Governments seek to find answer to age-old mining question

Since the colonial era, Africa has largely remained trapped as an exporter of raw commodities. In the mining sector, ores are extracted from African soils, brought to the coast along pit-to-port railways, then exported to overseas markets. Only after leaving Africa's shores is the real value earned through refining, processing and manufacturing activities.

In this depressing paradigm, Africa's mineral wealth enriches mainly outside interests, leaving the continent at the bottom of the global economic food chain.

Rapidly increasing demand for critical minerals, however, offers another opportunity for the continent to strike a new course. Almost all the minerals needed for vital energy transition and advanced technological products can be found in Africa. By some estimates, the continent contains about 30% of global critical mineral reserves, including huge volumes of copper, cobalt, lithium, bauxite, iron ore and rare earths. Yet it captures just 10% of the value of these commodities.

Many African leaders hope that possession of such plentiful critical mineral resources can provide the continent with leverage to disrupt mineral value chains. The goal is to cajole companies into investing in more value-added processing activities locally.

South Africa President Cyril Ramaphosa, for example, positioned value-addition as a key part of the country's G20 agenda.

At a speech in Davos in January, he pledged that: "We will use this G20 to champion the use of critical minerals - through a programme of green industrialisation and as an engine for growth and development in Africa and the rest of the Global South."

Meanwhile, Nigeria announced last year that it would make new mining licences conditional on mining companies presenting plans for local processing. The West African country is thought to contain promising lithium resources and is seeking to avoid the mistakes of the past as it develops the sector.

Reality bites

While almost everyone accepts the logic of promoting mineral beneficiation in Africa, many experts are cautious about what can be achieved in the short-term. Ekpen Omonbude, senior policy adviser at the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development, says a "dose of reality" is needed as African governments consider the right approach. "The question isn't, can you add value? The question, rather, is, where in the value chain is your competitive advantage and how can you maximise it?"

Several African countries already offer incentives for local processing. In South Africa, for example, royalty rates are lower if minerals are refined within the country. Zambia, meanwhile, offers capital allowances on equipment to be used for mineral processing.

Some critical minerals initiatives around the continent mark a step-up in ambition from the more traditional policy approach of attempting to incentivise local processing. For example, DR Congo and Zambia have sought to work together to develop a value chain for battery materials. They aim to take advantage of their cobalt and copper resources - two of the key minerals used in most electric vehicle batteries - to create a vertically-integrated manufacturing industry in the region.

The drawback to such ambitious schemes is that a huge share of the global mineral processing industry is already locked down - by China. The Asian giant has worked strategically over more than 30 years to build up its dominance in all stages of international metals value chains, particularly in the processing stages. An estimated 90% of DRC-sourced cobalt is further refined and processed in China, for example. For Africa, or anywhere else in the world, shaking China's dominance is a giant undertaking.

Gathering momentum

This is not to say that Africa's value-added ambitions are doomed to fail. Around the continent, there are glimpses of real progress as investment starts to flow into minerals beneficiation projects.

In August, for example, Namibia unveiled one of the world's first facilities for producing "green iron". The HyIron Oshivela Plant, built by German investors, uses green hydrogen to power the refining of iron ore into direct-reduced iron, a key step in the low-carbon production of steel. Speaking at the inauguration of the facility, Namibian President Netumbo Nandi-Ndaitwah said that Namibia would earn six to eight times more economic value than by exporting iron ore. The facility "signals the building of an industrial base that is truly Namibian," she added.

In Zimbabwe, Chinese company Huayou plans to start producing lithium sulphate in early 2026 at a new $400m facility. Lithium sulphate is an intermediate product that can be refined into lithium hydroxide or lithium carbonate for use in battery manufacturing. The Zimbabwean government has attempted to flex its muscles by mandating local processing, although it partially backed down from this stance last year as a dip in lithium prices led some companies to warn of a production shutdown.

Over the border in South Africa, US company ReElement Technologies announced a new rare earths refining facility earlier this year, the first to be built on the continent.

