broad regional importance, where investing for impact can make a difference. Moreover, the EMICs have significant mineral wealth. In 2012, the total value of the global metals and mining industry approached one trillion dollars, while accounting for significant revenues in 53 mining countries, three quarters of which were low or middle income.

To deliver on its middle-income ambitions, Ethiopia will need to locate fresh sources of growth and pursue them in an inclusive manner. Even though the primary driver of economic growth is the agricultural sector, which accounts for 46pc of total gross domestic product (GDP), 80pc of employment and 85pc of export revenues for the country, the extractive industry remains an important diversification opportunity.

Extractive industries contributed less than one percent of the GDP in 2010, but with mineral reserves of platinum, tantalum, copper, potash and gold having been identified (but until recently untapped), Ethiopia could move to a much larger scale. Gold is the main mineral export, with an export value that has more than doubled from 2001 to 2012. A number of multinational mining companies are keen to take explorative efforts further.

Providing basic and high-value commodities, the extractive industry fulfils a fundamental economic need. Operating within a wide variety of geographical and climatic conditions and socio-economic environments, extractive companies are often the primary economic growth engines in their communities.

Further, in regions characterised by the under-provision of public goods and services, such as education, health and high culture, companies often operate in a “company town” model, where the local mine provides such services on a significant scale. Extractive industries also often face vast uncertainty in the political environments in which they operate.

If one adds to this the uncertainty in the regulatory environments such industries face in addition to their potentially significant adverse environmental and social impact, it comes as no surprise that asking how they can accelerate their development and render it sustainable is a question worth thinking through.

Ethiopia is a low-income country where artisanal or small-scale mining still plays a significant role in the extractive industry of the country. Between 300,000 to 500,000 Ethiopians work in artisanal mining, supplying gold to the National Bank of Ethiopia (NBE) in increasing quantities – the supply increased approximately 144pc between 2010 and 2011.

Moreover, small-scale mining is recognised as an important contributor to the 2.75 billion dollars in exports in the period of 2010-2011. And, while there is no commercial production of oil and gas in Ethiopia to date, numerous exploratory activities that thus far estimate Ethiopian reserves at 430,000 barrels of oil and 113 billion cubic metres of gas are underway.

Mines’ opportunities to help achieve sustainable development can be grouped into three broad, mutu¬ally reinforcing categories: maximising the societal value of re-sources, minimising the environmental degradation and leveraging the extraction of commodities for development.

Extractive industries’ social development potential should not be underestimated. One factor that could hold Ethiopia’s development back is HIV prevalence in the country, with a veritable epidemic among some sub-populations and geographic areas. This has already led to a decrease in life expectancy and impacted the workforce.

A joint venture of the government of Botswana and De Beers, Debswana, was the first mining company in the world to offer free Anti-Retroviral Treatment (ART) to HIV positive employees and spouses in 2001. The company currently has over 700 people registered on its ART program, with adherence rates of over 90pc.

In 2006, it extended the HIV disease management program to include up to three children of employees under the age of 21. Employees continue to receive ART if they are made redundant or retrenched.

The ART program helps the company by reducing employee loss from AIDS-related conditions, ill-health retirements and productive time lost due to family members’ medical needs. It also proactively addresses employee concerns about their children’s health to boost morale and well-being.

The program has been expanded to De Beers’ operations in South Africa and Namibia. In 2011, Debswana celebrated 10 years of employee HIV and AIDS therapy. A more recent initiative run by the Debswana HIV/AIDS Impact Management team – My Health, My Wealth – seeks to supplement HIV and AIDS initiatives by focusing on psychological, physical and social issues in the workplace that impact company productivity.

Given both the opportunity and what is at stake, perhaps one of the most important steps that the Ethiopian Government has taken towards a better future contribution of the extractive industry was its candidacy for the Extractive Industries Transparency Initiative (EITI) in October 2013, which accepted Ethiopia as an EITI candidate country in March 2014. Through the EITI standard, Ethiopia wants to improve transparency and accountability in its extractive industry, in order to help move the governance of natural resources forwards and reduce corruption.

A lot is at stake. Extractive industries fill the fundamental need of providing basic and high-value commodities, and enriching its commu¬nities. But the industry is extreme in its challenges: given the typically asymmetric impact on the communities in which ex¬tractive industries operate, the quality and social impact of community en¬gagement is often seen as a litmus test for a company’s commitment to acting responsibly. In remote regions, characterised by an under-provision of public goods and services, the expectations are often very high.

The government’s objective to scale the contribution of the mining sector from less than one percent in 2009/10 to 10pc by 2030 has made the industry the second largest recipient of inward investment after agriculture. Seen that many mines will move from the exploration to exploitation stage over the next few years, ensuring they adhere to best practice in terms of social and environmental performance will be instrumental to building an impact agenda for extractive industries in Ethiopia.

Maximilian Martin (PhD) Is the Founder and Global Managing Director of Impact Economy, an Impact Investment and Strategy Firm Based in Lausanne, Switzerland, With Overseas Operations in North and South America Out of New York and Buenos Aires, Working With Professional Investors and Companies.

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