Leveraging Critical Materials for Economic Development

The transition to the green economy and the simultaneous digital revolution has led to a scramble for raw materials.?

In April 2024, the EU adopted a Regulation to establish a framework to ensure the secure and sustainable supply of critical raw materials, recognizing the urgent need to access raw materials for the Union's economy and proper functioning.? The EU is focused on manufacturing carbon neutral technologies, establishing competitive supply chains for clean energy, and strengthening its global engagement with partnerships in emerging markets as set out in Global Gateway strategy.

The Recital to the Regulation says this: "Access to raw materials is essential for the Union economy and the functioning of the internal market. There is a set of non-energy, non-agricultural raw materials that are considered to be critical due to their high economic importance and their exposure to high supply risk, often caused by a high concentration of supply from a few third countries."?

Demand for Critical Raw Materials (CRMs) for green technologies is set to grow exponentially in the coming decades. These materials are key to producing renewable energy technologies (wind turbines, solar panels, EV batteries) and supporting the digital technology revolution (batteries, chips). The digital sector alone accounted for 4% of global greenhouse gas emissions (2019), 4.2% of primary energy consumption, 0.2% water consumption, with an expected carbon footprint increase of 60% by 2040.

Article 3 and Article 4 of the Regulation refer to “strategic raw materials” and “critical raw materials" respectively. Both definitions include materials such as cobalt, nickel and lithium — battery grade,?gallium and germanium. The?EU Regulation:?

1. Shows a clear recognition that supply disruptions could have a significant cross-border impact between Member States. The economic imperative is clear throughout the Regulation.?
2. Highlights the urgent need to diversify: the Union is almost fully dependent on a single country for its supply of some materials. Such a high dependency is risky to the Union’s economic resilience. The Regulation sets out a maximum dependency on a single third country at 65% by 2030.
3. Emphasizes a renewed focus on providing financial support to EU companies and enhance financing of materials that often have high volatility of prices and long lead times.?
4. Reinforces risk management and monitoring to better anticipate supply disruption and coordinate strategic stocks and reinforce the preparedness of companies.
5. Seeks to aggregate European demand to work as a block to increase the negotiating power and help lower prices for Union companies.?
6. Explores how to move to a circular economy in the context of the green transition by increasing recycling capacity in Europe for metallic critical raw materials thereby limiting extraction and creating a secondary market.?
7. Develops a transparent system for the calculation of the environmental footprint of critical raw materials, including a verification process, and foster the production of critical raw materials with lower environmental impacts.
8. Mandates the review and update of the critical raw materials list by 24 May 2027 and at least every three years.

The largest nickel reserves in the world are in Indonesia, Australia and China. China has the highest gallium and germanium reserves. The Democratic Republic of Congo has the largest known reserves of cobalt (48%). Lithium mining in Africa is serving the global demand due to its criticality for electric vehicle batteries and renewable energy storage. The 10 largest lithium mines in Africa are Zimbabwe, DRC, South Africa, Ghana and Namibia. Recently, Rwanda signed an agreement with Australian mining giant Rio Tinto for the exploration and mining of lithium.?

African countries are strategically primarily positioned, firstly, because the?EU is resource hungry but resource poor; and secondly, because there is a concerted effort to address the?existing concentration (i.e. China).

African policymakers are no longer content to see critical materials shipped abroad in raw form. Rwanda, for example, has established? a gold refinery, is setting up a tantalum refinery and also has the only active tin smelting plant in Africa.?The AU Agenda 2063's?Commodities Strategy??requires the development of a continental commodities strategy focused on value additions, high rents from African commodities, integration into the global value chains, and diversification. The strategy aims to transform Africa from simply being a raw materials supplier to leveraging the continent's resources to ensure economic development. Practically, this requires a renewed stance - with an emphasis on partnership, co-investment and development of manufacturing capacity. It is also an opportunity to review and embed environmental, social and governance obligations ensuring that the digital and green energy revolution does not unduly jeopardize the communities that should first benefit from the resources of their land.?

The rush for CRMs has the potential to exacerbate existing issues and widen existing wealth gaps. Global Witness, following an investigation into three emerging lithium mines in Zimbabwe, Namibia and Democratic Republic of Congo (DRC) noted: "What we found shows that the rush for lithium on the continent as far from delivering a just energy transitional risks fuelling corruption, and a range of other environmental, social and governance (ESG) problems."

However, CRMs can be leveraged to create real socio-economic change.?Following the recent partnership with Rwanda, Commissioner for International Partnerships Jutta Urpilainen stated: "Global Gateway is all about ensuring lasting benefits for local communities, preparing a better future for young people.? We will empower more young Rwandans to create and take up jobs in the knowledge economy and build sustainable growth, resilient and prosperous society.”?

There is an incredible opportunity for African countries to establish?strategic partnerships that can be leveraged to?develop their own economies. This will take visionary, strong leadership, technical skills development and skills transfer and adherence to sustainable practices.?

"The European Union’s relationship with Africa is one based on?common values and interests, according to the block’s own official declarations. Yet a key test of these shared values and interests can be found in how Europeans engage their African counterparts in diplomacy around critical raw materials (CRMs) and the energy transition to which CRMs are so important."?Theophilus Acheampong.?

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