How to Reverse the Resource Curse

All it took were four little words to shift the fortunes of a continent: “A diamond is forever”. For much of history, diamonds were the rarest of the rare minerals; only royalty and the obscenely wealthy had them. Yet in the late 1800s, a discovery of diamond deposits in South Africa sharply increased their availability, just as a single company, De Beers, consolidated all that new supply. 

But in the ensuing decades, something happened that would be familiar to anyone even half-awake in an introductory economics class: decrease scarcity and you decrease prices. In the 1940s, De Beers was looking to rekindle interest in its product with a slick marketing campaign associating engagement rings and love that’s still with us today: if you want your relationship to last for eternity, remember “a diamond is forever”. 

Yet that’s only part of the story. The man consolidating all those nascent diamond mines and cornering the world’s diamond market for De Beers was its founder, the British-born Cecil Rhodes. The De Beers Consolidated Mines, Ltd. made Rhodes fantastically wealthy, yet that wealth did not exactly flow to the areas that it came from. Substitute diamonds for any of the other natural resources Africa boasts and you have a mini-history of the continent’s economy over the last couple of centuries: outside nations find and extract a resource, becoming rich at the expense of the local population. 

Retaining that wealth for itself has long been the challenge faced by many African nations looking to break the resource curse. But it’s not just diamonds, gold, silver, petroleum or sugar the continent has an abundance of. As the world shifts to a green economy and becomes more digitized, the components needed to build computers, electric vehicle batteries, solar panels, motors and wires (lots of wires), that will mean a lot of lithium, copper, nickel and rare earth elements, which in turn are necessary for lasers, x-ray machines and countless applications in the defense industry. 

All of these resources can be found in some abundance on the continent and they will be all the more critical as the world looks to build more and more climate-friendly technology. But as outside players heavily invest in their extraction, how can resource-rich African countries ensure they also enrich their own populations? 

Cobalt is a girl’s best friend 

Chances are, you’ve carried a bit of cobalt in your pocket today. Rechargeable batteries, like the ones in smartphones, need cobalt. And as the world builds more and more phones, computers, electric cars and anything else that needs a rechargeable power source, those will need cobalt too (along with lithium, copper, nickel and other socal-led “green metals”). 

According to recent data from the United States Geological Survey (USGS), in 2022 US cobalt extraction came to 800 tonnes. The world’s second largest economy, China, mined 2,200 tonnes of it in the same period. These two numbers hardly stack up to what the world leader in cobalt produced. That distinction belongs to the Democratic Republic of Congo, which accounted for 130,000 tonnes, or roughly 70 percent of the world’s supply. DR Congo is so far ahead in the cobalt extraction game that the second highest country, Indonesia, “only” managed to dig out 10,000 tonnes of the mineral. 

DR Congo certainly isn’t going anywhere anytime soon as the king of cobalt. The central African nation sits on about 4 billion tonnes worth, roughly half of the global reserves estimated by the USGS. Mining cobalt also goes hand in hand with mining copper or nickel (led by Indonesia), yet for all that potential DR Congo isn’t the world’s top producer of refined cobalt; that accolade belongs to China, which mostly imports partially refined cobalt from DR Congo and processes it itself. China “consumes” more cobalt than anyone else in the world, the vast majority of which goes towards the rechargeable battery market. 

This dynamic is not unique and there is even a name for it: the paradox of plenty or, less charitably, the resource curse. 

“One thing that comes to mind is the DRC is especially rich in cobalt, but it’s also ‘rich’ in the number of people living in poverty,” said Fatima Denton, Director of the United Nations University Institute for Natural Resources in Africa. 

This paradox is seen in many developing countries throughout the world as too often there is an imbalance between potential and reality. 

“Africa hasn’t done very well in terms of geological mapping and understanding the value of what it has,” Denton said. “So, if we don’t have an advanced knowledge of what we have, then I think the predatory tendencies we saw in the past will emerge again.” 

But for many countries that are rich in natural resources but lack the means to capitalize on them, foreign investment is a welcome, if double-edged sword. On the one hand, a country with limited means to develop their own extraction industries might seek outside money to do that development for them. On the other hand, the country making that investment is also making most of the profit. At the moment, no other country exemplifies this better than China. 

Big processing in little China 

China, by both its size and its development capacity, has plenty of the mineral deposits needed for the energy and green transitions along with the means to extract them. Yet over the past several years China has invested heavily in mines in developing countries around the world, especially across southern Africa. This effort is but one component in the country’s Belt and Road Initiative, which aims to bolster China’s economy – and influence – through massive international infrastructure investment. 

