The Critical Minerals Opportunity in Africa
The global transition to clean energy is driving unprecedented demand for critical minerals. From electric vehicles to solar panels, these essential resources are key to future innovations. According to the International Energy Agency, demand for nickel is set to double, cobalt to triple, and lithium to rise tenfold between 2022 and 2050. Sub-Saharan Africa, holding an estimated 30 percent of the world’s proven critical mineral reserves, stands poised to become a central player in this transition, with the potential to transform its economic landscape.
Sub-Saharan Africa: The Epicenter of Critical Mineral Production
Sub-Saharan Africa is already a powerhouse in the global critical minerals market. The Democratic Republic of Congo (DRC) leads with over 70 percent of global cobalt output and nearly half the world’s cobalt reserves. South Africa, Gabon, and Ghana collectively produce over 60 percent of the world’s manganese. Additionally, Zimbabwe, the DRC, and Mali hold substantial yet underexplored lithium deposits. Countries like Guinea, Mozambique, South Africa, and Zambia also possess significant reserves of critical minerals, positioning the region as a crucial supplier in the global market.
Economic Potential of Critical Minerals
As demand for critical minerals grows, so too will the revenues from their extraction. Global revenues from copper, nickel, cobalt, and lithium alone are projected to reach $16 trillion over the next 25 years, based on 2023-dollar terms. Sub-Saharan Africa could capture over 10 percent of these revenues, potentially increasing the region’s GDP by 12 percent or more by 2050. Despite uncertainties in commodity prices and technological advances, the outlook is promising.
Beyond Extraction: Developing Local Processing Industries
While exporting raw minerals generates income, greater economic benefits can be achieved through local processing. For example, raw bauxite sells for about $65 per ton, whereas processed aluminum fetches $2,335 per ton as of late 2023. However, the prevalent practice of exporting unprocessed minerals, like the daily truckloads of lithium from Zimbabwe to China, underscores the region’s limited processing capacity.
Developing local processing industries would add significant value, create higher-skilled jobs, and increase tax revenues. This diversification would also make economies less vulnerable to volatile commodity prices and enhance their resilience against exchange rate fluctuations and foreign currency pressures.
Attracting Foreign Direct Investment
Foreign direct investment (FDI) is crucial for developing mineral processing industries, providing the necessary capital and expertise. However, the lack of a substantial regional market often deters investors. To address this, policymakers need to create a more attractive environment for local processing investments.
The Need for Regionally Coordinated Policies
A regional strategy, emphasizing cross-border collaboration and integration, can create a larger market for investment. Such a strategy would leverage the diversity of critical minerals across the region, essential for clean energy technologies that require a combination of multiple minerals.
Sub-Saharan Africa’s population boom, rapid urbanization, and industrialization will likely increase demand for renewable energy and expand the market for processed minerals. The African Continental Free Trade Area (AfCFTA) can play a pivotal role by reducing trade barriers and developing infrastructure, uniting fragmented critical mineral markets, and establishing regional value chains.
Creating a Favorable Investment Climate
Countries must collaborate on policies that foster a favorable investment and business environment. Simplifying bureaucratic procedures and harmonizing mining regulations across borders would promote stability and predictability for investors. Additionally, minimizing the environmental impacts of mining and processing can unlock new funding and investment opportunities in green finance. Strengthening the Africa Mining Vision, launched by the African Union in 2009, could provide a solid framework for these efforts.
Domestic Reforms: Strengthening Local Companies
To complement regional strategies, countries should undertake structural reforms to support domestic companies in mining and processing sectors. Caution is advised in applying local content requirements, as they can sometimes lead to inefficiencies and increased costs. Instead, countries should focus on creating a supportive business environment by strengthening domestic financial markets and improving access to finance.
Innovations in fintech offer promising solutions for firms in the mining sector that face challenges in securing traditional financing. Managing new resource windfalls responsibly requires transparent and accountable institutions, appropriate tax regimes, and sound public financial management.
Conclusion
The mineral wealth of Sub-Saharan Africa presents a transformative opportunity. By developing critical minerals markets and processing industries, the region can maximize the benefits of the coming boom. With strategic regional coordination, investment-friendly policies, and robust domestic reforms, Africa can become a global leader in the clean energy transition, driving sustainable growth and economic prosperity.
