The Hidden Value of Africa’s Minerals: A Critical Analysis

Africa holds a significant portion of the world’s mineral reserves. However, the continent remains underdeveloped because these resources are primarily extracted and exported to foreign countries for refining and manufacturing.

Africa is rich in natural resources ranging from arable land, water, oil, natural gas, minerals, forests and wildlife. The continent holds a huge proportion of the world’s natural resources, both renewables and non-renewables, according to UN Environment Programme. For centuries, these resources have allowed people to live in Africa without degrading the land or its ecosystems. Africa’s diamonds, cobalt and other natural resources help to facilitate the production of technology and other modern conveniences. Historically, colonial powers have leveraged Africa’s people and resources for wealth without making significant investments in local communities.

Agenda 2063, Africa’s long term development strategy, places emphasis on amongst other things the need to harness Africa’s natural resources in an efficient and effective manner to ensure that first and foremost, African citizens and African countries benefit from Africa’s natural endowments by implementing policies, laws and other regulatory frameworks to guide the extraction and use of these natural endowments for economic growth and development. Resource-based development and industrialisation strategies have been identified as key to catapulting Africa’s growth. The African Union heads of state and government adopted the Africa mining vision to serve as Africa’s road map for strategically harnessing its mineral resources for broad-based sustainable development. The formulation of the vision, supported by its action plan for implementation, was motivated by a disconcerting observation that, while African countries have abundant mineral resources and roughly one third of global mineral reserves, they rank among the poorest in the world.

However, many internal and external factors contribute to this situation. These factors inhibit African countries from benefiting optimally from their mineral resources. Mineral resources are finite and, therefore, need managing in a manner that benefits current and future generations. The Africa mining vision is intended to enhance transparency, equity and the optimal development of mineral resources to underpin broad-based sustainable growth and socioeconomic development in Africa. It also promotes a sustainable and well governed minerals sector that garners and deploys resource rents effectively and that is safe, healthy, gender and ethnically inclusive, environmentally friendly, socially responsible and appreciated by mine-affected communities.

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Whereas critical minerals are those minerals used to produce green technology, such as solar panels, wind turbines and batteries. These minerals include graphite, lithium, cobalt, copper, manganese, and rare earth metals. The World Bank forecasts that the production of these minerals would need to increase by nearly 500% if investment in renewable energy and other green technologies were ramped up to the levels required to avoid the worst impacts of climate change. Between 2022 and 2050, demand for nickel will double, cobalt triple and lithium rise tenfold, according to the International Energy Agency. With sub-Saharan Africa estimated to hold about 30 percent of the volume of proven critical mineral reserves, this transition—if managed properly—has the potential to transform the region, said the Regional Economic Outlook reports, published in April 2024.

Wenjie Chen, a deputy division chief, Nico Valckx, a senior economist, and Athene Laws, an economist, in the IMF’s African Department noted that Sub-Saharan Africa is already at the center of global critical mineral production. The Democratic Republic of Congo accounts for over 70 percent of global cobalt output and approximately half the world’s proven reserves. South Africa, Gabon and Ghana collectively account for over 60 percent of global manganese production. Zimbabwe, alongside the Democratic Republic of Congo and Mali, hold substantial but yet-to-be-explored lithium deposits. Other countries with significant critical mineral reserves include Guinea, Mozambique, South Africa, and Zambia.

They said further, ‘’With growing demand, proceeds from critical minerals are poised to rise significantly over the next two decades. Global revenues from the extraction of just four key minerals—copper, nickel, cobalt, and lithium—are estimated to total $16 trillion over the next 25 years, in 2023-dollar terms. Sub-Saharan Africa stands to reap over 10 percent of these cumulated revenues, which could correspond to an increase in the region’s GDP by 12 percent or more by 2050. Given the volatile nature of commodity prices and the unpredictability over the future direction of technological innovation, these estimates have a high degree of uncertainty—but the general direction is certainly encouraging.’’

What Experts are Saying?

Beyond extraction

• The region can generate even greater windfalls by not only exporting raw materials but processing them as well. Raw bauxite, for instance, fetches a modest $65 per ton, but when processed into aluminum it commands a hefty $2,335 per ton, in end-2023 prices. Yet the thousand trucks a day that carry unprocessed lithium from Zimbabwe to ports for shipping to China show that local processing options for critical minerals are too often limited.
• In today’s world, however, African countries are beginning to take hold of their own futures and grow their own wealth through their resources. Still, African countries face a number of challenges as governments and companies in Europe, North America and Asia continue to vie for control and influence over Africa and its resources. Furthermore, the resources themselves are vulnerable to environmental risks and there continues to be exploitation of local workers and other human rights concerns.
• Developing local processing industries could significantly boost value added, create higher-skilled jobs, and increase tax revenues—thereby also supporting poverty reduction and sustainable development. By diversifying their economies and moving up the value chain, countries will become less exposed to volatile commodity prices, and more able to protect themselves against exchange rate volatility and foreign currency reserve pressures.
• Foreign direct investment can help provide the capital and expertise to develop mineral processing industries, but the absence of a substantial regional market makes local processing investments less enticing. Policymakers need to remedy this.

Regionally coordinated policies

• A regional strategy built on cross-border collaboration and integration can create a larger, more attractive regional market for much-needed investment. A regional strategy is also essential to fully leverage the diversity of critical minerals—clean energy technology requires combining multiple minerals scattered across the region.
• Sub-Saharan Africa’s anticipated population boom, coupled with rapid urbanization and industrialization, will likely increase demand for renewable energy and expand the market for processed minerals. The African Continental Free Trade Area can play a key role in reducing trade barriers and developing infrastructure, potentially uniting fragmented critical mineral markets for larger-scale operations and forming regional value chains that draw on both raw and processed mineral inputs. Coordination can also start on a smaller scale, paving the way for larger regional hubs. For example, the Democratic Republic of the Congo and Zambia are collaborating on battery production for two- and three-wheeled electric vehicles popular in African markets.
• Countries also need to collaborate on policies to create more favorable investment and business environments. Simplifying bureaucratic procedures and harmonizing mining regulations across borders would foster a stable, predictable investment environment. Efforts to minimize the environmental impacts of mining and processing will help unlock new funding and investment opportunities in green finance. Strengthening the Africa Mining Vision, launched in 2009 by the African Union, could serve as a key framework for these regional efforts.

Domestic reforms

• Complementing regional approaches, countries can undertake structural reforms to support domestic companies in mining and related processing sectors. They should approach the application of local content requirements, which mandate the use of local materials and labor, with caution. More broadly, many countries need to reevaluate their inward-looking policies, which can often result in inefficiencies, market distortions, and increased costs. Export bans on raw materials, in particular, can backfire and cause production to fall.
• Countries can develop a supportive business environment by strengthening domestic financial markets and improving access to finance. New fintech innovations offer exciting potential to help firms that serve the mining sector but face difficulties in securing traditional financing. Managing new resource windfalls responsibly also requires accountable and transparent institutions, allied with appropriate tax regimes and sound public financial management.

Conclusion

In order for Africa to reap the economic and social benefits inherent in this natural wealth, it is necessary to urgently address such issues as the management and the economic and environmental impacts of, their sustainable use. In addition, countries can develop a supportive business environment by strengthening domestic financial markets and improving access to finance. New fintech innovations offer exciting potential to help firms that serve the mining sector but face difficulties in securing traditional financing. Managing new resource windfalls responsibly also requires accountable and transparent institutions, allied with appropriate tax regimes and sound public financial management.