All eyes on Africa resources amidst global energy transition

China leads the race

China is ahead of its competitors in the race for minerals.

Recognising their strategic importance early on, China invested heavily in developing the capabilities to mine and process resources. At present, it holds a commanding position in the critical minerals sector, producing approximately 60% of global rare earth elements, and processing and supplying about 85% of the global market.

As a result, China, an emerging global power, is pivotal to the global supply chain. Other major economies, such as the US and Europe, heavily depend on it. America sources 80% of its mineral imports from China, while Europe sources as much as 98%.

This level of dependency has raised concerns amongst American and European policymakers, who worry about the detrimental impact of supply limitations or disruptions – including Chinese export restrictions – on the energy transition. This has also prompted some countries to begin investing in the exploration, production, and refining of mineral resources themselves.

Whilst minerals are widely distributed across all seven continents, high environmental costs associated with exploration (amongst other reasons) have deterred national mining companies from operating in the Americas and Europe, leading them back to Africa.

Ultimately, the race to achieve zero carbon emissions has triggered yet another race, a competition to exploit Africa's mineral wealth, and Beijing was early to the starting line, enjoying a twenty-year head start on its competitors. 

Africa's untapped potential

Africa holds 30% of the world's mineral reserves and approximately 40% of global gold deposits. The continent has the largest reserves of cobalt, uranium, and platinum on the planet, and is a major producer of chromium, manganese, tantalum, and diamonds.

Whilst lithium, cobalt, and copper – all essential to the energy transition – are abundant across Africa, they are largely concentrated in the five countries where Chinese companies are most active: Guinea, Zambia, South Africa, Zimbabwe, and the Democratic Republic of Congo (DRC).

DRC alone is responsible for 70% of global cobalt production, and Chinese entities either own or finance 15 out of 19 of its cobalt mines.

Africa also holds substantial REE deposits, particularly in its east and south, encompassing countries such as South Africa, Madagascar, Malawi, Kenya, Namibia, Mozambique, Tanzania, Zambia, and Burundi.

However, the continent has not yet realised its full potential. High costs and challenging political, security and regulatory conditions have dampened investor appetite.

There was only a 12% growth in the continent's mining exploration budget in 2021, far below Canada's 62%, Australia's 39%, America's 37%, and Latin America's 29%.

Exploration has focused mainly on gold, leaving major deposits of key metals and minerals largely untapped.

A new trajectory

Recent geopolitical shifts have negatively impacted the availability of some key minerals.

Russia's invasion of Ukraine, for example, has disrupted several major supply networks. Before it invaded Ukraine, Russia accounted for nearly 27% of global palladium production, 10% of global nickel production, and 6% of global aluminium production.

Since February 2021, however, the Russian industrial machine has reassigned its efforts – and some products – towards the military instead of focussing on exports.

In addition, sanctions and corporate self-sanctioning have prevented Moscow from accessing foreign mining equipment and providing its goods to international markets, resulting in lower output, global supply shortages and price spikes.

In response, the Minerals Security Partnership (MSP) was launched in 2022, bringing together America, Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, the UK, and the European Commission.

The initiative aims to ensure minerals are mined and processed according to high environmental, social, and governance standards. Notably, MSP members are also actively pursuing supply chain diversification.

In September, MSP representatives met with mineral-rich countries, including the DRC, Mozambique, Namibia, Tanzania, and Zambia, to explore how these states could benefit from developed countries' funding and expertise, boosting the production and processing of REEs.

For the African nations, this is a significant economic opportunity. Their priority will be choosing partners aligned with their respective visions for growth, including the development of domestic refinement and processing capabilities, regardless of political leanings.

Growing demand in China

China's rapid economic growth has resulted in a growing demand for Africa's natural resources to fuel its industrial and manufacturing sectors – resources vital to sustaining its pace of development.

Since the early 2000s, China's approach to the continent has differed from Western approaches. Where the latter prioritises good governance, HSE, human rights and environmental norms, Beijing offers its African counterparts the promise of infrastructure, soft loans, and easy financing in exchange for access to natural resources.

China's investments in Africa's natural resources are extensive; they include oil, gas, minerals (specifically cobalt and lithium, amongst others), and other natural resources.

