Global Cooperation

Critical minerals are in demand. How do we make sure this trend drives development? 

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The energy transition is prompting a new demand for critical raw materials.

The energy transition is prompting a new demand for critical raw materials. Image: Getty Images/iStockphoto

Kimberley Botwright
Head, Sustainable Trade, World Economic Forum Geneva
Guillaume Dabré
Project Specialist, World Economic Forum Geneva
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  • The soaring demand for critical raw materials, driven by the clean energy transition, presents significant opportunities for green industrialization, especially in developing countries.
  • Many countries are engaging in state-to-state partnerships to bridge the potential supply-demand gap in critical raw materials but these arrangements must be structured to attract investments while integrating sustainability standards.
  • Several thought leaders provide their perspectives on trade, critical minerals and sustainability, as a new white paper from the World Economic Forum unpacks how trade deals can ensure developing countries benefit from demand for their critical material resources.

Demand for critical raw materials is surging due to their role in clean energy technologies, with projections indicating potential supply shortages.

Developing countries, particularly in Africa, which holds 30% of global mineral reserves, are key sources of these minerals.

Sustainable mining and leveraging natural resources for economic advancement are crucial. Significant investment and tailored national policy approaches are needed to support this green industrialization pathway.

To address supply-demand gaps in critical raw materials, countries are forming state-to-state partnerships to foster new projects and ensure supply resilience. A World Economic Forum white paper unpacks the various models the deals pursue and priorities for developing countries to achieve sustainable and economic benefits through these partnerships.

Critical raw materials state-to-state partnerships.
Critical raw materials state-to-state partnerships. Image: World Economic Forum

All nations want to master and benefit from their energy resources and the energy transition. Scaling up critical mineral supply offers significant opportunities but countries must consider where to integrate into clean technology value chains.

African Continental Free Trade Area implementation for sustainable value addition minerals.
African Continental Free Trade Area implementation for sustainable value addition minerals. Image: World Economic Forum

One often touted ambition and a stated objective of the African Continental Free Trade Area (AfCFTA) is to build new regional value chains. The Forum’s paper also looks at key provisions in AfCFTA that parties could use to do so.

For example, the freshly minted Protocol on Investment includes provisions on joint investment promotion activities and others on driving capital flow for emissions mitigation. Together, these could encourage investment in a regional battery value chain, emphasising low-carbon production technologies to make the outputs competitive for net-zero buyers.

Achieving that vision is by no means easy. As it stands, many countries in Africa seek to move up the minerals value chain, which could create tensions between regional and national approaches. More dialogue would pinpoint specific efforts or outcomes to overcome these tensions.

Further insights are also needed to determine what trade and investment facilitation actions within regions would be sufficient to whet investor appetite for specific mining activities or the ensuing value chain. Ultimately, investors and project developers will need to see the return on investment, meaning the economics of any given project have to make sense.

As debates in this area continue, we asked several thought leaders for their perspectives on trade, critical minerals and sustainable development. The Forum is working with stakeholders through its Securing Minerals for the Energy Transition (SMET) platform to scale just, sustainable and resilient primary supply and accelerate secondary minerals markets.

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Mads Nipper, CEO, Ørsted

A world that runs on green energy will require new supplies of minerals and metals from emerging economies. This cannot come at the expense of human rights. A lack of transparency can make it impossible to know where materials were mined and under what conditions.

Government partnerships are a great way to diversify supplies, raise standards for human rights and build the capacity to meet them. Ørsted is working hard on these challenges upstream in our value chain and welcomes stronger multi-stakeholder collaboration to help ensure a just and equitable energy transition.

Eduardo de Salles Bartolomeo, CEO, Vale

Global decarbonization requires a new dynamic of investments and consequently in capital flow.

To facilitate this capital flow for energy transition, some aspects have been highlighted in the Forum’s paper, such as the inclusion of carbon cost during the decision-making process, transparency and partnerships along the value chain.

Brian Menell, Chairman & CEO, TechMet

Building capacity for the production, processing and recycling of critical minerals is highly technical, capital intensive and requires a long-term view on investments. Closing the massive gap between the increasing global demand and available supply will require a concerted effort by governments, industry and investors.

