New Head at Top African Development Bank Faces Funding Squeeze
By and Antony Sguazzin
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The next leader of the African Development Bank faces a formidable task: pivoting the continent's biggest multilateral lender away from its reliance on the US and Europe, and securing billions of dollars of funding from other sources.
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Could Africa establish a critical minerals-backed currency?
Africa holds approximately 30% of the world's critical mineral reserves, making the continent indispensable to green industrialisation and the global energy transition. However, beyond being a major supplier, Africa has yet to establish a strong value chain to reap the benefits of this mineral wealth for itself. Less than 5% of its critical minerals are domestically processed as most value addition occurs abroad, especially in China, which dominates the refining industry. To address this disparity, there are growing calls for collaboration between African countries and their respective mining industries. A report by the African Development Bank (AfDB) and KPMG South Africa proposes a currency convertibility mechanism that would see participating countries pool a pre-agreed percentage of critical minerals to raise investment in energy and other developmental infrastructure. However, persistent and significant barriers stand in the way of a harmonised critical minerals value chain in Africa – including infrastructural deficits, skilled labour shortages, and environmental, social and governance (ESG) concerns. Considering these challenges, Mining Technology examines the currency mechanism and Africa's potential as a self-governing critical minerals powerhouse. Critical minerals are an active market across the continent as global competitors vie to secure ownership over valuable deposits. The main resources are cobalt, copper, graphite, lithium, manganese and nickel. "Africa's critical minerals mining sector is predominantly Chinese-owned as Western ownership tends to concentrate on traditional commodities, creating a dependency that often leads to exploitation,' says Olimpia Pilch, chief strategy officer at the Critical Minerals Africa Group. China has invested billions into African mining operations, with Mining Technology's parent company GlobalData pointing out that such investments have contributed to the 'construction of vital infrastructure and the transfer of essential knowledge to African communities'. Meanwhile, as China's main adversary, the US has been ramping up its interest in the continent's critical minerals. Since March, the US has been in discussions with the Democratic Republic of Congo (DRC) for an exclusive minerals-for-security deal in a bid to counter China's influence and diversify supply. On the European investment front, ESG is top of mind through initiatives such as the €300bn ($341.08bn) Global Gateway programme. However, the European Council on Foreign Relations recently urged the EU to deprioritise its 'strict ESG-first approach' lest it fall behind its competitors in Africa. Despite these moves by global superpowers, Africa has yet to benefit from its own critical minerals on a macroeconomic scale. KPMG South Africa lead economist Frank Blackmore tells Mining Technology that the continent 'is behind on a lot of metrics, mainly with infrastructure', adding that electrification for both public and industrial use is a key area of underdevelopment. 'Infrastructure deficits exist primarily in the form of poor roads, ports and energy supply, which limit access to mineral-rich areas in rural and isolated locations,' says Joshua Charles, CEO of Frontier Dominion, an investment research company focused on Africa. Exacerbating issues is the continent's skilled labour shortage. Research by the Organisation for Economic Co-operation and Development highlights southern and central Africa as regions where deficits in skilled workers have held back mining development and job creation. The majority of respondents to a recent GlobalData survey identified improving infrastructure and securing financing as the most vital challenges for African critical minerals to overcome. This embedded content is not available in your region. A revolution has emerged in recent years as African countries take steps to secure greater control of their critical mineral resources and prioritise local expertise and suppliers. At the EIT RawMaterials Summit in Brussels on 13–15 May, Mining Technology spoke to Aleksandra Cholewa, director of investment and development at Luma Holding and supervisor of the Malta-based investment firm's Rwandan assets. This includes a major tin and tantalum smelter that delivers to European and US markets. 'Africa has always been treated as backup storage for minerals to be shipped elsewhere,' she confirmed. 'We know we need more minerals – and that Africa can be a sustainable source [given] the right tools – but we must also be aware of what kind of value proposition we have for them. Partnerships should be equal.' The AfDB and KPMG South Africa have put forward a mechanism for participating African countries to 'pool together their mineral resources into a commodity basket [which will] serve their interests much better', while also funding long-term energy transition projects. World Resources Institute Africa governance and civil society support lead Patrick James Njakani Okoko explains that in current currency flows critical minerals 'help reduce currency risks by bringing in foreign exchange, as governments in exporting countries such as the DRC often intervene in foreign exchange markets to stabilise local currencies, in turn strengthening their ability to import essential goods'. However, he points out that this model creates a dependency on raw mineral exports and limits local benefits and value addition as a large share of the profits are captured by foreign operators. Indeed, the DRC has been grappling with an oversupply of cobalt and is considering extending its export bans, which began in February. Under the proposed critical minerals basket, also known as African Units of Account, participating countries would pledge a pre-agreed proportion of proven commodity reserves to 'promote regional financial integration, co-operation and cross-border trade'. The report suggests the S&P500 in the US as a point of comparison and the Gold Standard System as a precedent for the basket. However, Pilch contends that 'the model fails to recognise that many critical minerals are not commodities as they lack fungibility'. 