EthioPoint: Ethiopians Analysis | Research Articles

Mining puzzle jigs the mind all over, as Ethiopia chooses revenue loss of over $20m in tax cuts

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by Keffyalew Gebremedhin  – The Ethiopia Observatory
After the death of Prime Minister Meles Zenawi, Ethiopian MPs have started asking government officials the tough, uncomfortable and penetrating questions during presentations of seasonal performance reports of the respective government agencies. Evidently, gone are the days when members of parliament – 545 of the 547 members conscripted as legislative power bases of the ruling party – are merely meek and dumb-cluck TPLF loyalists.
Ethiopia’s MPs are thus showing signs of slow recovery from their two-decade old loyalty addiction syndromes, with ethnicities at the root of their distinct primary disorder.
In respect of this, the temptation is strong whether it would not be worth all efforts to establish how one person could reduce the whole nation into comatose state, cowered for more than two decades into submission, as prisoners of mortal fear and insecurity.
It has become clear now that Meles had instituted through they years an unwritten law for parliamentarians not to stare at him or his party colleagues, when he visited them. Parliamentarians were expected not to speak loud nor challenge officials of the ruling party – even in the face of glaring mistakes that can burn the nation. Do you recall the 2006 uproar on audit reports, when questions were raised by the opposition, Meles shouted back telling MPs, “let them burn the money, if they so wish.” The next day he fired the Auditor General Lemma Argaw. It shows that all the MPs were required to do was state as fact whatever Meles said or his officials reiterated with applauds and praises on all occasions.
With Meles now six-feet under, those fears and insecurity that had locked the MPs into silence have followed him. Therefore, they are now in the grammar school of being politically challenging. That is why we see them constantly trying to play the role of actual MPs, on behalf of the people’s interests. They are seen trying to get past the shameful official shenanigans official Ethiopia has been used to and the people are subjected to in the past two decades.

