Business News/ Industry / Energy/ Mint Explainer: Can Africa solve world's critical mineral challenge?
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The inclusion of the African Union into the G20 Grouping as its 21st member has given a new voice to the global south, providing an opportunity to analyse the African continent's importance in ensuring global critical mineral security.
The inclusion of the African Union into the G20 Grouping as its 21st member has given a new voice to the global south, providing an opportunity to analyse the African continent's importance in ensuring global critical mineral security.
This Mint explainer examines how countries are racing to tap into this resource-rich continent to reduce their reliance on China and strengthen their critical minerals stockpile.
This Mint explainer examines how countries are racing to tap into this resource-rich continent to reduce their reliance on China and strengthen their critical minerals stockpile.
Race to Access Critical Minerals
The global shift toward low-carbon economies and ambitious net-zero emission targets has driven the race for critical minerals. Rare earth elements, as well as metals like aluminium, copper, and cobalt, are essential for achieving emission-free goals and advancing technologies such as electric vehicles, renewable energy, and electric grids. These minerals also play a crucial role in everyday items like stainless steel and electronics.
According to the IEA, the energy sector has played a pivotal role in tripling the overall demand for lithium from 2017 to 2022, with cobalt witnessing a 70% jump in demand and nickel seeing a 40% rise. Consequently, the market for energy transition minerals reached an impressive $320 billion in 2022 and is projected to grow rapidly, making it a focal point for the global mining industry.
However, a significant challenge arises because the world's mineral reserves are concentrated in specific regions. For instance, over 70% of platinum is mined in South Africa, 70% of cobalt in the Democratic Republic of Congo, more than 60% of natural graphite in China, nearly 50% of nickel in Indonesia, and almost 50% of lithium in Australia. Furthermore, China dominates the global supply chain with a 100% share of refined supply for natural graphite and dysprosium, a rare earth element.
This concentration of critical minerals has prompted nations to prioritise their mineral security. Countries are mobilising efforts to enhance mining, processing, and transformation capabilities, aiming to gain a competitive edge in geopolitics while advancing green and renewable energy technologies. Additionally, countries are actively seeking alternatives to reduce their dependence on China for critical minerals. Africa, holding more than 30% of these resources, presents a promising potential source for diversification.
Abundance of Critical Minerals in African Countries
Africa stands as a vital global source of critical minerals, contributing approximately 30% of the world's reserves. Notably, it boasts an impressive share of global resources, including about 85% of manganese, 80% of platinum and chromium, 47% of cobalt, 21% of graphite, and 6% of copper. Specific African nations, such as the Democratic Republic of the Congo (DRC) with its colossal cobalt reserves and Zimbabwe's significant lithium deposits, play pivotal roles in the global supply chain. Additionally, countries like Mali, Guinea, Gabon, Namibia, South Africa, Mozambique, Zambia, and Eritrea further bolster Africa's status as a critical mineral-rich continent.
Africa’s Resource Curse
Despite its mineral wealth, Africa grapples with challenges. Historically, the "resource curse" has hindered the development of domestic industries, leading to economic stagnation and political instability. Moreover, an energy infrastructure gap persists, with many mineral-rich nations lacking reliable electricity access. For example, the DRC, abundant in cobalt, provides only 19% of its population with electricity, inflating the costs of energy-intensive projects.
The indebtedness of many African nations is holding back public spending on energy projects, while private investors are reluctant to invest because of the prevalence of fragile states, absent regulations, and perceptions of political or reputational risks.
China Taking the Lead
China's pursuit of critical minerals in Africa, notably in the DRC for cobalt and Zimbabwe for lithium, is substantial. Chinese state-backed companies, like China Molybdenum, have invested in DRC's mining operations, though criticized for labour and environmental concerns.
Zimbabwe has seen over $1 billion in Chinese investments in lithium projects, surpassing Western nations. This includes a notable lithium processing plant by Zhejiang Huayou Cobalt. However, concerns persist about resource exploitation.
China's influence in Zimbabwe is heightened by US sanctions, which have pushed Zimbabwe towards China for economic partnerships. In 2023, Chinese investment interest in Zimbabwe's lithium sector far exceeded that of the United States, emphasising China's expanding influence amid complex geopolitics.
Pushback from the US and Europe
The United States, historically less engaged in Africa compared to other regions, is now aiming to counter China's dominance in critical mineral supply chains by pursuing commercial diplomacy in mineral-rich African countries. This effort began last year with the United States–Africa Leaders Summit in 2022, where 49 African nations were invited. During the summit, the US signed Trilateral Memorandums of Understanding (MoUs) with the Democratic Republic of the Congo and Zambia to develop integrated value chains for electric vehicle (EV) batteries using extracted minerals.
Last year, the US also enacted the Inflation Reduction Act (IRA), which includes subsidies for EVs if 40% of critical minerals used are processed in countries with which the US has a free trade agreement. This list of critical minerals encompasses 50 rare earth minerals vital for clean energy, including cobalt and lithium. While the U.S. lacks free trade agreements with African nations, except Morocco, reports suggest it's exploring such agreements under the African Continental Free Trade Agreement, which would facilitate access to African critical mineral mines.
Similarly, in August this year, the European Commission passed the Critical Raw Materials Act to ensure the EU's future supply of essential raw materials. The EU is also negotiating with countries like the Democratic Republic of Congo, Rwanda, Gambia, and Zambia to secure access to critical minerals, building on existing agreements, such as the one with Namibia.
India’s Opportunity
India is making inroads in Africa by providing a Line of Credit to African countries, aiming to counter China's dominance. According to media reports, India has provided credit to 42 African countries, totaling about $12 billion, with 38% of this credit extended in the last decade.
Mint reported in December 2022 how African countries offer to service part of their development loans by giving access to Indian companies in their mining operations and allowing exports of highly prized lithium and cobalt. The government has even asked domestic metal and mining companies to express their interest in raw materials and other minerals required for manufacturing, which could be sourced from countries where Indian lines of credit have been extended.
A report by India Exim Bank last year suggested that India needs to form strategic alliances with southern African countries where critical rare earth minerals are produced, as the world looks to the continent to fulfill the ever-increasing demand for them.
Apart from Africa, India is engaging with other critical mineral exporters like Argentina, Australia, China, and Mongolia for critical minerals such as lithium and cobalt. India recently identified 30 critical minerals and will focus on exploration and subsequent production of these. Starting from 2020-21, when there were only 59 projects in critical minerals, these have risen to 122 in FY24.
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