IMF sees SSA earning $1.6trn as energy transition drives critical minerals demand

• Global extraction revenue to total $16trn in 25-yrs

• 12% to SSA GDP by 2050 from revenue

• Nigeria lose to bungled $3.2bn aluminium smelter investment

• Global aluminium futures at $250bn by 2026

BEN EGUZOZIE, IN PORT HARCOURT

Sub-Saharan Africa, already regarded as the centre of global critical minerals production, accounting for 30 percent of the volume of proven critical minerals reserves, stands to reap 10 percent of global revenues from extraction of just four key critical minerals: copper, nickel, cobalt, and lithium estimated to total $16 trillion over the next 25 years, according to the International Monetary Fund’s (IMF) latest regional economic outlook report.

From electric vehicles to solar panels to future innovations, the global transition to clean energy is set to further heighten demand for critical minerals.

Between 2022 and 2050 demand for nickel will double, cobalt triple and lithium rise tenfold, according to the International Energy Agency (IEA). 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 SSA, the IMF report said.

Countries in the region to reap big from the upcoming global demand surge for critical minerals are: the Democratic Republic of Congo, which 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.

The IMF data said, with growing demand, proceeds from critical minerals are poised to rise significantly over the next two decades. Global revenues from the extraction of copper, nickel, cobalt, and lithium — four key minerals — are estimated to total $16 trillion by 2050, in 2023-dollar terms. Sub-Saharan Africa stands to reap over 10 percent of these cumulative revenues, which could correspond to an increase in the region’s GDP by 12 percent or more by 2050.

However, with 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, the IMF said.

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 tonne, but when processed into aluminium it commands a hefty $2,335 per tonne, 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.

Where’s Nigeria with its aluminium?

Analysts say when it comes to the processing of raw bauxite into aluminium, Nigeria’s sordid journey in that direction calls to question the lost economic gains from Nigeria’s sole aluminium smelter (Aluminium Smelting Company of Nigeria – ALSCON) in Ikot Abasi, Akwa Ibom State, with an investment of $3.2 billion by the Nigerian federal government at commissioning in October 1997. The aluminium smelter suffered from mounting litigation, cannibalisation, and asset-striping.

At commissioning in October 1997, ALSCON’s ownership structure was: 70 percent by the Nigerian federal government, 20 percent held by Ferrostaal AG of Germany, the plant’s equipment installer, and 10 percent by Reynolds of USA. By this tally, Nigeria held the responsibility of chalking up majority of its funding for operations, as well as the biggest revenue earner.

As of September 2020, this newspaper reported that 23 years of the smelter’s lifespan has been wiped off, with only 27.5 percent value left before it reaches its decommissioning stage, which is any time soon. This clearly keeps Nigeria out of the expected $1.6 trillion revenue windfall to be reaped by the SSA countries from the extraction of critical minerals — required to achieve energy transition.

Energy analysts like Friday Udoh, who is also a gas value-chain expert, had earlier told Business a.m. from Ikot Abasi that, only one of two things is left for the ALSCON to do: full turnaround maintenance (TAM) or outright disposal. Today, Nigeria spends in excess of $234.1m annually importing aluminium.

Global aluminium futures is to rise to $250 billion by 2026, with a 6.5 percent cumulative annual growth rate (CAGR). Additionally, ALSCON’s location in the Gulf of Guinea rates it strategic to the US, and Russia. Little doubt that the U.S and Russian companies — Reynolds, Ferrostaal AG, and Russal — have battled each other for the soul of ALSCON.

The IMF says developing local processing industries (by SSA countries) 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 (FDI) 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, the IMF strongly advised.

Regionally coordinated policies

According to the IMF, 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 urbanisation and industrialisation, will likely increase demand for renewable energy and expand the market for processed minerals. The African Continental Free Trade Area (AfCFTA) 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, the IMF report said.

Countries also need to collaborate on policies to create more favourable investment and business environments. Simplifying bureaucratic procedures and harmonising mining regulations across borders would foster a stable, predictable investment environment. Efforts to minimise 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 labour, with caution. More broadly, many countries need to re-evaluate 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, the report further stated.

It advised that countries can develop a supportive business environment by strengthening domestic financial markets and improving access to finance; adding that 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, the IMF noted.