Ethiopia is on the verge of a breakthrough in its mining sector, thanks to a new directive issued by the central bank that allows foreign investors to access hard currency for their projects. The directive, which came into effect on 1 January 2023, is expected to accelerate the development of the country’s first industrial-scale gold mine, the Tulu Kapi project, led by London-listed company KEFI Gold and Copper.
The Tulu Kapi project, located in the Oromia region, has the potential to produce 140,000 ounces of gold per year for seven years, with an estimated value of over $3 billion at current prices. The project also promises to create thousands of jobs and contribute to the social and economic development of the surrounding communities.
The project has been in the works for over a decade but faced several challenges, including security issues, land compensation disputes, and most importantly, the lack of access to foreign exchange. Ethiopia, like many other African countries, suffers from a chronic shortage of hard currency, which hampers the import of essential goods and services, as well as the repatriation of profits by foreign investors.
The new directive, however, aims to address this problem by allowing foreign investors in the mining sector to open and operate foreign currency accounts in Ethiopian banks. This means that they can import the necessary equipment and materials for their projects, as well as export their products and remit their earnings, without facing the usual bureaucratic hurdles and delays.
The directive also stipulates that foreign investors in the mining sector must sell at least 30% of their foreign currency earnings to the central bank, which will help boost the country’s foreign exchange reserves and stabilize the local currency, the birr, which has been depreciating against the US dollar in recent years.
The directive is part of a broader reform agenda initiated by Prime Minister Abiy Ahmed, who came to power in 2018 and has been implementing various measures to liberalize the economy and attract foreign investment. The mining sector, which currently accounts for less than 1% of the country’s GDP, is seen as one of the key drivers of growth and diversification, as Ethiopia has abundant deposits of gold, copper, potash, and other minerals.
The Tulu Kapi project is not the only one that stands to benefit from the new directive. Several other mining projects are in the pipeline, including the Tigray Resources project, which aims to produce copper, gold, and silver in the northern Tigray region, and the Danakil potash project, which plans to produce fertilizer in the northeastern Afar region.
The new directive has been welcomed by the mining industry, as well as by international observers, who see it as a positive sign of Ethiopia’s commitment to improving its business environment and enhancing its competitiveness. The World Bank, for instance, has praised the directive as “a game-changer” for the mining sector and “a major step forward” for the country’s economic transformation.
The new directive also comes at a time when Ethiopia is facing multiple challenges, including the ongoing conflict in the Tigray region, the border dispute with Sudan, the humanitarian crisis caused by the locust invasion and the drought, and the impact of the COVID-19 pandemic. The mining sector, therefore, offers a ray of hope for the country’s recovery and resilience, as well as for its long-term vision of becoming a middle-income country by 2025.
Source: The Africa Report
