Yves here. This article discusses the high probability of the so-called resource curse re-emerging in the same way as the exploitation of new precious minerals such as lithium and cobalt. One has to wonder how much of the resource curse can be avoided. For example, one could argue that it works in the US but regionally. Look at how West Virginia, which has been exploited for coal, has become impoverished and polluted, or how the most desolate area has been invaded by underground facilities, at the rate of burning tap water.
By Rabah Arezki, Senior Fellow Foundation for International Development Studies (FERDI); Research Director French National Center for Scientific Research (CNRS); Senior Fellow Harvard Kennedy School, and Frederick Van Der Ploeg, Professor of Economics University of Oxford. Originally published at VoxEU
A race is intensifying among global powers to secure access to key minerals to simultaneously power the digital transformation the world is facing. The dramatic growth in demand for precious minerals is putting upward pressure on prices and spurring the discovery of new precious minerals around the world. However, for developing countries, this new bonanza presents opportunities but also significant risks. This column argues that as the missing management system changes, the rush for precious minerals risks a ‘new precious minerals curse’.
While both the energy and digital revolutions depend on technologies that require precious minerals, it is the clean energy revolution that is most associated with the most use of these minerals. Technologies including wind turbines, solar PV, electrical networks, electric vehicles and nuclear power require minerals such as copper, lithium, nickel, silicon, cobalt, rare earth elements and uranium. Demand for these minerals is expected to grow rapidly as the clean energy revolution gathers pace.
In the face of this growing demand, the limited supply of essential minerals is already putting upward pressure on their prices. The International Energy Agency (2021) predicts that mineral demand for clean energy technologies will increase at least fourfold by 2040 to meet climate goals, with the highest growth in minerals needed for electric vehicles. Graphite, nickel, lithium, and rare earth minerals are expected to see explosive demand under the condition of meeting climate goals. In this column, we argue that the bonanza from exploitation in developing countries creates both opportunities but also significant risks, especially in developing countries (Arezki and van der Ploeg 2023).
The production of essential minerals is scattered. However the key issue is where the production of residual minerals for domestic use (ie exports), especially unrefined minerals, is the focus. The production of precious minerals has increased significantly in the largest economies – China, the US, and the EU. These blocks often consume much of what they produce, making them dependent on exporters of essential minerals. Australia, Russia, Kazakhstan, the Democratic Republic of Congo, Mozambique, Chile, South Africa, Zimbabwe, and many others, are important exporters of raw minerals, and as such are targeted by superpowers that strive to ensure a secure supply of these minerals. .
The situation of mining compared to the processing of precious minerals is very telling. China dominates completely processing copper, nickel, cobalt, rare earths, and lithium, but only dominate production of the strange world. Chile and Peru are the leading copper producers, Indonesia dominates nickel production, DRC dominates cobalt production, and Australia and Chile dominate lithium production. Surprisingly, China is the world’s leading producer of offshore wind, offshore wind, solar, and electric vehicles and has a 40-45% global share in the production of fuel cell trucks, heat pumps, and electrolysers (Leruth et al. 2022).
Many developing countries, including Zimbabwe, are trying to increase the value of their precious minerals by establishing cartels. Historically, in response to the unfair share they believed they received in the exploitation of these precious minerals, developing countries have established producer organizations, such as OPEC. Although these companies may obtain high prices for these important minerals and add revenue to the government’s coffers, in reality developed economies eventually find other suppliers (for example, non-OPEC producers) or create other products (such as synthetic palm oil or shale oil). Moving up the value chain would be a better route, but even that proved difficult. The risk of cartelisation is another source of concern for major economies that depend on imports from developing countries. The uneven distribution of mineral production, however, is likely to spread as higher prices direct exploration investment efforts and eventually lead to more discoveries (Arezki and van der Ploeg 2019). A key case is lithium production, the price of which has fallen after fears of shortages in the face of extraordinary demand growth.
The concentration of mining activities near important minerals will have serious environmental, health, and social consequences. Indeed, mining activities can cause irreversible damage to the environment and are an important source of greenhouse gas emissions, which undermine climate goals. Mining of precious minerals is very water intensive and can pollute water, especially in areas where standards and controls are weak. Furthermore, in areas where labor standards are weak, working conditions can be harsh and child labor is rampant. These areas include the Democratic Republic of Congo, yet the DRC has become a favorite of the US and the EU, despite major governance challenges, because it negotiates contracts away from China.
The risk of environmental damage is magnified by the NIMBY (not in my backyard) politics of developed countries that consume these minerals too much. There is enough space here for international companies, especially those headquartered in developed countries, to strengthen their efforts and comply with domestic standards to avoid environmental and health disasters in many vulnerable countries where these minerals are extracted. If not addressed, this environmental degradation will leave people in developing countries where valuable minerals are extracted.
The new global environment in which developing countries are becoming the center of attention of superpowers is likely to slow down or reverse democratic governance in many developing countries. That is because the new ‘geopolitical rents’ of leaders aligned with the great powers are now back. That does not bode well for citizens and the prospects for economic development in developing countries.
Leaders of countries like the Democratic Republic of Congo have been courted at the same time by China and the US. This is despite a bad history of governance and human rights abuses. The bonanza from precious minerals is not necessarily good news. Developing countries often mismanage the revenue generated from the exploitation of their natural resources. This was at the expense of their citizens. The new geopolitical environment may make things worse.
The history of developing countries in managing their natural resources is so poor that the term ‘resource curse’ was coined to describe the paradox of resource-rich countries doing worse than poor countries. The results of major traditional resource centers offer lessons about what to avoid when managing the rise of essential minerals. In addition, regulation at the national level often fails to address issues of overexploitation of natural resources and migration, environmental degradation, and threats to biodiversity, which are often better managed by local communities. The work of the late Elinor Ostrom sheds important light on the creation of self-organizing user communities to achieve sustainability in the exploitation of natural resources, which can be critical to achieving governance of key priorities.
Various existing international initiatives focus on transparency, such as the Extractive Industry Transparency Initiative (EITI). The development of environmental, social, and corporate governance (ESG) practices has its roots in the socially responsible investment movement that began in the 1970s. It is not yet clear how ESG standards can be applied, given their voluntary nature. Another encouraging sign is that consumers in developed economies appear to be changing their environmental behavior. But investor behavior, especially in developing countries, may not be easy to change. The challenge with all of these international initiatives is the difficulty of translating them into the right context and fostering ownership, especially at the local and national levels.
In order to avoid a new curse of precious minerals, developing and developed economies need to create a new model of international governance that includes interdependence related to peace and stability, global health, and environmental and climate issues in an increasingly bloc-oriented world. If externalities are to be internalized, a new international governance approach will effectively bring technology transfer from developed to developing economies to provide tools to address the threat of climate change and meet climate goals, including moving the value chain of essential minerals. This international governance should also promote effective access to international financial markets through, for example, green, natural, or green bonds instead of loans backed by unclear resources. Developing countries also need to change their domestic governance to ensure that foreign direct investment brings local content, environmental protection, and jobs to address the growing discontent in communities where mining or other extractive industries operate.
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