Diagnosing Corruption in Ethiopia - Ethiomedia

Corruption in the Mining Sector: Preliminary Overview 383
or auditors to ensure that the mining company is declaring the correct
output of minerals for royalty purposes and the correct net profit for
tax purposes. This difficulty in calculation and comparison makes it
easier for corruption to take place.
The government exercises considerable control over the sector. Mining concessions
are normally controlled by governments through regulation
and licensing. It is normally necessary to obtain a license for both the
initial exploration and the mining concession, and permits are normally
needed for issues such as environmental controls, safety, building
regulations, and explosives. Thus, officials have considerable discretionary
power. Unless the officials have integrity and are properly
trained and monitored and unless the law and regulations are extremely
clear, this power can corrupt. Officials may refuse to issue licenses or
permits, or they may delay in issuing them unless they receive bribes.
Stock market perceptions affect the sector. Many mining companies are
listed on a stock exchange. Smaller exploration companies are often a
high-risk stock whose share price can fluctuate significantly according
to the stock market’s perception of their likely success. An announcement
of a new license or a possible mineral find can cause sudden,
large surges in their share prices. Because mining company managers
are often paid in stock options and can become enormously wealthy
if the share price rises, they have an incentive for corruption (for
example, to pay bribes to secure licenses or to exaggerate the likely
benefit of a mining license) to increase their personal wealth.
The mining sector has a significant interface with the construction sector.
Construction companies normally perform mine excavation and build
the mine buildings and related infrastructure (roads, power, water supplies,
and so on). From a corruption perspective, the construction industry
is perceived as a high-risk industry and any interface between the
two sectors could affect the mine project. 1
Transparency in mining is very limited. Financial data and other details
on mining projects are not normally available to the public. As a result,
it is impossible for the public to determine whether a mining concession
was fairly awarded for a fair price, what the mining conditions
are, and whether the government is properly accounting for and using
revenues from the mine.