Inevitably, one should wonder how this would turn out in 2015 when power with pretention is put to a bid for the winner in a silly competition of sorts they call election and against the backdrop of the fermenting negativity within the society. My hope and conviction is that, at a time when the world is bursting into a revolt against “managed democracy”, as we saw in Turkey, still sizzling in Brazilians’ fury. It marks the beginning of the new era and the turn against deception that Ethiopians cannot afford to ignore. The choice is between liberation and remaining permanent victims of false choices offered by power-hungry feudalists, which still are trying to chain the nation with poor propaganda of retards, not to speak of electioneering that thrives in ballot-box stuffing.
Of this latest dramatic transformation of Ethiopia’s parliament, a surprised pro-TPLF Reporter in its 19 June 2013 edition editorialized ????? ??? ??? ????? ?????? ????? – unofficial translation – While parliament still has no teeth to bite, it surely has begun teething. The paper opines, “??? ??? ???? ?? ?? ???? ?????? ???? ????? ????? ???? ??? ????? ?? ????? ?????? ?? ???? ?? ?????? ???? ??????? ?? ?????? ????? ????? ???? ??? ???? ??? ???? ??????? (It has shown its capacity for seriousness, with biting criticisms against officials and actions it is taking with every passing moment, especially by giving more attention to budget utilization, audit and performance reports of the different agencies. This attests to its potential to be a body capable of understanding its constitutional powers and responsibilities.”)
Evidence of this also this transformation is the parliament’s impatience with empty talks and dupery that we saw in recent months. For instance, we have witnessed senior TPLF bosses grilled one by one to the extent that some were forced by their bad tempers to openly fume in public for being asked the appropriate questions. On occasions, these have given the muzzled Ethiopian private media small excuse to entertain the public at the expense of these powerful politicians that in every sense are used to likening themselves to god on earth. There is no doubt it wont’s be long when the work begin on their epitaphs that would read the ethnic gods that introduced to Ethiopia ethnicities– all these in their bid to kill Ethiopia’s historical statehood.
In recent such encounters, the Most talked about are two: the case ofMinister of Communication and Information Technology Debretsion Gebremichael) and Director-General Beyene Gebremeskel of the Investments and Privatization Agency. In the case of the latter, unused to questioning by ordinary mortals, he was seen exposing himself to huge contempts, swearing and threatening with his preparedness not to continue in his job.
As if the telecom monopoly did not have over two decades under the TPLF, dubbed as “cash machine” by one of its senior allies, Debretsion bitterly complained, “It [Ethio Telecom] is like a newly-born infant. It is only a two-and-a-half-year-old infant. It is undergoing reconstruction. But it strives to do its best. We could not halt the service just because it’s reconstructing,” whose tone according to the Reporter sounded agitated.
In spite of their responsibilities to the nation, such individuals have been free to do whatever – especially with public resources and the rights of citizens – taken alone or in collusion with top politico-business persons (EFFORT) or such as billionaires in the likes of Al Amoudi, who – while enjoying preferential treatments extraordinare, among other foreign and domestic clients – have hugely contributed to the derailing of Ethiopia’s democracy and the future of its development.
Proposal arrives in parliament to cut tax rates to the mining sector
The latest row infuriating some parliamentarians was the proposal to cut Ethiopia’s tax rate in the mining sector. The idea was to cut it down by 10 percent from the current 35 percent, according to Addis Fortune. This would bring it down to 25 percent – lower than Australia’s 30 percent, South Africa’s 28 percent and Ghana and Mali’s 35 percent. What is the justification? The often abused and misused words such as competitiveness and efficiency!
Some parliamentarians have recognized the implications of this latest proposal and asked serious questions and the justifications why Ethiopian should lose on an annual basis revenue of over $20 million from commodity export tax. In place to provide the MPs with explanations was the CEO of the National Mining Corporation Melaku Beza. It is regrettable, according to the weekly, but still it must be said, when asked why this is done he tried to get away by amazingly reverting to the story of the stick and the goat in Ethiopian fables, whose equivalence in America is sort of fumbling in response no differently from the “Quick brown fox jumps over the lazy dog.”
To make the point that Ethiopia needs to build infrastructures around mining areas, Melaku told parliament that his company had constructed 40km of road from Mendi, in the Oromia Regional State, to Balati, in the Benishangul Region; it has also undertaken similar construction in other areas. Yes, Allana is also benefitting from roads and rail lines that zigzagged to enable the corporation to ship its products straight to port in Djibouti with debts it is accumulating from foreign governments such as China, India and Turkey.
Consequently, the CEO rested his case in parliament with the conclusion punishing Ethiopia, according to Addis Fortune, “This is a big incentive to encourage the local, as well as foreign investors into the sector.” How many local investors are there, outside Tigray? Surely a few, outside EFFORT’s. For that matter, some of those who keep huge portfolios are doing so, winning pledges from international partners that their names would not to be made public, even after they sold 75 percent of their holdings to a foreign company two years ago. Who is it that Ethiopia is subsidizing?
Nevertheless, the point by the National Mining Corporation that made many MPs uncomfortable in their seats is the cost-benefit relations, when a poor country offers so many privileges and incentives to investors (2010) and two years later the solution to investment stock remaining low is still tax cuts, which is no different from legal robbery. This signalled to many members that something is not in sync with Ethiopia’s reality, a country, which according to WFP, has in 2012 six million people kept alive by international humanitarian aid, including farmers. These are individuals outside the 7.5 million being taken care of under safety net. The feeling in the house was that this tax rate cut proposal was both senseless and surreal.
Addis Fortune quotes from the proposed bill that the mining sector in 2011/2012 had an investment stock of ETB14 billion in the country. Based on this, Ethiopia has acquired ETB199 million from export taxes, a bulk of it coming from the 3,983.7 kg of gold exported at the time.
The mining sector makes less than 2.0 percent contribution to GDP, according to 2011 data. What has become clear is that, in spite of the incentives, it is showing declining growth trends. In fact, this decline is very steep, according to Fortune – from 57.7 percent in 2010/11 to 12.5 percent in 2012. On the surface of it, yes this provokes knee-jerk reaction that officials believe must be reversed through mine sector export tax cuts, i.e., without investigating the reasons for the decline.
What could be the reasons for the decline?
In Ethiopia, the major concern of investors now is terrorism and political instability. For instance, in late May and early June in the height of the tension between Ethiopia and Egypt, it is reported in the media that investors were in contact with their gurus to seek advice about their financial exposure in Ethiopia. There are also concerns arising from the unresolved Moslem protests in the country, which is well past its 17th month. Then, the conflicts in the Ogaden, Gambella, the border with Eritrea are realities Ethiopia cannot skirt away.
Most concerning, however, to investors is the rising anger of the Ethiopian people against economic problems, repression and denial of freedoms.
The most comprehensive and professional analysis I came across on the Ethiopian mining sector – the country’s potentials, its laws, its competitiveness and its shortcomings – is by a firm known as Mayer*Brown. Their 2012 paperSnapshot: the Ethiopian mining industry is informative and thoroughly professional. The author is, in its words, a global legal services firm “advising many of the world’s largest companies, including a significant portion of the Fortune 100, FTSE, DAX and Hang Seng index companies and more than half of the world’s largest banks.”
This being the latest paper, it outlines four major impediments to investments in Ethiopia: (a) The danger of terrorism in most of the mining areas, involving OLF in southern and western Ethiopia around the major mines, ONLF in the Ogaden, which would affect gold, oil and gas exploration and excavation; (b) Inflation in Ethiopia was one of the highest in the world for over three years. Foreign investors saw this as policy problems caused by the government; (c) Infrastructure in Ethiopia is considered huge setback, especially the mining areas being remote; and (d) Problem of skilled manpower, such as geologists, mining engineers or service providers.
These are concrete problems for those that want to put their monies. Inflation has come down to single-digit. Unfortunately, given the macroeconomic reality of the country and the state’s humongous needs for financial resources, declining exports and too many high-bill projects, inflation is still by the door. This is the concern of international organizations as well, including the World Bank.
Consequently, the government attempts to address these problems with reduction of the tax rate would not go to the root of either the nation’s problems nor does it respond to investors’ concerns. In fact, the above-mentioned publication by the legal services firm in its opening page states:

