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Shopping for Raw Materials: Should Africa be Worried about EU Raw Materials Initiative?

Discussion Paper 105

14-03-2011

Ramdoo, I. 2011. Shopping for raw materials: Should Africa be worried about EU Raw Materials Initiative? (Discussion Paper 105). Maastricht: ECDPM.

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  • 1. Shopping for Raw Materials: Should Africa be worried about EU Raw Materials Initiative? Isabelle Ramdoo – ECDPM
  • 2. Structure of Presentation Part 1: The Global Debate Part 2: Should Africa worry?
  • 3. Part 1: The Global Debate
  • 4. Challenges facing access to RM Over the past 2 decades: Unforeseen and exponential increase in demand for RM from: Emerging countries, fuelled by their rapid eco growth, urbanisation , industrial and development needs; – Developed countries due to rapid diffusion of emerging technologies
  • 5. Results…. Price of metals tripled on av. between 2002-08 Increasing pressure on supply of RM No immediate sign of physical supply shortage BUT high risk of economic shortage: Reason? Strategic RM are unevenly distributed, some key suppliers (also key users) have imposed trade restrictions Risk for jobs, competitiveness and survival of industries in resource dependent countries
  • 7. Source: Raw Materials Group 2010
  • 8. In response… Resource-dependent countries Strategies/ RM diplomacy to secure access to RM from abroad Maintain stocks Reduce dependency and consumption (through recycling, R&D to find substitutes) Resource-rich countries To keep their RMs for their own devt Use of export restrictions
  • 9. Some key policy responses (1) EU 2008 RMI + definition of 41 strategic RM and 14 critical RMs in 2010 + new RM Initiative in 2011 Based on 3 integrated and complementary pillars: Market access (autonomous/ bilateral/ multilateral) Sustainable domestic supply Reducing EU consumption/boosting efficiency/recycling
  • 10. US 2008 Study on “Minerals, Critical Minerals and the US Economy” + 2010 Critical Materials strategy. Measures: (i) Identified 11 strategic minerals; (ii) Recycling/ reuse/ efficient use of resources (iii) Development of substitutes (iv) Stockpiling of key resources (v) Need to diversify global SS chain Some key policy responses (2)
  • 11. Japan 2008 guidelines for securing national resources + 2009 Strategy to ensure stable supplies of rare metals: 5 pillars: Loan guarantees to support resource acquisition projects Financing overseas field surveys Stockpiling of 7 rare metals Information gathering and dissemination on mineral availability abroad Financing research for new types of mining, exploration and recycling Some key policy responses (3)
  • 12. China – two-ways strategy (both rich and dependent): Domestic: expand domestic investment; restrict foreign investment in certain key areas; use of trade restrictive measures to keep resources; International – heavy investment in key countries; financing of RM-related infrastructure and services sector Some key policy responses (4)
  • 13. Part II: Should Africa Worry?
  • 14. Minerals are key to Africa… 30% of world reserves of RM + produces > 60 minerals and metals + vast and unknown potential Some are major producers of key raw materials : SA 79% of PGMs DR Congo 41% of world production of cobalt Heavy reliance for some on exports of RM: Botswana – 93.5% exports to EU in diamond and nickel; Guinea: 75.7% exports to EU in aluminium and diamond; Zambia – 61.5% exports to EU in copper
  • 15. BUT on average RM not the major export…
  • 16. HOWEVER importance is likely to accrue… Given increasing demand for RMs Africa’s largely unexploited reserves and growing interest from all resource dependent countries Resource-rich countries’ intention to diversify sources of supply, notably away from China
  • 17. Growing concerns in Africa (1) Africa’s major concern is about EU RMI (not so much about other strategies) In the corridors, most pessimistic views: RMI viewed as a means to grab resources – plunder – self interested – giving with one hand (devt) and removing with the other (trade)
  • 18. Why? – EPA negotiations, countries asked to remove export restrictions. Difficult to negotiate flexibilities – Increasing perceived as being closely linked to EU’s policy to ensure undistorted access to RM; Viewed as limiting policy space for industrialisation, export diversification and value addition Has become a political issue with EU Growing concerns in Africa (2)
  • 19. What implications for Africa? Initially, RMI not specifically targeted to Africa (not EU’s main source of imports) – major targets: China, Russia, Ukraine BUT, as a principle, EU likely to lead a strong battle against trade restrictive measures, independent of source or importance of the market – do not want to set precedence THEREFORE Africa will also be asked to remove restrictions
  • 20. Challenges… For countries negotiating EPAs: Trade : Will be required to eliminate export taxes Challenges : Revenue loss and constraining policy space for future industrial policies. Investment : might be asked to provide market access for investment in mining and related services Challenges – While FDI is good, without proper regulatory investment frameworks and well defined industrial policies, might constrain policy space for future devt (eg for SMEs)
  • 21. More apprehension from non-EPA countries RMI 2011 – “Autonomous” measures not clear – GSP? Link between trade and development (coherence) not clear as well Although governance is important, implementation is seen as quite challenging, as it requires a fundamental change in “culture” of work
  • 22. Opportunities… Africa can use RMI as an opportunity Improving resource management: Financial – DRM – taxation of resources, creation of Fund – European countries experience helpful + mainstreaming resources into NIPs and RIPs Technical : seek support from EU in areas such as capacity building, institutional building, setting up regulatory framework
  • 23. (ii) Strengthening states and governance RM are ownership of the state and exploitation rights are delivered by the state – important to have transparency in government revenues + expenditures + contracts Also a matter for firms: companies to disclose what they pay + code of conduct for foreign and local firms – 2011 RMI mentions that EU would work in this direction. Good opportunity to engage
  • 24. (iii) Improving knowledge base and geological survey – African countries could engage discussions with EU to conduct such surveys to enable them to have a better information about the soil content (iv) Better use of local content – use domestic labour (allow transfer of technical know how); while remaining compatible with international obligations, use of locally available inputs (enhance participation of local firms – will promote forward and backward linkages) (v) Transfer of technology important to help development of indigenous enterprises

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Economic Transformation and TradeBusiness and DevelopmentEU Development Policy and PracticeExtractive SectorsPresentationsRaw materialsScarcityAfrica