Government funding agencies will need more resources, engineers, underwriters and relevant experts. They need to understand the unique aspects of metals markets and how deals can be structured creatively to deploy more capital quickly and responsibly.

The US International Development Finance Corporation’s investment in TechMet has been transformative. It has allowed us to invest in more projects, reinforced our commitment to high ESG [environment, social and governance] standards and is a model to be expanded and replicated.

Rebeca Grynspan, Secretary-General, UN Conference on Trade and Development

UNCTAD data shows the pace of announced investments in critical minerals has doubled in the last two years, and more growth is expected. Demand for copper in 2050 is projected to be twice the supply in 2020, while demand for nickel is projected to triple. Lithium will see the highest growth in demand, with a projected five-to-10-fold increase.

Many developing countries are major players in exporting critical raw materials, however, most of the value-added of these value chains is captured in countries that process the minerals into semi-finished and finished green transition products. There is a risk for mineral-producing countries that new commodity wealth may lead to new forms of commodity dependence.

Some countries, however, are fighting back and have adopted ambitious trade and investment policies to leverage their critical mineral resources for diversification and development. They see a historic opportunity to unleash a wave of structural transformation through value addition, downstream diversification and clean energy investment.

But this is something that we need to do in a multilateral way. A trade and investment regime based on power games and geopolitics won’t lead us to better results. Developing countries, and especially commodity-dependent countries, need a universally agreed rules-based system that makes trade and investment part of the solution by supporting and promoting their diversification.

Time is of the essence. The window of opportunity to transform the energy transition into a force for inclusive development is closing. Let us seize this chance before it is too late.

Eero Yrjö-Koskinen, Executive Director, Institute for European Environmental Policy

Most so-called developed nations, including the EU, aim to upscale their industrial base for clean technologies to become climate-neutral by 2050. Several of these technologies such as batteries and solar [panels] are thus expected to see a significant material demand increase in that time frame and are at risk of future market instability.

The success of the EU’s strategy hinges on the availability of certain critical raw materials and the predictability of their respective supply chains from third countries.

The EU has embarked on a mission to formalize strategic partnerships with resource-rich countries to complement its free trade agreements. Yet, this strategy is by no means a recipe for success, as many of these partnerships lack ambitious and binding ESG standards or concrete provisions to foster value addition in partner countries.

Solid elements do already exist in EU trade and cooperation frameworks. Complemented with provisions covering concerns such as water scarcity, biodiversity loss, the rights of Indigenous Peoples and governance issues, these building blocks could form the basis of a new gold standard for EU sustainable trade and investment agreements that are World Trade Organization compatible and foster a just transition globally.

Bruce Byiers, Head, African Economic Integration, European Centre for Development Policy Management

The AfCFTA offers a collection of protocols and annexes that, on paper, can help underpin regional value chain creation, including around critical raw materials and the battery value chain. Although the AfCFTA builds on the existing regional free trade areas, in principle it goes beyond regional tariff and non-tariff reductions to include investment promotion and has much higher levels of political visibility and traction than past regional agreements, potentially making “this time different.”

Nonetheless, the challenges that have faced regional industrialization strategies in the past often remain, requiring efforts to build trust and coordination between states as well as aligning political and economic incentives between and within states. With this in mind, efforts must be made to better connect the AfCFTA and other regional value chain-related policy ‘supply’ with private sector ‘demand’, to use such frameworks in pursuit of more inclusive investment.

External initiatives such as the much-vaunted Lobito Corridor seem to offer a concrete way forward to combine African ambitions with external interests and support. To do so concretely will require a combination of the elements discussed in the white paper along with granular analysis of political and economic actors and interests to maximize the chances of shared benefits.

Related topics:
Global CooperationTrade and Investment
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Contents
Mads Nipper, CEO, ØrstedEduardo de Salles Bartolomeo, CEO, ValeBrian Menell, Chairman & CEO, TechMetRebeca Grynspan, Secretary-General, UN Conference on Trade and DevelopmentEero Yrjö-Koskinen, Executive Director, Institute for European Environmental PolicyBruce Byiers, Head, African Economic Integration, European Centre for Development Policy Management

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