Tycho Moencks, Yandi Mini, Niel Naude and Lindokuhle Shongwe, Boston Consulting Group
Global trade is navigating turbulent waters amid a shifting geopolitical landscape, especially as the world becomes more polar and fragmented.
Rising trade tensions, resource nationalism, fragmented global alliances, disrupted supply chains and greater market instability present challenges for mining companies seeking to take advantage of megatrends such as the global energy transition which is driving surging demand for critical minerals.
Geopolitical shifts impacting critical minerals
The global geopolitical environment has become increasingly complex, with major economies reassessing their trade and supply chain strategies. Protectionist policies and the reconfiguration of trade agreements are on the rise, potentially leading to higher tariffs and trade barriers across various regions. These changes could disrupt the flow of goods, particularly critical minerals, where certain countries currently hold significant sway in the processing stages of the value chain. This concentration of processing capabilities creates vulnerabilities in global supply chains, highlighting the need for diversification and the development of more resilient regional hubs.
China's control over a substantial portion of midstream processing for various critical minerals underscores this vulnerability. As nations seek to reduce dependence on single sources, Africa emerges as a pivotal player in the critical minerals landscape, offering an opportunity to diversify supply chains and enhance global resilience.
Surging demand for critical minerals
Driven by technologies such as electric vehicles (EVs) and clean energy solutions, the demand for critical minerals is projected to grow by approximately 12% annually through 2030. This demand surge is expected to significantly outpace supply growth along the value chains, but specifically due to processing bottlenecks and limited value addition within Africa. This mismatch not only poses risks to Africa, but global supply chains are also expected to come under pressure.
Africa is well-positioned to address this gap, boasting substantial reserves recognised by key consumers like the UK, EU, and US. Key minerals include copper, platinum group metals (PGMs), cobalt, graphite, lithium, nickel, and rare earths. For example, the Democratic Republic of Congo (DRC) is the world’s largest producer of cobalt, South Africa leads in PGMs and manganese production, and Mozambique and Madagascar are major natural graphite producers.
Despite this wealth, only about 5% of Africa’s critical minerals are processed on the continent. This lack of processing means value addition occurs outside Africa, with China capturing a significant share of the processing market. Strengthening Africa's processing infrastructure is crucial to capture more value and ensure supply chain resilience.
The imperative for Africa’s enhanced role
Global resource depletion and declining ore grades in established mines intensify the need for new mineral sources. Since the 2000s, copper ore grades in existing mines have decreased by 32%, and 91 copper mines have either been depleted or are nearing the end of their productive lives. This scarcity is pushing mining activities towards traditionally riskier regions, including many African nations like the DRC.
The Fraser Institute’s annual report highlights this challenge, listing several African countries among the least attractive for mining investment due to factors like political instability and inadequate infrastructure. To transform this narrative, fundamental changes are essential to attract investment and foster sustainable mining practices.
Unlocking opportunities amid global turmoil
Amidst global uncertainties, African governments and mining companies have a unique opportunity to responsibly develop their mineral wealth. By forging partnerships across the critical minerals value chain—from extraction to processing—Africa can avoid the traditional "resource curse." Local and regional processing can drive job creation, add economic value, and contribute to a diversified global supply chain essential for the green transition.
The role of mineral processing hubs
Unlike global producers, who often integrate upstream and midstream, Africa’s mining companies operate in a more stand-alone manner - mineral processing must be done at scale to be economically viable. Only few African mining companies and countries have sufficient access to domestic and/or regional production of critical minerals to justify the investment in processing facilities.
Mineral processing hubs provide a solution to re-balance markets to address tightness in critical minerals supply. Processing hubs are a keyway for countries and companies operating in Africa to collaborate regionally, build scale and stronger benefit from the extraction of key critical minerals.
For example, Morocco, South Africa, and Zambia are all able to aggregate and process or collaborate with emerging international processors like Saudi Arabia to establish end-to-end operations across the value chain and take a reasonable share in global critical minerals. While the DRC, despite its resources, faces challenges like political instability and poor infrastructure, which makes it an unsuitable processing hub, Morocco has strategically developed its automotive industry, creating high demand in-country for processed minerals. It is now able to turn imported raw materials into valuable export components.
Government and corporate actions for success
African countries that combine resource wealth with stability, infrastructure and market access are better positioned to capitalise on midstream processing opportunities. The structural advantages that some African countries can take advantage of are their mineral resource abundance, access to cost-competitive green energy and availability of labour. But what is needed is political and regulatory stability, a favourable investment climate, efficient infrastructure, and upskilling of the workforce. African governments play a crucial role in facilitating the growth of the critical minerals value chain. They need to simplify regulatory frameworks to streamline processes and expedite the exploration and development of new mines. Additionally, reconfiguring downstream value chains by focusing on adding value within the continent through investments in processing facilities is essential. Providing targeted incentives related to the energy transition can attract investments in critical minerals processing, further enhancing Africa's position in the global market.
Mining companies operating in Africa are equally vital to the continent's success. Some of the actions they could adopt along the minerals value chain are to expand their minerals portfolio, invest in new extraction technologies to reduce costs, reduce their carbon footprint, build scale, and implement a robust general ESG framework – also and especially attend to social and community accountabilities. They can expand into midstream activities by participating in hubs to expand their geographical and mineral footprint and rebalance their portfolios. By entering partnerships with governments and forming an ecosystem with up- and downstream companies, they can achieve sustainability of current and new operations – leveraging offtake agreements, participating in at-scale setups, and tapping into unconventional financing solutions.
Downstream processing in Africa requires significant upfront capital investment, particularly for establishing processing facilities and ensuring access to affordable green energy, intellectual property, and skilled labour. However, new financing avenues are emerging to support this transition. Development Finance Institutions are providing long-term financing solutions tailored to large-scale projects, while private equity and alternative capital sources are attracting investments from non-traditional sectors. Consumer entities, such as automotive OEMs and other end-users, are also engaging to fund processing initiatives, recognizing the importance of securing a stable supply of critical minerals. Additionally, offtake agreements, which secure guaranteed buyers for processed minerals, are enhancing project bankability and making financing more accessible.
The global demand for critical minerals is insatiable, driven by the imperative for clean energy and advanced technologies. However, the supply chain is struggling to keep pace with this rapidly growing demand, creating a significant challenge for the world. Africa, with its rich mineral resources, stands at a crossroads. To fulfil global needs and foster sustainable economic growth, African governments and mining companies must act swiftly to integrate fully into the critical minerals value chain. By investing in downstream processing, enhancing political and regulatory frameworks, and forging strategic partnerships, Africa can transform its mineral wealth into lasting economic prosperity and play a vital role in the global green transition.