The ore extracted from these mines is often shipped back to China for processing via the Maritime Silk Road sea route across the Indian Ocean. DR Congo and Indonesia may have a hold on “upstream” cobalt and nickel reserves, respectively, but it is China that dominates the following “midstream” and “downstream” steps in refining of those minerals. Globally, the country refines 79 percent of the world’s cobalt and 68 percent of nickel, according to an estimate in a recent report by the Brookings Institution, a Washington, DC-based think tank. Other strategic minerals are not far behind, as 59 percent of lithium and 40 percent of copper are refined in China. 

While those strategic minerals are often mined elsewhere and then dispatched to China for processing and refinement, the country boasts a clear advantage in one class of minerals: rare earth elements (REEs). This set of 17 elements mostly found at the bottom of the periodic table are critical to so many things including AI-related technology and defense systems. Four REEs in particular are relevant to clean energy technologies. The International Energy Agency estimates that about 60 percent of these REEs are produced in China (which boasted 95 percent in 2010). 

And who is the biggest consumer of all of these refined strategic minerals? That would be China itself. A vast majority of electric vehicle batteries are produced in the country and three out of four of the mega-factories producing lithium-ion batteries (used for more than just cars) can be found in China. All this boils down to a simple fact: if you have to recharge something, chances are it has “Made in China” printed somewhere on it. 

One reason for this dominance: there is a state-owned element to much of the Chinese investment, so they are able to absorb losses better than a purely private company is able, said Gracelin Baskaran, Research Director and Senior Fellow for the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS), a Washington, DC-based think tank. 

“China is willing to put in the infrastructure that’s needed,” Baskaran said. “So if we look at a place like the DRC, they put in the US$3 billion investment in infrastructure quite a few years, decades ago, and that infrastructure became the basis for critical minerals engagement.” 

It is tolerance for the risks and quirks of doing business in developing African countries that gives China such an advantage over its competitors. 

“That kind of combination of factors: Corruption, being able to absorb the losses and the infrastructure are all things that have given China that advantage,” Baskaran said. “And of course, most obviously that China is willing to enter [the African mining sector]. The US, EU and Australia have not historically taken the route of partnering with Africa, and China has, which gave it that decades-long advantage.” 

For countries not wanting to heavily rely on China for access to those strategic minerals and the products they can create, investments will need to be made in developing extraction and processing capacities of mineral-rich areas, especially in Africa and South America. 

Not in “mine” back yard 

Expanding mining and refining capacity is easier said than done. As with most development, NIMBY-ism, or not in my backyard, is a universal phenomenon. Just as no one wants to live next to a noisy factory or power plant, the feeling also extends to mines. Yet mines are not like factories or most power plants; if a mine can’t be built in a specific spot, those minerals stay in the ground. Oftentimes a proposed mine in a developed country will meet stiff resistance. 

Portugal is already the European Union’s biggest lithium producer and now its lithium-rich north can help the EU in its green transition and lessen its reliance on China. Yet a proposed lithium mine in the region has met with stiff resistance from locals as well as anti-mine activists, who ask why rural villages should be polluted in an effort to clean up cities. Corruption allegations surrounding the mining deal led to the resignation of the country’s prime minister in November 2023. 

Elsewhere, Greta Thunberg, the world’s most famous climate activist, has joined the opposition against extracting REEs from the north of her native Sweden, in an area inhabited by the indigenous Sami people. Similarly in Arizona, the US’s leading copper state, a proposed mine on land considered sacred to the Apache people, is also being met with resistance from environmentalists and Native American groups. 

Ironically, the very materials needed for the green transition often cannot be obtained in an environmentally-friendly way. Just as coal extraction, which powered the Industrial Revolution, took a toll on the landscapes it was strip-mined from as well as on the health of the miners who dug it out of the ground, the mining of strategic minerals comes at a cost. Copper, for example, is commonly mined in large, open pits. Smelters that refine ore frequently produce fumes that can be toxic to those living nearby. 

In 2023, the World Bank and the French Development Agency (AFD) co-published a report titled, “Africa’s Resource Future: Harnessing Natural Resources for Economic Transformation during the Low-Carbon Transition.” Among the many aspects examined in this 274-page document are the environmental consequences of mining. 

