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Lithium and the Race for Africa
By Shaynerose Magabi and Andrew Larsen | Wed Nov 22 2023
Africa's most significant bilateral trading relationship is with China, reaching a staggering $254B in 2021, surpassing U.S.-Africa trade by four times.
Additionally, China holds the top position as the primary contributor of foreign direct investment in Africa, supporting hundreds of thousands of jobs on the continent—approximately twice the volume generated by U.S. foreign direct investment. This dynamic economic partnership underscores China's substantial influence and engagement in the region and the United States’ weakness around investing in Africa.
Figure 1
From 2013 to 2021, Chinese Net Foreign Direct Investment (FDI) into Africa averaged $3.7B annually, while U.S. Net FDI averaged $-.1B over the same period indicating a trend towards US divestment from Africa.
Chinese Net FDI Flows vs. U.S. Net FDI Flows to Africa (USD, Billions, Unadjusted)
Source: The Statistical Bulletin of China's Outward Foreign Direct Investment, U.S. Bureau of Economic Analysis
Chinese funding to Africa peaked at over $28B in 2016, just three years after it announced the Belt and Road Initiative, an international infrastructure development strategy intended to boost China’s influence around the world. However, by 2021 funding fell to $1.22B and then fell again to just $994.48M in 2022. China’s challenges create an opportunity for other global players including the United States to invest in the continent and for African countries to develop more comprehensive strategies to capitalize on their natural wealth and build their own manufacturing capabilities.
While Chinese investment in Africa over the past two decades far outweighs the U.S., in 2023, Chinese investment has decreased dramatically as a result of challenging economic conditions at home and the global economic impact of the pandemic.
One of the ways African countries are stepping up is by developing new local manufacturing facilities for lithium batteries, which could increase the export value of their local lithium and contribute to Africa’s developing local Electric Vehicles (EV) manufacturing market.
The Global Lithium Race
Projections indicate that by 2030, Africa could contribute one-fifth of the world's lithium requirements
The lithium mining and battery manufacturing industry is experiencing a growing demand due to the global EV market which is projected to be valued at $1.6T by 2030. Therefore, battery manufacturers need new lithium sources for the long-term supply to serve the growing market. Importantly, Africa's resources, particularly its lithium reserves, play a critical role in the global shift toward clean energy.
There are 98 million metric tons of lithium resources across the globe. South American countries namely Argentina, Bolivia and Chile account for 53%, the largest portion, followed by European countries with approximately 7.4 million tons and Africa with approximately five million tons of lithium resources.
Africa's production is expected to continue to grow, increasing the continent’s role in global lithium supply chains.
Africa's production is expected to continue to grow, increasing the continent’s role in global lithium supply chains.
Figure 3
5% of the global total lithium deposits are located in Africa
% of Lithium deposits globally
Source: Yahoo Finance
The surge in Electric Vehicles (EVs) in industrial powerhouses like the U.S., China and Europe has prompted strategic attention to Africa's resources in foreign policy agendas.
China presently holds a substantial influence over the lithium supply in Africa. China is the largest investor in Zimbabwean lithium processing, which has the largest deposits on the continent.
However, in December 2022, the U.S. took decisive measures to secure its lithium supply. During the U.S. and Africa Leaders Summit in Washington, the United States signed a trilateral Memorandum of Understanding (MOU) with the Democratic Republic of Congo (DRC) and Zambia. The agreement aims to establish a seamless production system for EV batteries, covering the entire supply chain from mineral extraction to assembly line development.
By doing so, the U.S. positions itself strategically to counterbalance China's significant influence in the mining sectors of both DRC and Zambia.
Africa is Building Production Capacity
In Morocco plans are underway to build the first operational super-sized battery manufacturing plant capable of producing batteries that can store at least one billion watt-hours of electricity.
These plants would not only be able to produce the batteries needed to power EVs but also contribute to broader public energy demands.
Moreover, many African governments are recognizing the broader potential beyond raw materials in the global minerals race. Zimbabwe and Tanzania have proactively taken legislative measures to ensure that lithium processing occurs within their borders. To fully capitalize on the lithium boom, both countries are banning raw lithium exports aimed at maximizing profits derived from lithium extraction and processing rather than just exporting raw materials.
After banning raw lithium exports last year, in the first nine months of 2023, Zimbabwe registered a revenue of $209M (ZWD 76B) from lithium exports, which is approximated to be three times as much as last year’s revenue, indicating that local processing rather than raw material exports can increase returns for African governments.
Conclusion
Despite recent efforts by Western and African governments to invest in the EV supply chain, China still dominates.
Chinese firms control at least half of the production of battery parts and, in some cases, more than 70% of the manufacturing process for some specific components.
The COVID-19 pandemic underscored the risks associated with abdicating control of key supply chains to just one country, as experienced with China and shipping containers during the pandemic. Therefore, it is imperative to take action to diversify control over battery supply chains, particularly as global efforts intensify to reduce carbon emissions. Furthermore, by shifting focus towards the local processing of minerals and the production of EV components and batteries, African nations with abundant mineral resources stand to benefit significantly from the shift to clean energy. Considering China's dominant position in Africa's lithium market and its substantial control over key components in the electric vehicle supply chain, it is crucial for African nations to proactively diversify and localize their production of EV components and batteries, utilizing their abundant mineral resources to seize opportunities in the global shift towards clean energy. At the same time, western governments must aim to invest in EV supply chains to mitigate Chinese dominance over one of the most critical sectors promoting the global transition to clean energy, if they want to remain competitive.
The COVID-19 pandemic underscored the risks associated with abdicating control of key supply chains to just one country, as experienced with China and shipping containers during the pandemic. Therefore, it is imperative to take action to diversify control over battery supply chains, particularly as global efforts intensify to reduce carbon emissions. Furthermore, by shifting focus towards the local processing of minerals and the production of EV components and batteries, African nations with abundant mineral resources stand to benefit significantly from the shift to clean energy. Considering China's dominant position in Africa's lithium market and its substantial control over key components in the electric vehicle supply chain, it is crucial for African nations to proactively diversify and localize their production of EV components and batteries, utilizing their abundant mineral resources to seize opportunities in the global shift towards clean energy. At the same time, western governments must aim to invest in EV supply chains to mitigate Chinese dominance over one of the most critical sectors promoting the global transition to clean energy, if they want to remain competitive.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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