Competition over essential minerals intensifies

Competition over essential minerals intensifies

In a world rapidly transitioning towards cleaner energy and advanced technology, the demand for critical minerals is soaring. These minerals, essential for everything from electric vehicles to smartphones, are abundant in some countries, yet managing them presents a complex web of challenges.

China, for instance, controls an estimated 60-80% of the critical minerals needed for industry and the green transition. Meanwhile, many mineral-rich countries struggle with managing the risks associated with resource extraction, such as health and environmental damage, labor-rights violations, and child labor.

One such region is the Democratic Republic of the Congo (DRC), known as the "Saudi Arabia of critical minerals." The DRC's mineral-rich provinces, like Katanga and North Kivu, have long been plagued by violence and lawlessness, fueled by neighbors such as Rwanda and Uganda. The advance of the Rwanda-backed M23 rebels is causing bloodshed in eastern Congo, creating an opportunity for outside powers to gain access to these critical resources.

The European Union has sought mining contracts in the DRC, recognising its potential wealth. However, ensuring fair and transparent mining contracts is crucial. A strong outward-facing institution is necessary to negotiate such contracts with multinational corporations and strengthen local governments' ability to do the same.

Resource-rich countries and regions often face internal and external conflicts. Infrastructure gaps, regulatory uncertainty, and fragmented governance are common obstacles. Adequate transportation networks, water supply, and waste management are essential but often underdeveloped, especially for processing rare earth elements (REE). Water scarcity and inefficient water use are major issues in many mineral-rich countries, such as Namibia and South Africa, requiring innovative solutions like water recycling and desalination.

Limited local value addition is another challenge. Many countries export raw minerals, with most processing and manufacturing concentrated abroad. This traps them in low-value extraction without benefiting from the full supply chain. Sovereignty risks from barter/security deals also pose a threat, with some countries engaging in mineral-for-security barter deals that limit their future legal reforms and exacerbate environmental and human rights harms.

Financing bottlenecks are another hurdle, with many projects lacking secured financing or stalling before construction due to investor caution amid infrastructure and policy uncertainty.

Potential solutions to minimize the resource curse and ensure fair, transparent mining contracts include developing comprehensive infrastructure, strengthening legal and institutional frameworks, promoting South-South cooperation and strategic industrial policies, improving data, capacity, and policy tools, and attracting investment through regulatory clarity.

Botswana serves as a positive example. After acquiring a 15% stake in De Beers, Botswana has sought to ensure that diamond cutting, not just mining, occurs domestically. Boycotts of critical minerals coming from conflict zones or countries using forced labor could also convince multinationals and foreign governments to demand better enforcement of environmental and social standards.

In the end, it is up to mineral-rich countries to defend their interests and make the most of their endowments, starting with efforts to strengthen institutions. As Rick van der Ploeg, Professor of Economics at the University of Oxford and University Professor of Environmental Economics at the University of Amsterdam, notes, "It's not just about the minerals. It's about the institutions that manage those resources."

By 2040, the demand for critical minerals for clean-energy technologies alone is expected to quadruple, according to the International Energy Agency. The race to secure these resources is on, and it is crucial that resource-rich countries navigate this race with caution, ensuring they reap the full benefits of their mineral wealth while minimising the negative impacts on their people and the environment.

[1] Source: Arezki, R., & van der Ploeg, R. (2021). Managing critical minerals for the green transition. Brookings Institution. [2] Source: Arezki, R., & van der Ploeg, R. (2021). Managing critical minerals for the green transition. Brookings Institution. [3] Source: Arezki, R., & van der Ploeg, R. (2021). Managing critical minerals for the green transition. Brookings Institution. [4] Source: Arezki, R., & van der Ploeg, R. (2021). Managing critical minerals for the green transition. Brookings Institution.

1. As the demand for critical minerals essential for clean energy technologies continues to rise, ensuring fair and transparent mining contracts becomes increasingly important, with a strong outward-facing institution being necessary for negotiations with multinational corporations.
2. Many mineral-rich countries face internal and external conflicts, such as the Democratic Republic of the Congo, where countries like Rwanda and Uganda contribute to violence and lawlessness in mineral-rich regions like Katanga and North Kivu.
3. A potential solution to minimizing the negative impacts of the "resource curse" is developing comprehensive infrastructure, strengthening legal and institutional frameworks, promoting South-South cooperation, and attracting investment through regulatory clarity.
4. By 2040, the demand for critical minerals for clean-energy technologies alone is expected to quadruple, according to the International Energy Agency. In light of this, it is crucial that resource-rich countries strategically manage their mineral wealth to reap the full benefits while minimizing environmental and social harms.

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