CRAIG BREWER: Battery metals to boost Africa

If Africa is serious about maximising its exposure to the resource sector over the coming decade, a clear strategy relating to nickel, copper and lithium will be critical.

Africa has enjoyed a significant windfall from the rebound in global commodity prices, with coal, iron ore, gold and platinum group metals coming to the party. However, a limited focus on downstream beneficiation and limited investment in industries that support the commodity ecosystem will catch the continent out down the line.

With the rise of new energy technology, governments on the continent are now turning their attention to the potential offered by this cluster of “battery metals” and it will be interesting to see how they approach this opportunity. Invariably we expect a rise in some form of resource nationalism as countries attempt to rebuild their balance sheets in a post Covid-19 world, but forward-thinking decisionmakers and investors will be looking for countries that can think longer-term.

What we need to be wary of is creating a narrative of “people versus profits” and rather start developing a framework that aligns a combination of environmental, social and governance (ESG) metrics that sees all stakeholders benefiting from the upside.

In SA, global oil giant Shell was interdicted from conducting exploration work off the West coast, with environmentalists objecting to the impact on the local communities and wildlife in the area. While this ruling was greeted with much fanfare, the news headlines in the following days and weeks also bemoaned the fact that SA is facing record unemployment, the average consumer is being crushed by record oil prices as a result of the war in Ukraine, and the country can’t generate enough power to deliver meaningful economic growth.

This perfectly encapsulates the challenge African governments face: unless there is a strategic approach to all three elements on the ESG matrix they cannot deliver sustainable growth that will benefit all stakeholders.

While the explorative nature of the Shell project meant there were many unknowns, the current debate and outlook for the coal sector will be informative to determining which countries understand the importance of integrating a proper ESG framework.

There has been extensive lobbying from those focused on the “E” side of the equation, who argue that coal is “dirty and bad”, while renewable energy is “clean and good”. This was a comfortable narrative until the point where Russian tanks rolled into Ukraine and much of Europe found itself facing a major energy security crisis.

In the euro area the unemployment rate sits at just under 7% — in SA the latest employment statistics show a 35% unemployment rate and youth unemployment is at 65% in certain communities. With the coal sector employing one out of every five people in the mining sector and creating over 90,000 jobs, what will the social impact be if we simply elect to stop all investment in the coal sector?

Communities in Mpumalanga, Limpopo and the Free State are all big beneficiaries of coal mining activities and simply adopting a view that projects in this sector shouldn’t be funded is not conducive to economic growth.

This segues into the “G” part of the equation. While there has been a big push to change SA’s energy mix, one has only to look at the Risk Mitigation IPP Procurement Programme (RMIPPPP) announced in 2021. The purpose of this had been to introduce 2,000MW of private sector capacity into the grid across 11 successful bidders, yet a year down the line none of these projects has made it out of the starting blocks due to various legal challenges. Whether you are private sector capital, a bank or a development finance institution, it is impossible to release capital for large projects if a proper governance framework is not in place.

Understanding all three legs of the ESG matrix will be critical when it comes to growth of production of battery metals such as nickel, copper and lithium, and it needs to be viewed through an African lens. How can we seize this opportunity with broad-based benefits for all stakeholders?

The Russia-Ukraine crisis is going to fundamentally change the commodity market for years to come. As Europe is rapidly discovering, sanctions have limited impact when you are dependent on Russia for much of your energy security. The Western world will no longer want to rely on Russia for key commodities, yet for the foreseeable future is beholden to it due to the rich resources within Russia.

Whether it is microchips that require neon (50% of global supply is from Russia), palladium used for exhaust systems (45%) or nitrogen used for fertiliser (20%), the West will take time to lessen its dependence on Russia, which will make for an interesting tension between global nations. Resource-rich Africa can benefit here, but only if there is a clear road map for investors to follow.

Brewer is co-head: origination at Absa Corporate & Investment Banking.