Businesses such as China National Petroleum Corporation (CNPC), Sinopec and China National Offshore Oil Corporation (CNOOC) have invested in major fossil fuel projects in Angola, Sudan, and Nigeria.

Additionally, both state-owned and private entities, including China Nonferrous Metal Mining (Group) Co., Ltd (CNMC), China Molybdenum (CMOC), China Investment Corporation (CIC) and the Jinchuan Group, have invested heavily in mining projects in DRC and South Africa.

Their investments have taken the form of equity stakes, the establishment of joint ventures, and direct investments into resource extraction projects.

China's primary focus has been on immediate economic gains, allowing for a quicker execution of projects ranging from infrastructure to natural resource extraction.

This foray into Africa was initially met with a warm reception, as Beijing's more transactional approach was attractive to many African leaders; it was a model that promised immediate economic benefits without the accompanying scrutiny or demands for reform that often accompany Western partners.

However, this came with its own set of challenges. China has often emphasised the delivery of completed projects or the extraction of resources over the transfer of technology or skills to the local workforce. As a result, although infrastructure or resource development projects may be completed efficiently, they do not always contribute to long-term, sustainable development in the host countries.

While China maintains a substantial presence in existing mineral-producing nations and is well-positioned to expand it further, many African states are now looking for more from their international partners.

These states are eager to realise their full potential. Their goals include boosting local capacity, benefiting from knowledge and technology transfers, increasing revenues by expanding operations to include refinement and processing operations on African soil, and ensuring that the benefits reach the wider population.

In short, there is now space for – and interest in – new players across the continent.

India, fifth-largest investor

As the world's fastest-growing economy, India aims to become 'the factory of the world' through a widespread economic transformation that would see the country rival China as a global manufacturing hub.

The South Asian giant is also pursuing its energy transition, with a net zero target of 2070, and has one of the fastest-growing renewable energy capacities in the world. Of course, such growth requires minerals – India's copper demand alone grew by 27.5% year on year in 2021-2022.

Already the fifth largest investor in Africa, India's companies are seeking opportunities to further expand their footprint in countries such as the DRC, Ghana, Nigeria, and Chad, leveraging India's historical and cultural ties to the continent.

Indeed, mining conglomerate Vedanta Ltd is already active in South Africa, Liberia, and Namibia, and is now being courted by countries, such as the Central African Republic, which are eager to benefit from the company's expertise.

A deal with the African Continental Free Trade Agreement (AfCTA), implemented in 2021, will be vital for India to maximise access to the continent's mineral potential – and hedge against Chinese influence in, and domination of, these markets.

America boosts engagement

America has embraced the energy transition, implementing the Inflation Reduction Act (IRA) in 2022 to encourage US innovation, competitiveness, and productivity, with an emphasis on clean energy and emissions reductions.

The Act aims to position America as a leader in new energy technologies. This strengthens its position against China and allows America to export its expertise and technical developments, positioning itself to dominate markets in this field.

Unsurprisingly, these ambitions require significant quantities of critical minerals. Although America boasts substantial mineral reserves, which may be mined and processed in the long term, several challenges exist. Social licensing, bureaucratic and lengthy permit processes, and the prospect of costly lawsuits are all obstacles that will force America to continue to depend on imports of cobalt, lithium, copper, and nickel for the short to medium term.

While America will most likely seek these minerals from partners with whom it shares FTAs – the IRA stipulates this as a requirement for certain technologies such as electric car batteries – it will be forced to engage with non-FTA countries (other than China and Argentina) to secure sufficient supplies.

At present, America only has one FTA with an African nation, Morocco, which is not a major mineral producer.

However, it recently increased engagement with the continent. This was evident at Africa's largest mining conference, Mining Indaba, in February, where the US Special Presidential Coordinator for Global Infrastructure and Energy Security, Amos Hochstein, told participants that 'the energy transition is an opportunity for an African transition'.

This sent a clear message that the US will support either its companies in investing in critical mining projects in Africa, or endeavours pursued by partner countries.

Indeed, in January 2023, President Biden signed MoUs with the DRC and Zambia that detailed plans to assist both states in strengthening their electric vehicle battery supply chain.

