Why the EU is failing to capitalise on African critical minerals as China marches on
South China Morning Post
5 min read
The EU's supply chain deal with Namibia amid a drive to reduce dependence on China may be benefiting Chinese firms instead, according to a policy brief.
The November 2022 agreement was the European Union's first with an African nation. It was expected to help the bloc diversify its energy sources and gain access to critical raw materials (CRMs) for green technology as it seeks to boost industrial capacity and de-risk energy supply chains from China.
In turn, it would help mineral-rich Namibia to boost local value addition, create jobs, support industrialisation and earn foreign exchange, according to the report by the European Council on Foreign Relations think tank.
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The EU has since signed similar deals with the Democratic Republic of Congo - the source of most of the world's cobalt, copper-rich Zambia, as well as Rwanda, as the race for critical minerals and metals for the green energy transition intensifies.
The 27-nation bloc is also working with the United States to invest billions of dollars to develop the Lobito Corridor, a railway and logistics project connecting Zambia, the DRC and Angola, that would improve access to their critical mineral stores.
China dominates global production and processing of critical minerals such as cobalt, lithium and graphite, which are essential for making electric vehicle (EV) batteries, electronic equipment and solar panels.
"This increases competition and economic risks for Europe," the report said.
With the EU and the United States seeking to develop their own CRMs supply chains as part of their China de-risking drive, both have imposed heavy tariffs on Chinese-made EVs - alleging state-funded overcapacity undercutting domestic companies.
However, two years since the agreement with Namibia, European companies have yet to make their presence felt.
Meanwhile, just as in the DRC and Zambia, Chinese companies are ramping up investments in Namibia to secure critical minerals.
Namibia is the world's third largest producer of uranium, and two of its most productive uranium mines are majority-owned by Chinese companies.
It is also rich in lithium, graphite, copper and rare earth elements - all in high demand for the green transition.
Abundant solar and wind resources also give the country huge green processing and manufacturing potential.
Uranium had not always been profitable for Namibia, but its strategic importance for nuclear power reactors in China and Beijing's long-term investment policy has enabled its continued production, the report said.
"China's ability to prioritise access to critical minerals over project profitability is a key factor, highlighting the limitations of Europe's market-based approach to CRM access to date," Sarah Logan, a visiting fellow in the think tank's Africa programme, wrote in the brief released earlier this month.
One reason making European firms balk at projects in Namibia involves concerns over local processing. The southern African country banned exports of unprocessed lithium, rare earth elements in June last year, following similar steps by Zimbabwe and Tanzania.
The drop in prices for lithium and rare earth elements such as dysprosium and terbium also renders local processing daunting for companies looking to enter the industry.
But Chinese interest has not waned. "Despite the current unfavourable market, a Chinese company is reportedly currently constructing a lithium refinery in the country. This is a notable step for local processing in Namibia," Logan wrote.
However, she added that "rather than confirming the commercial viability of local processing", this might "merely indicate how much China is willing to pay for access to lithium".
This approach also helps China to further its own strategic goals, according to Logan.
"China taking the first initiative with local lithium refining ... unfortunately may also deter European companies from establishing local processing activities," she wrote, as it was not clear whether Namibia's lithium production "could support more than one refinery, at least in the short and medium term".
Subsequent market entrants would struggle to secure ore supply if the first-moving Chinese refinery had locked in long-term agreements, she added.
Chinese companies are key investors in Namibian mining. In September, President Xi Jinping promised to encourage more enterprises to invest and do business there as he met his Namibian counterpart Nangolo Mbumba on the sidelines of the Forum on China-Africa Cooperation summit in Beijing.
Chris Berry, president of US-based commodities advisory firm House Mountain Partners, said the biggest challenge in competing with Chinese interests was not the availability of capital, but trying to match the speed of investment and construction.
"If there is a reason that European firms are apprehensive to invest in Namibia or anywhere else, for that matter, it all boils down to economics and the opportunity cost of investing there versus elsewhere," Berry said.
"The volatility in metals prices has slowed much needed capital expenditures in critical materials projects all over the globe."
Berry said "strategic partnerships" were only beneficial if they helped to speed up capital deployment, but such examples were hard to find.
According to the think tank report, it would be costly for European companies to enter into local processing . "This reality is not sufficiently reflected in the EU's commitments to support local value addition in CRM value chains in African countries," it said.
Logan said the difficulty in getting traction on European investments in Namibia highlighted the limits of what EU efforts could achieve without European private sector participation.
"The incentives for European companies to enter mining and processing operations in these markets are too weak," she wrote, urging increased support including "new financial incentives and measures to protect against China manipulating prices on international markets".
