Rush for essential minerals
In the global race for critical minerals, China's dominance is expected to persist through 2040, with far-reaching implications for resource-rich developing countries. Rabah Arezki, a former vice president at the African Development Bank, and Rick van der Ploeg, Professor of Economics at the University of Oxford, are among the experts who have been analysing this trend.
China's control over rare earth elements and other strategic minerals is maintained through extensive regulatory and supply management strategies. These include expanding quota systems to include imported raw materials, which tighten global supply chains further. By 2025, China is estimated to control approximately 85-90% of global rare earth processing and production capacity.
This dominance poses significant challenges for resource-rich developing countries. By 2040, these nations may find themselves dependent on China for processing, refining, and accessing global markets, reducing their ability to add value domestically and capture greater economic benefits. China's inclusion of imported materials in its quota system could restrict global availability and raise prices.
The impacts extend beyond economic leverage and supply constraints. China's capacity to restrict exports, as demonstrated in past disputes with Japan (2010) and potential trade tensions with other nations, creates uncertainty and geopolitical risks for countries reliant on these minerals for their development and industrialization.
Moreover, China's actions may encourage resource nationalism globally, but its dominant position allows it to shape terms of trade and investment, potentially crowding out other players and complicating efforts by developing countries to diversify supply chains or develop independent industries.
China's long-term investments and technology acquisition in mining and processing could limit developing countries’ incentives or ability to upgrade their own mining sectors or attract competitive foreign investment outside of Chinese influence.
However, the situation is not without opportunities. Resource-rich countries hold the raw materials critical for green energy technologies and defense applications. While these countries will face challenges to develop independent downstream industries without significant policy and investment support, some may benefit from partnerships with China but risk becoming dependent suppliers without value capture beyond extraction.
The focus should be on strengthening institutions to defend mineral-rich countries' interests and make the most of their endowments. For a country to translate its resource endowments into economic development and improvements in human well-being, it needs strong outward-facing institutions to manage external relations and inward-facing institutions to govern how revenues are used.
The strengthening of inward-facing institutions is crucial for managing risks raised by resource extraction, including health and environmental damage, biodiversity loss, pollution, and labour-rights violations. Botswana, for instance, has sought to ensure that diamond cutting, not just mining, occurs domestically.
The demand for critical minerals is expected to quadruple by 2040 for use in clean-energy technologies alone. The European Union has sought mining contracts in resource-rich countries, such as the Democratic Republic of the Congo (DRC). Boycotts of critical minerals coming from conflict zones or countries using forced labour could convince multinationals and foreign governments to demand better enforcement of environmental and social standards from countries with which they do business.
Ultimately, it is up to mineral-rich countries to defend their interests and make the most of their endowments, starting with efforts to strengthen institutions. The strengthening of institutions is critically needed to guide business and policy development for positive impact.
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