How Africa can transform resource wealth into green economic power

AFRICA: AFRICA is at a turning point. As the world shifts towards a low-carbon economy, the demand for critical minerals — such as cobalt, lithium, and platinum — has never been higher. These resources are essential for electric vehicles, renewable energy systems, and battery storage, making Africa a key player in the global green transition.

Despite holding vast reserves of critical minerals, African economies remain largely dependent on exporting raw materials. If Africa does not act now, it risks becoming trapped in a new form of resource dependency — what some have called “green colonialism” — in which it is once again relegated to the role of a supplier of critical minerals transformed into finished products in industries located elsewhere.

However, the global trade landscape is shifting in ways that could potentially widen policy space available to support “green” industrialisation, greater value addition and job creation. The restrictive rules of the World Trade Organization (WTO) that once limited Africa’s industrial ambitions are being progressively disregarded and discarded.

This began in the advanced economies of the Global North where competition from China in both digital and low carbon technologies has led both to the recovery of industrial policy tools, abandoned during the heyday of hyperglobalisation and neoliberalism, and “national security” justified measures designed to restrict and contain Chinese firms and technologies.

Among key “climate justified” departures from World Trade Organization rules by the Global North are:

First, the introduction under the United States’ Inflation Reduction Act of tax incentives for purchasers of electric vehicles with batteries produced in the US — later extended to batteries manufactured in any country with which the US has a Free Trade Agreement. This is incompatible with both the spirit and letter of the World Trade Organization’s Trade Related Investment Measures (which proscribes extending localisation measures to private purchases as well as to products from selected trade partners).

Second, the European Union (EU)’s Carbon Border Adjustment Mechanism, which will impose levies on top of tariffs on imports with a carbon content higher than that set for domestic producers under the EMore recently, a few developing countries have taken advantage of the weakening capacity of the World Trade Organization to enforce global trade rules to widen their own application of industrial policy tools to good advantage.

The case of Indonesia stands out. A major producer of nickel (used in several low carbon products), Indonesia introduced regulations requiring specified levels of local beneficiation of nickel before export. These were challenged in the World Trade Organization by the EU, which won a ruling in the initial dispute panel.

However, this ruling was effectively nullified when Indonesia filed an appeal to the World Trade Organization’s Appellate Body, which has been disabled for years by actions of the US evidently anxious to avoid it ruling against any of the US’ own departures from World Trade Organization rules.

According to Krisna Gupta writing in East Asia Forum (7 December 2023) regulations restricting exports of unprocessed nickel led to investments of $14-billion in nickel smelting, to double digit growth in nickel processing provinces and to a 30-fold increase in earnings from exports of nickel value chain products.

Will Africa seize this moment to drive green industrialisation?

As the world moves away from fossil fuels, the demand for green technology is skyrocketing. Electric vehicles, solar panels, and battery storage systems all rely on critical minerals, and Africa has them in abundance. The continent is home to 92% of the world’s Platinum Group Metals (PGMs), 53% of global cobalt reserves, and 45% of the world’s manganese deposits.

This has triggered a new scramble for Africa, with global corporations and foreign governments competing to secure long-term contracts for these resources. But if African countries continue to export these critical minerals without investing in local processing and manufacturing, they will continue to receive only a minor part of the potential economic benefits.

The harsh reality is that the percentage value of raw materials in the final price of a complex finished product like a battery will typically be measured in single digits.

This much is widely recognised and repeated many times. Africa has an ambition to use the transition to a low carbon economy to propel industrialisation. Indeed, if that does not happen the “green transition” will not be “just”. But how is this to happen?

Some African projects are already under way:

The Democratic Republic of the Congo (DRC) and Zambia have launched an EV battery special economic zone to encourage investment in battery manufacturing, beginning with manufacture of precursors inputs.

South Africa’s Mintek has identified the potential to establish a 5,000MW lithium-ion battery manufacturing plant, leveraging the country’s own mineral resources.

Platinum beneficiation initiatives in South Africa aim to support the development of hydrogen fuel cells as well as the manufacture of underground mining vehicles and smallscale power stations.

These efforts are moving in the right direction, but relying on attracting investment in manufacturing of products like batteries based only on the availability of raw materials will not be enough. Stronger industrial policy intervention backed up by political will be necessary to scale up.

Among the policy tools now available through precedents already set are: One: Indonesian-style minimum beneficiation requirements for the export of critical minerals and/or investment in processing obligations on critical mineral contracts. This is one of the major points of leverage Africa has to drive investments in beneficiation, which may well not occur without them.

Two: The introduction of localisation requirements for renewable energy equipment, and their extension along the lines of the precedent set by the Inflation Reduction Act to products from other members of the African Continental Free Trade Area.

The time to act is now