Franklin Edochie, head of metals and mining at the Africa Finance Corporation (AFC), reports that his institution is backing several other projects that include processing facilities. The AFC has invested, for example, in Nouvelle Gabon Mining, which is planning to construct a manganese smelter to process ores extracted from the Franceville and Okondja mines. It has also provided a loan facility for the Longonjo rare earth project in Angola, which is set to include a chemical refinery adjacent to the mine. And in DR Congo, the AFC helped finance the expansion of the Kamoa-Kakula copper complex, which includes the largest copper smelter on the continent.

Mining companies themselves often prefer to carry out the initial stages of processing at the mine site, since it provides them an opportunity to add value and reduces the transport costs of hauling unprocessed ore to be exported. "In the feasibility studies that they're putting out, there's always a scoping or preparation for the next phase of the value-add, which is the midstream," says Edochie.

Yet it remains more realistic, at present, for African mining projects to focus on building facilities for the initial stages of mineral processing, rather than more advanced stages of value addition. The reason for this is "size of capital required," says Edochie. A new mine, in some cases, can cost billions to develop, even before any processing infrastructure is taken into account.

"A lot of financiers want to see how that project actually goes on, see how the mine performs - because it's also a new area - see how the product trades, before then going and taking the risk in the phase."

A lesson from Indonesia?

One country that Africa could potentially learn from is Indonesia. The south-east Asian nation has taken a muscular approach to capitalising on its own mineral wealth. Between 2009 and 2020 the Indonesian government progressively banned the export of nickel ore, insisting that the mineral be processed locally.

Indonesia was thus able to exploit its leverage as the world's most important source of the material. Its gambit appears to have been largely successful; Chinese mining companies were effectively forced to build smelters in the country in order to keep their mining rights.

DR Congo, which produces about 70% of the world's cobalt supply, has banned exports on several occasions. It recently lifted an eight-month ban that appears to have been intended mainly to drive up prices, and replaced it with a quota system that some fear will enrich well-connected middlemen. The central African country has had much less success than Indonesia in using its position in the market to compel local refining.

"Imposing export bans is quite plausible, but in practice, it doesn't work easily," says Silas Olan'g, Africa energy transition adviser at the Natural Resource Governance Institute think tank. "The export ban can only work effectively if the preconditions for value addition in countries exist."

He notes that Indonesia's success reflects how it had already built the "basic industrial capacity" for local processing before it imposed an export ban. DR Congo could be in a position to follow Indonesia in using its leverage over the market, Olan'g says. But first it needs to have the basics in place.

Supporting infrastructure

There is wide agreement that African governments need to focus on their enabling environment in order to scale up investment in value-added industries. "The most important question to ask is: How reliable is your infrastructure?" says policy adviser Omonbude, who lists grid connectivity, water resources and transport links as key considerations for smelting and refining processes.

He does believe that governments are now at least asking the right questions. "While we might not be seeing billions of dollars flocking in for smelting projects and refining projects," Omonbude says, "we're seeing a lot of energy now going into the enabling conditions to attract this investment."

Africa's key advantages

Africa has some key advantages in the race to attract more mineral processing investment. The most important, perhaps, is the excellent conditions for renewable energy generation that prevail over much of the continent.

The non-profit Climate Action Platform Africa estimates that providing 24/7 power with renewable energy plus storage would cost three times more in Germany than in Kenya. This reflects the greater and more reliable supply of wind and solar energy in the East African country, which in turn means there is a reduced need for generation and storage capacity.

Indeed, the investment in the HyIron green iron plant reflects how Namibia is one of the best places in the world for producing the green hydrogen needed in this industrial process.

Progress is being made towards developing the infrastructure for green industrialisation. Infrastructure investment platform Africa50 announced in August that it has raised $118m for its Alliance for Green Infrastructure in Africa Project Development Fund (AGIA-PD). "We are mobilising significantly more capital to scale the development of bankable green infrastructure that will support emerging green industries," says Anas Charafi, executive director of the AGIA-PD Fund.

"We are confident that we will be able to raise substantially more capital and deliver even more impact," he adds. "The Fund aims to raise up to $400m which would enable us to ultimately generate up to $10bn in green infrastructure investments."

There are few shortcuts on the road to building the industrial ecosystem that will allow Africa to truly benefit from its immense mineral riches. It may take decades before the dream of establishing vertically integrated industries on African soil is realised. Yet the continent, at last, does seem to be moving in the right direction.