Critical minerals, development and agency: Are resource-rich countries in control of their mineral wealth?

In February this year, the Democratic Republic of Congo (DRC) placed a temporary ban on the export of cobalt with the aim of curbing oversupply in the global market. The country also consulted with Indonesia, another key producer of the mineral to partner with and regulate the global supply. Indonesia plans to increase royalties on nickel which will have an effect on cobalt as the former typically contains 1-2 per cent of cobalt as its by-product.

Cobalt is a key component for manufacturing batteries in electric vehicles (EV) and wind turbine generators. It is among several critical minerals that are crucial in the global energy transition supply chain. DRC is the world’s largest cobalt producer, contributing to over 70 per cent of cobalt globally. 

This is not the first time a country has used export bans to leverage economic and geopolitical gains. A known precedent is that of Indonesia banning the export of nickel ore since 2020. Similar bans have been instituted by Zambia and Zimbabwe, pointing to one among various tools countries have at their disposal to control how their resources are extracted and profited from globally.

While the motivations for each country have varied, the following question emerges: How do resource-rich countries of the Global South — who will play a crucial role in the new global, green economy — capture more economic value from their own resources? And do governments have agency in determining how extraction and development of the local supply chain progresses?

Export bans to reclaim economic strength?

Indonesia’s move to ban the export of raw nickel is one of the foremost examples of a government choosing to control how its mineral sector is developed. The move was intended to transform Indonesia’s status in the global supply chain by incentivising investment in the country’s downstream nickel industries such as refining and battery manufacturing, as opposed to merely supplying the raw material and losing out on earnings from value addition.

Chinese companies have moved quickly and emerged as key players in Indonesia’s nickel industry since the ban. The move made global ripples, with the European Union (EU) even suing Indonesia at the World Trade Organisation (WTO) in 2020, claiming that the ban was in violation of principles of international economic justice. Though the WTO ruled in favour of EU in 2022, Indonesia appealed the decision and a final outcome remains to be achieved.

Resource rich countries have deployed this tactic in the past as well, such as Zimbabwe’s raw chromium ore ban in 2021 and China’s selective export restrictions for several critical minerals over time.

Zambia, the fourth largest copper producer globally, has also enforced bans on the export of copper concentrate to foreign smelters in the past, in order to maximise its economic gains. 

DRC’s recent temporary ban on all cobalt produced in the country has come as a response to the lowest prices in about eight years owing to oversupply in the international market. Since DRC earns royalties from the export of cobalt, this move is an attempt at balancing supply and demand, and thereby creating a rise in prices. The ban is to be reviewed after a period of three months and some increase in prices has already been reported.

The possible outcomes will vary — large producers may simply halt all production or indulge in increasing their stockpile and wait to export again. As for global implications, some analysts have suggested that the disruptions in supply and consequent rise in prices may increase interest in cobalt-free batteries or ones using smaller quantities of the mineral in coming years.

The ban placed by DRC needs to be viewed against the backdrop of a war in the eastern part of the country that is fuelled by an armed rebellion group, M23, that is backed by Rwanda. The unrest has also prompted Felix Tshisekedi, President of DRC, to propose a minerals deal with the US in exchange for securing DRC’s defence.

Fadhel Kaboub, associate professor of economics at Denison University Ohio, has suggested that the renewed interest of US in obtaining a favourable critical minerals deal with Congo has more to do with the country’s military and defence interests rather than spurring on the clean energy transition.

Other powerful economies such as EU and China are also in the process of negotiating an agreement with DRC in exchange for building infrastructure of strategic importance to access the minerals.

Overall, 53 countries put in place export restrictions on critical minerals between 2009 and 2020, the Organisation for Economic Co-operation and Development has reported, though the rationale and consequent efficacy of each are possibly different.

Avoiding a new ‘green’ resource curse 

Countries are charting a future that rests on energy security and industrial expansion through low-carbon technologies such as wind turbines, solar panels, EV batteries and grid battery storage. Critical minerals such as lithium, cobalt, graphite and manganese form the bedrock for the production of these technologies, which in turn will also supplement diversification of economies and yield more employment opportunities. Their uneven geographic concentration and, in some cases, scarcity of the resource itself gives them the ‘critical’ status with regard to the global energy transition.

According to some sources, the Global South possesses half of the world’s minerals needed for clean technologies. The resource endowment of critical minerals in the South presents an opportunity for developing countries to shape their role in the global energy transition and transform their economies. 

The demand for critical minerals in a Net Zero Emissions scenario is expected to increase, with cobalt and lithium projected to grow by 115 per cent and 454 per cent, respectively, between 2022 and 2030, according to United Nations Trade and Development.

With China already controlling much of the resources and supply chains in Africa, Latin America and Southeast Asia, and the US and EU strategically aiming to gain more access, the South needs to determine how to command more control across the value chain of extraction, processing and manufacturing of the critical minerals.

The dependency theory (first proposed by Argentine economist Raul Prebisch) argues that developing countries remain trapped in extractive relationships with advanced economies, particularly owing to colonial legacies. Despite being natural resource-rich — from indigo and salt to uranium — these countries have historically reaped far less benefits than they ought to. Recognising this legacy of resource extractivism is imperative when examining the present race for critical minerals in the context of global climate action.