As demand surges for minerals used in low-carbon energy generation and electric vehicles (EVs), commodity-exporting economies in sub-Saharan Africa (SSA) could reap significant rewards, says ratings agency S&P Global.
The agency believes many commodity-exporting economies in the region will see a significant boost from increased demand for several minerals, such as cobalt, copper, graphite, lithium, magnesium and rare earth elements.
These materials are poised for a surge in demand and prices, given their importance in low-carbon energy generation and the production of EVs and batteries.
African countries with particular mineral potential are the Democratic Republic of Congo (DRC), for cobalt and copper, South Africa for manganese, Madagascar, Mozambique and Tanzania for graphite, and Zambia and Zimbabwe for copper and lithium, respectively.
Copper and cobalt make up the majority of DRC’s exports, and between 25% and 35% of its gross domestic product (GDP). In Zambia, copper provides 75% of exports and 25% of GDP.
Another example is nickel that makes up 20% of Madagascar’s exports.
That said, budgets for exploration have been decreasing across the continent over the past decade and now average significantly lower than other regions of the world.
S&P Global says surging exports for these minerals will have tremendous implications for economic growth, exports, current account, and exchange rate dynamics in the coming decades.
However, the government’s success in reaping the benefits of the prospective surge in mineral prices is not guaranteed.
The agency says regulatory and taxation issues, corruption, and, in some cases, political instability remain obstacles for further investments in the mining industry in many SSA economies, particularly given the long payoff lifecycle of mining projects – which can reach up to 20 years.
The ability of SSA economies to benefit from the prospective surge in demand for transition minerals, as well as their ability to reap upcoming demographic dividends will have crucial implications for the region’s long-term growth projections.
According to the recently released Fraser Institute mining survey, African countries have some way to go to ensure that they attract investors. When considering policy and mineral potential in the institute’s Investment Index, eight of the bottom ten countries are in Africa.
Zimbabwe ranks the least attractive in the world for investment, followed by South Sudan and Angola. Also in the bottom ten are Zambia, South Africa, the DRC and Tanzania.