'While gold-backed currencies offer stability, critical minerals offer the polar opposite," she adds. The critical minerals selected for inclusion in the mechanism are based on 'future expectation of value', with the report spotlighting copper, cobalt, nickel and lithium. KPMG partner and southern Africa financial services sector head Auguste Claude-Nguetsop adds that 'this is based on the demand, location, size and availability of critical minerals that can then be used as collateral for long-term funding towards Africa's Strategic Development Goals'. As well as mitigating currency risk and facilitating long-term borrowing for clean energy projects powered by critical minerals, another potential outcome of the basket would be the incentivisation of domestic natural resource exploration and extraction. According to Blackmore, the model 'would stimulate mining in Africa. The snowball effect of this would be the harmonisation of mining processes and regulation." Blackmore and Claude-Nguetsop believe that the mechanism and the AfDB's role as a settlement agent would improve transparency around mining investment deals between nations, establishing a more stable business environment. However, there are significant challenges made harder by the continental scale of the mechanism. 'The plan is viable so long as a periodic review takes place by an independent Africa minerals board, coordinated by the AfDB, to ensure that the mineral basket stabilises financing for access to fair financing rates,' asserts Charles. Meanwhile, Cholewa is positive about the plan. 'It is very ambitious and needs more discussion between all stakeholders – governments, the upstream, midstream and downstream, and financial institutions. There is some industry scepticism, but we would be happy to see how we can implement it in the tin and tantalum sector.' Claude-Nguetsop acknowledges that buy-in from political and business leaders will be critical to the success of the mechanism. Meanwhile, Blackmore says that depending on the jurisdiction "there could be operational challenges" related to moving products in and out of some countries, 'but as the mechanism enters economies, there will be operational liberalisation". He confirms to Mining Technology that the AfDB is currently working on piloting the basket, with careful consideration as to which nation will be selected for the study before an attempted expansion across Africa. It is impossible to regard such a change in Africa's critical minerals landscape without also considering the position of China. 'Any critical mineral currency would be left at the mercy of China's whims and could be easily weaponised to ensure African leaders fall in line with Beijing's agenda,' argues Pilch. Increasing action is being taken to reform Africa's mining and resource sectors with the interests of the continent front of mind. If implemented, a critical minerals basket could work alongside established initiatives such as the African Union (AU)'s Africa Mining Vision, which was created in 2009 and advocates for equitable and sustainable mineral resource management. This is in addition to newer frameworks like the AU and AfDB's recently announced Green Minerals Strategy. This highlights four main priorities: advancing mineral development; developing people and technological capability; building mineral value-chains; and promoting mineral stewardship. 'As time goes on, we could see the mechanism open for broader commodities as well, such as precious metals, but the current close ties between critical minerals and Africa's development are what is urgent,' states Blackmore. Looking ahead, Charles believes that 'there will be an increase in investments in Africa's critical minerals due to geopolitical interest, and thus growth in regional collaboration with institutions such as the AfDB, the World Bank, and multilateral partnerships between the US and EU and other regional blocs likely to materialise in the future'. The vast majority (82%) of those polled on the Mining Technology website in April/May stated that Africa would have an "extremely significant" (57%) or "very significant" (25%) role in the global critical minerals race, versus just 7% who said the continent's role would be "not at all significant". Cholewa hopes that there will be more value addition, particularly in the downstream sector. 'Africa is almost ready and there is no reason for it not to be done – but it needs financing, capacity building and education.' 'Africa holds immense potential to maintain and expand its role as a major player in global natural resource markets,' concurs Okoko. 'Through strategic policies, infrastructure development and balanced partnerships, the continent can transform its natural wealth into a driver of inclusive and sustainable development." "Could Africa establish a critical minerals-backed currency? " was originally created and published by Mining Technology, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
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