The continued decline of artisanal and small‐scale mining (ASM) sector gold supply through the legal scheme in Ethiopia reflects sector management framework failure. The current result‐based management framework tends to focus on monitoring and tracking mining activities with the main objective of collecting revenue, and it has been demonstrated to be a bad approach. Therefore, this study proposed a competency‐oriented sector management framework. The concept behind the proposed framework revolves around identifying sector elements that help define appropriate sector structure, institutions, processes, and organizational interlinks where a subtle balance between economic, social, and environmental aspects of the ASM sector is maintained. To identify the elements, the research follows two‐step analysis approaches. First, the study conducted a problem analysis in the ASM in Ethiopia and identified key sectorial challenges from literature and the perceptions, opinions, and beliefs of stakeholders through individual interviews and focused group discussion in a semi‐structured context. From collected resources, initial codes were generated, and then themes were identified from the codes. The identified ASM sector themes/elements are governance in ASM, community development, methodological advancement, technology transfer, and environmental conservation. The study discusses the scope and the source through which the elements have been defined. Established sector elements are employed to perform a gap analysis of the legal and organizational structures of the sector's institutional framework. And the assessment found there is a serious mismatch between sector elements and sector institutional formation, where the study found sector planning, monitoring, and evaluation lack to encompass social and environmental aspects of the sector. Therefore, the study recommends rewiring the current sector management where sector competencies gain representation in the ASM institutional formation. This will facilitate a clear sector evaluation and establish a sense of accountability in sector management.