For example, it’s not just the expansion of timber or agricultural production that causes tree loss. Open-pit mines, for instance, require more vegetation clearance than shaft mining. That’s before even factoring in the clearance needed for roads to connect to these mines to begin with. Though not solely attributed to mining projects, the report noted how sub- Saharan Africa had lost 2 percent of its total forest cover in just 10 years. Besides, deforestation and biodiversity destruction also have an impact on tourism and other economic sectors that attract outside money. 

The World Bank-AFD report notes that resource extraction and environmental degradation do not need to go hand in hand. Countries can enact (and enforce) environmental regulations that reduce the harmful footprint associated with extraction. 

Additionally, an increased focus on environmental, social and governance (ESG) factors in new projects in the mining sector can also help ensure that Africa’s green transition stays as green as possible. 

The G in ESG is also especially important. A recent wave of coups in sub-Saharan African countries, the never-ending fight against corruption and the fact that many of these critical minerals come from politically unstable places increase the risk of investments in the mining sector. Factoring good governance into new projects not only lowers risk, but also encourages more diverse financing. 

Either ore 

So what would it take for resource-rich African countries to become major players in the minerals needed for the green transition while at the same time improving the quality of life for their populations? 

For countries wishing to develop their own one-stop-shop of upstream and downstream mining sector operations, access to financing is one of the biggest hurdles, according to Sheila Braka Musiime, Deputy General Counsel at the World Bank Group, who previously worked as Chief Counsel of the World Bank’s section for African and MENA countries. 

“Financing is a big constraint and very much linked to that is the issue of debt,” Musiime said. “If we don’t solve the debt crisis, if African countries don’t solve the debt crisis, it’s going to really constrain how much they can do on the continent.” 

The same holds true for development across all sectors; a country can have great plans for a power plant, water sanitation facility or hospital, but if their credit score is poor, obtaining the money to build these things will be impossible. Just as important as unlocking that financing is where it’s invested; often you can’t build a mine or a mineral refinery without building all the power lines, water facilities, roads, rail and ports first. Generally, it’s this infrastructure development front that sets African countries apart, said Beatriz Calzada Olvera, an economics researcher and lecturer at the Erasmus University Rotterdam – Institute for Housing and Urban Development and an affiliated researcher at UNU-MERIT. 

“If we compare, for instance, Latin American countries with Africa, you still have the developing country story happening in both cases,” she said. “There are a lot of differences still, even if they are developing countries in terms of infrastructure, where you would see perhaps the most obvious difference.” 

Chile, Calzada Olvera mentions, is a good example of this difference. The country is known for its rich lithium deposits and has the advantage of a long coastline and relatively modern ports, making it much easier to export minerals compared to many African countries. 

Extraction and processing are very energy intensive and developing countries often struggle with maintaining a reliable and cost-effective energy system. Mining companies themselves are beginning to address this. 

“One of the things that we’re starting to see companies do is to essentially develop their own energy infrastructure,” said CSIS’s Gracelin Baskaran “And we see this in Namibia. There is a company that put in its own solar infrastructure (B2Gold). We’ve seen that in South Africa the majority of companies are now building their own renewable energy capacity.” 

Baskaran, who contributed to the World Bank’s “Africa’s Resource Future” report, added that water is another resource that mineral-rich countries like Namibia struggle to find a reliable supply. Namibia, for one, recently built its first ever solar-powered desalination plant. 

As the deadline rapidly approaches for when the world must manage the green transition in order to save itself, the continent once known for its gold now has a golden opportunity in providing that transition with the raw materials it needs. The path out of poverty can be found under the very feet of the people that need it the most and African countries have the chance to rewrite their development stories and reverse the resource curse. 

Africa and the OPEC Fund

Senegal 

Dakar's “Zone Soleil” Sanitation Project 

Approved: March 2014 Completed: May 2019 Total project cost: US$19 million OPEC Fund financing: US$7 million 

The project improves the sanitation situation in the southeastern area of the Department of Pikine, a suburb of the capital city Dakar. Child mortality, maternal death, malaria and sexually transmitted infections represent the main medical health problems in Senegal. By protecting the targeted area from flooding the risks of epidemics caused by stagnant water and swamps were reduced, supporting the reduction of morbidity of waterborne diseases by at least 50 percent. 

The project surpassed the expected rate for the implementation of works. It delivered a 31.4 km underground sewage network, the construction of a 2 km network of sewage transmission pipes and 2,760 house connections. At least 64,000 people will have benefited by 2025 and the quality of life will improve as the risks from malaria and cholera are minimized.