American companies are already active in Africa. Anglo-American currently operates in Zimbabwe, Botswana, South Africa and Namibia and accounts for close to 16% of the continent's total production.

Washington's role now will be twofold: to "de-risk" investment opportunities across the continent, and to consciously shift its approach to one that emphasises the economic gains it brings to the table.

By helping African nations to build domestic processing capabilities, encouraging capacity building, and implementing ESG safeguards, both America and Africa have the potential to gain from a re-energised partnership.

Gulf Arab states

The GCC's engagement with Africa has also accelerated of late.

As part of GCC economic diversification plans, there is a push to build domestic mining industries, both to extract local reserves and process raw materials imported from elsewhere.

In doing so, Gulf countries seek to solidify their position as a pivotal hub for energy transition technologies, capitalising on their geographic location to export to markets both east and west. 

Africa is a logical source of these raw goods, given its physical proximity to GCC states and strong economic ties between the two regions.

The UAE is already the fourth largest investor in Africa and both private and public entities have invested significantly in mining in recent years.

A $1.9bn deal was signed with a DRC state mining company in July 2023. This followed a December 2022 deal between UAE firm Primera Group and the DRC government on export rights for artisanal mined ores. UAE investors also pledged $2bn of investments in mining in Nigeria in 2021.

Most recently, reports indicate that Saudi Arabia and America are in talks to secure access to mineral resources in Africa. If implemented, the agreement would see a Saudi state entity purchase stakes in mining assets in countries such as the DRC, Guinea, and Namibia to the tune of $15bn. America would gain the rights to buy a proportion of the production.

Indeed, Saudi has already expressed interest in investing in cobalt, copper, and tantalum in the DRC via its jointly-owned PIF-Ma'aden venture, Manara Minerals.

This deal would not only help America to reduce its dependence on China for cobalt, lithium, and other metals, but it would also free US companies from operating in high-risk locations.

This move would additionally alleviate concerns about potentially compromising their commitment to meeting stringent ESG requirements and abiding by US law.

The Kingdom, and other GCC states that America is reportedly in negotiations with, are not bound by the same legal requirements and can more easily deploy capital to, and operate in, these environments.

The Kingdom would benefit by building up its portfolio of minority stakes in mining assets around the world as part of its strategy to accelerate the development of its own industry.

Opportunity for Russia

Russian involvement in Africa is best characterised as opportunistic but effective.

Run under the PMC Wagner Group (until the recent death of its leader Yevgeny Prigozhin), Russia's interest in Africa stems from a desire to expand its geopolitical influence and ambitions of great power, thereby reducing the strength of the West.

It also seeks to maximise profits through commercial proxies in large part to avoid international sanctions.

Russia, through private military companies (PMCs) and other commercial entities, has provided security equipment and services, political support, and information campaign assistance to African governments and militia leaders.

In so doing, Moscow has capitalised on a combination of instability and Western government missteps to become a key partner, mostly in poorly governed states such as Sudan, Guinea, the CAR, and Mozambique.

This has led to preferential contracts for Russian entities in the extractive industries. For instance, in the Central African Republic, the Wagner Group has exchanged its services for the rights to lucrative gold, diamond and timber contracts – crowding out local businesses.

Global considerations

The energy transition is pushing countries all over the world to consider the security and reliability of their supply chains – and capitalise on the economic opportunities that the shift to clean energy provides.

In the wake of Russia's invasion of Ukraine in 2022, great power competition and disruptions to global minerals markets have focused attention on the need to diversify sources of both raw and processed minerals. As such, there is renewed interest in Africa.

China has thus far dominated the market, having spent the past twenty years embedding itself in the continent's top five mineral-rich states. However, Africa comprises 55 mineral-endowed countries and China's competitors are now well-positioned to invest in its critical minerals industry, each prepared to offer better terms than Beijing.

Having learned from the last several decades, African leaders are eager to select partners dedicated to prioritising sustainable resource development and the well-being of host countries, rather than those solely seeking extraction and rewards.

Certainly, India, Russia, America, and Gulf Arab states are all vying for access to Africa's critical mineral wealth, hoping to secure their place in the future of energy –an exclusive arena reserved for clean energy producers.

In other words, Africa is poised to shape the future of the global energy landscape.