    “Ethiopia has many of the essential elements required for success as a mining nation. It is unquestionably resource rich, with a vast breadth of undeveloped minerals and resources, including significant gold and tantalum deposits. Positioned in the Horn of Africa, it is also strategically located for foreign investment from Europe, Asia and Australia. Finally, together with a stable political environment and a recently revamped mining code it is highly attractive to investors.”

In an explicit reference to the incentives investors have so far been provided, as enriched further in 2010, the paper further explains the situation with the following observation, which makes the government’s latest move as ill-informed:

    “The recent enactment of the Mining Operations Proclamation No. 678/2010, which came into effect in 2010, revised mining laws in Ethiopia by broadening the range of mining licences available. The Proclamation confirms the requirement for environmental impact assessments and regulates health and safety matters. New legislative incentives have been introduced. These include lower royalty payment levels, exemption from customs duty and taxes on mining equipment, guarantees in respect of the right to sell minerals locally or abroad and the availability of dispute resolution procedures, such as arbitration.”

It is in the light of this that I join those Ethiopians who are puzzled by the proposal to cut taxes, which on coming to effect, if approved eventually, it would deny Ethiopia in the first year over $20 million!
Like most Ethiopians, I wish we knew in which embassy or boardroom this proposal is connived and authored no to become a draft law for consideration by parliament!
If I were in a position to advise the government, I would have instead suggested the easing up of the tension in the country, as a step toward addressing and ensuring the following:

          ?     The question of citizens rights and freedoms

    ?     Government packing out of media censorship to enable the media to flourish
    ?     Freeing all political prisoners and ending the persecution of citizens, based on their ethnic identity, especially the Amaras, Oromos, Afars, Gambellans and Ethiopian Somalis, amongst others
    ?     End ethnic privileges and nepotism
    ?     Render the Ethiopian polity, political system, truly representative of the nation and its people, instead of ‘ethnicizing’ the Ethiopian state
    ?     Transparency and openness in government
    ?     Free judges and courts from the influences of politics of the ruling party and big money. This must be emphasized, despite the lies parliament was fed last week by the president of Ethiopia’s supreme court to the contrary during his presentation of the courts’ performance report, according to The Reporter.
    ?     The current move against corruption that, willy nilly has come forth, allegedly initiated by one side of the ruling party to undermine the other, must be allowed to proceed, not for what they have wanted – but without any derailment to root out this societal scourge. After all, more than any time in its history Ethiopia is known to be a corrupt country.
    Finally, I must reiterate the question of Ethiopia joining the Extractive Industries Transparency Initiative (EITI). It would be recalled that in 2009, Ethiopia applied for membership and on two occasions it was rejected. This was because, following three visits and negotiations, Ethiopia was found not ready for membership.
    The work of EITI requires free media, independence of journalists and the ability of civil society organizations to hold government accountable, among others, in its transactions in the nation’s natural resources, oil, gas, precious stones and other minerals. This is done with official commitment to reveal the amount of its receipts from the sale of such resources. The existing arrangement, once the EITI mechanism is put in place, the concerned corporations purchasing the minerals or exporting the commodities would also make public the level of resources they transfer to Ethiopia and for what.
    The last rejection of Ethiopia by the EITI board came in March 2012. This was because of the country’s anti-terrorism and anti-civil society laws that are considered repressive, as can be reviewed from EITI records and related documents.
    EITI is a trend of the future and I strongly believe that Ethiopia would be better of with transparency than it being an outlier and exclusion regarding this important measure of integrity in governance.