Source: The Reporter
In a bid to break up the entrenched illicit gold trade in Tigray and revive the flow of the precious metal to the central bank, regulators are considering granting a subsidiary of the Endowment Fund for the Rehabilitation of Tigray (EFFORT) exemption from the credit cap imposed on banks as well as other special privileges.
During a round of discussions this week, the heads of Ezana Mining Development Plc presented the National Bank of Ethiopia (NBE) with a list of proposals they would like to see met as a way to improve the flow of gold to the latter’s coffers. The mining firm is the sole authorized supplier of gold mined in Tigray to the NBE, but the last few years have seen its business dry up as artisanal miners opt for the better prices on offer in a booming contraband trade network in the region.
Tesfatsion Desta, general manager of Ezana, told The Reporter the company managed to sell more than 350 kilograms of gold to the NBE between March and July 2024 in its capacity as a collector.
An annual report published by the Ministry of Mines, however, indicates the central bank bought a little over 250 kilos of gold from artisanal miners in Tigray over the just-ended fiscal year, with no supply at all coming from Ezana despite expectations for half a ton of the precious metal from the EFFORT subsidiary.
“We delivered 354 kilograms of gold [over the year]. I daresay it is better than any other company or region,” he said. “We did that while the maintenance of our factory is in progress and fighting to push out the prevalent contraband trade.”
The General Manager says Ezana Mining is in desperate need of financing. Reconstruction works for its factory in Terakimti, near Shire Indaselassie town in northern Tigray, began five months ago after the company was offered a gold-for-forex priority arrangement by the NBE. The site was severely damaged by the two-year northern war.
The Ministry’s annual report also indicates that maintenance works are ongoing, and Tesfatsion says the costly endeavor is among the reasons why Ezana is pushing for special incentives. These include an exemption to the 14 percent credit cap imposed on commercial banks, and the extension of credit in foreign currency as well as in birr.
Tesfatsion disclosed Ezana Mining recently signed an agreement for 550 million birr in credit from Wegagen Bank at nine percent interest.
“We need dollars to import the items necessary for the construction of the factory, but we also need a revolving fund of birr to buy gold from artisanal small-scale miners,” he said.
He estimates the company would need up to 800 million birr on hand to collect one quintal of gold from artisanal miners. To meet this demand, Ezana has requested the NBE to grant it the special privileges it would need to bypass the credit cap.
The discussions with NBE Governor Mamo Mihretu and his team also involve requests for a resolution that would clarify whether gold transactions will be determined by daily price estimates linked to forex rates, as well as a decision on what currency the subsidiary will use in its transactions.
The central bank used to offer a 60 percent premium on its gold purchasing price prior to the liberalization of the forex market, but it scrapped the offer shortly after the currency was floated at the end of last month.
The General Manager disclosed Ezana has paused all operations following the liberalization.
“The market has opened up and there must be a clear official system on how gold transactions are going to look like,” Tesfatsion told The Reporter.
Prior to liberalization, the central bank offered 7,000 birr for a gram of gold, far less than rates in the illicit market, which went up to 9,000 birr per gram. The disparity pushed small-scale miners towards the contraband trade.
Although the central bank offered Ezana Mining a forex priority arrangement in a bid to curb gold smuggling in Tigray in December 2024, Tesfatsion says the forex the company acquired over the past few months is insufficient to cover the costs of reconstruction and the import of spare parts and machinery.
On the other hand, Ezana claims it has made considerable progress in beating out the illicit market by offering incentives like opportunities for trade diversification to artisanal miners.
Still, the General Manager observes the contraband trade continues to thrive.
“The illicit miners are working on plots of land meant for legal operators,” he told The Reporter. “They also make contractual deals with farmers to mine on their land in exchange for payment.”
Tesfatsion argues the gold market needs to be competitive and savvy enough to turn the tide of gold flooding into the hands of smugglers and contraband traders.
THE AUTHOR: Nardos Yoseph
