African resources should attract investment

By Gregory Simpkins

God has blessed Africa with abundant human and natural resources. Human resources often leave their home countries for more promising opportunities elsewhere, but the natural resources remain in the land and water in and around Africa.

As I have stated in previous writing about this issue, an estimated 97 percent of the world’s platinum is from Africa, as well as 90 percent of the cobalt, 80 percent of the chromium, 64 percent of the manganese, half the world’s gold reserves and as much as a third of all uranium. In recent years, the mineral coltan (columbite-tantalite), largely coming from Africa, has enabled the development of computers, cell phones, and other electronic devices. We would be hard-pressed to construct jet aircraft, automobile catalytic converters or tablets without the minerals found in Africa, and in some cases, almost nowhere else in the world.

Resource curse?

The question is: are African governments underselling the value of these natural resources and not requiring that the foreigners who would extract them provide more benefit to their country than the foreigners do for themselves? Have African natural resources overcome the so-called “resource curse”?

When I was managing hearings for the House Subcommittee on Africa, Global Health, Global Human Rights, and International Organizations, we held a hearing on the African resource curse. We found that despite Africa’s abundant natural resources – from critical and desirable agricultural products such as gum arabic to strategic minerals to energy resources, throughout history African resources have led to negative outcomes for African people more often than positive ones, including slavery, colonization, predatory governments, and vicious rebel group activity.

“What should be a blessing – abundant natural resources – has all-too-often been a curse. It has been argued, for example, that one can correlate the rise and fall in the price of petroleum with the rise and fall in the implementation of human rights in major oil-producing countries.,” then-Chairman Chris Smith said in his opening statement at our 18 July 2018 hearing.

“Protection of human rights throughout resource-cursed countries is dismal or completely lacking. Most resource-cursed countries are ruled by either authoritarian or other types of highly repressive regimes. These regimes are kept in power by an elite group, such as those composed of high-ranking politicians and military leaders.”

But natural resources don’t have to be a curse; they are in fact a blessing if used to benefit African societies. Back in 2009, the African Union (AU) and the African Development Bank (AfDB) released the report Oil and Gas in Africa that found that there are 3 major types of upstream arrangements: joint ventures, production sharing arrangements, and service contracts. Each of them poses risks for the multinational extraction companies, but it hasn’t stopped the exploration of oil and gas.

Not that these agreements benefit citizens for the most part, but they are certainly lucrative. That is why African governments continue to encourage oil and gas exploration and why multinational corporations seek licenses for exploration, even in the face of increasing efforts to move on from fossil fuels. Both governments and companies know that the transition to a green economy will take much longer than activists want to believe. Meanwhile, a new crop of resources is becoming ever more valuable. The called-for transition to renewable energy requires minerals that need investment to facilitate extraction.

Africa contains sufficient natural resources to attract foreign investment that would allow for the development of supporting industries, creating jobs and wealth for people in African nations.

Wealth creation

More than a decade ago, tin, tungsten, tantalum, and gold – the 3TG minerals mined in conflict areas became a major topic of interest because of their multiple uses in modern society. Tin is used to coat other metals to prevent corrosion and create alloys. Tantalum stores electricity and is used in alloys for its strength. Tungsten is used in tools, cell phones, and in elevated temperature situations in addition to being used in alloys for its strength. Gold, in addition to its use in jewelry, is malleable, not highly corrosive, and highly conducive to electricity and heat.

The requirement that sourcing of these minerals not involve illegal or unethical practices, such as child labor or unsafe conditions, has governed the trade of these substances for the past several years. Presumably making commerce involving them safe from sanctions.

Other strategic minerals, such as lithium and cobalt, have vital uses, for example in electric vehicle batteries or diagnostic machines. Again, as I have written previously, China, which has increasingly attempted to lock up much of the supply of strategic minerals from African countries, is now the leading processor of what are known as rare earth elements or rare earth metals. These are 17 chemical elements in the periodic table, which are used in various technological devices, such as superconductors, electronic polishers, refining catalysts, and hybrid car components.

As time goes on, these minerals will increase in importance in the 21st-century economy.

As it happens, South Africa used to be the world’s leading source for these minerals. South Africa still produces some rare earth concentrates, but its production is dwarfed by what China produces, which now represents 95 percent of rare earth supplies. Chinese production often releases toxic wastes into the general water supply, and that would tend to discourage increased South African production absent what could be expensive environmental safeguards.

Yet another issue tends to discourage South Africa or other foreign attempts to compete with Chinese rare earth production. China has instituted export quotas to limit the amount of rare earths sent abroad. This has shifted the knowledge base since companies like General Motors are now forced to move staff and production facilities to China. Thus, most of the research and extraction expertise is flowing to China and not South Africa or other rare earth producers.

Africa contains sufficient natural resources to attract foreign investment that would allow for the development of supporting industries, creating jobs and wealth for people in African nations. China has developed its mineral processing industries because it benefits China. It is looking out for its own national interest. Now African countries must look out for their interests by facilitating competition for the rights to extract and process their natural resources. In doing so, there must be a requirement that such extraction and production contracts benefit the people of the country in question – investors, managers, and workers.

Of course, other foreign investors must step up to seriously investigate extractive opportunities. China has benefitted from a lack of significant competition. That must end. It is not only to the benefit of African countries, but also foreign investors to become involved in the growing market for the minerals that facilitate modern economies. The need for these substances is growing, not diminishing.

There are highly rated Development Finance Institutions such as the African Trade and Development Bank and the African Trade Insurance Agency that can provide a safe portal for foreign investors, vetting projects to mitigate perceived risk. Other institutions, such as the Africa Metals and Mining Group, provide much-needed background on viable mining projects.

In 2022, some hard commodities surged: coal (157 percent), lithium (87 percent), and nickel (43 percent). Even those whose prices had declined, such as cobalt, tin, and magnesium, rallied at the end of last year. The opportunities in funding exploration, extraction, and processing of African minerals are growing exponentially with the expansion of the green economy. Failing to get in on the investment opportunities in the African extractive sector – especially in a sustainable, wealth-creating manner for local people – is a mistake of epic proportions.

Gregory Simpkins, a longtime specialist in African policy development, is the Principal of 21st Century Solutions. He consults with organizations on African policy issues generally, especially in relating to the U.S. Government. He also serves as Managing Director for the Morganthau Stirling consulting firm, where he oversees program development and implementation. He further acts as a consultant to the African Merchants Association, where he advises the Association in its efforts to stimulate an increase in trade between several hundred African Diaspora small and medium enterprises and their African partners.