An African battery value chain to kickstart green industrialisation

#
Markus Spiske via Unsplash

Authors

Advanced economies are looking to secure access to critical raw materials to deploy clean technologies, and Africa’s abundant resources place the continent at the centre of discussion. Focusing on the battery value chain, Poorva Karkare and Alfonso Medinilla look at how African countries can seize the opportunity and benefit from the rising demand for the minerals that feed directly into green tech.

% Complete

    As the world embarks on the green transition, advanced economies are looking to secure access to critical raw materials (CRMs) to deploy clean technologies like batteries, solar and wind power, heat pumps and electrolysers. 

    The race to go green, and potential risks of supply disruptions this can lead to, has changed the way many governments look at CRMs. These supply chains no longer follow pure market logic but are intertwined also with great power competition and rivalry. As the United States of America (US), and the European Union (EU) in particular look to securing access to CRMs – and diversify away from China given its dominance in many of these supply chains – there is an increasing trend of securitisation of trade and economic policy. 

    Africa’s abundant resources place the continent at the centre of discussion. Yet as external partners, including the EU and the US, come with new policy frameworks to fulfil their own geostrategic interests, how can African countries seize these green windows of opportunity? How can they benefit from the rising demand for the minerals that feed directly into green tech to promote economic development and industrialisation? These are some of the questions that we seek to answer through a multi-year project on African green industrialisation. 

    In this guide, we focus on the potential for an African lithium ion battery value chain. It draws from analysis for our paper ‘Green industrialisation: Leveraging critical raw materials for an African battery value chain’.

    Map: ECDPM.

    Africa’s CRMs: High ambitions but low processing capacity 


    Africa has significant reserves of so-called critical raw materials (CRMs), including at least a fifth of the reserves of the global raw materials needed for battery-powered vehicles, and an even higher share of their extraction, as the figure below shows.

    African-Share-Minerals-Global-2020-ECDPM.png

    Sources: RMIS and IEA 2022a.

    CRMs are unevenly spread across the continent. Countries with CRMs hold the potential to not only provide the world with much-coveted minerals, but also to attract investments and develop critical industries around them. Batteries are one example of this trend.

    The worldwide demand for lithium-ion batteries (LIBs) is expected to reach 13.5 million metric tonnes by 2030, implying a large increase in the demand for African CRMs including lithium, cobalt, manganese, graphite and phosphate.

    At the same time, African governments seek to break away from the economic model of being only suppliers of raw materials, and aspire to add more value to their resources by processing them as well.

    Despite Africa’s riches in terms of CRMs, currently the battery minerals by and large leave the continent raw and unprocessed, with refining, and manufacturing, mostly taking place elsewhere, especially in China.

    Some notable exceptions include South Africa’s existing aluminium and manganese refining, and more recent nickel refining. Zambia has a history of copper refining while also processing other minerals as well, including producing nickel concentrates, while Zimbabwe just recently started making lithium concentrates.

    There is also little to no battery manufacturing, except battery assembly in South Africa.

    Nevertheless, the African Continental Free Trade Area (AfCFTA) places the lithium-ion battery value chain as a priority. The Democratic Republic of Congo (DRC) and Zambia recently signed a memorandum of understanding to develop this value chain. South Africa and Morocco have announced plans to build LIB gigafactories.

    Most value is added downstream...


    The battery value chain consists of distinct phases: upstream (mining and refining), midstream (cell component production and cell manufacturing) and downstream (assembly and end use) activities, as illustrated by the figure below. While minerals that Africa possesses are an important input for the finished product, to reach it, there are many steps in between.

    At the same time, value is unevenly distributed – the further downstream an activity is in the value chain, the greater is the value added. Cell component and battery manufacturers are highly specialised and increasingly vertically integrated firms. This means that companies traditionally specialised in downstream products, such as electric vehicle (EV) manufacturers, also control activities that occur further upstream, including mining.

    Graphic by ECDPM
    Graphic: ECDPM

    Sources: Authors, based on IEA 2022b and UNECA 2021.

    All stages of the value chain are energy-, technology- and capital-intensive. With the economies of scale and efficiency, the global price of lithium-ion batteries declined by over 97% between 1990 and 2018, though they still account for a high proportion of the overall cost of applications such as EVs directly impacting their uptake.

    Battery technology is fast evolving. Energy and material efficiency enhance performance through improved use of resources and reduced input requirements, as well as cheaper alternatives. For instance, by using alternative materials, Lithium-Iron-Phosphate (LFP) cathodes cost up to one third less than Nickel-Manganese-Cobalt (NMC). There are trade-offs between different battery chemistries, based on cost, energy density (affecting weight and driving range), charging time, durability, and safety.

    Comparing-NMC-LFP-Batteries.png
    Comparing NMC and LFP batteries

    Sources: FT, FT, Ecolithiumbattery.

    … and China dominates battery production and consumption


    China currently dominates the entire battery supply chain. Chinese companies have significant investments in overseas mining for battery minerals, with supply agreements that feed directly into the country’s refining activities. China is also far ahead of the rest of the world in terms of cell component and battery manufacturing. Apart from manufacturing, China is also a leader in technological innovation, including in EVs where batteries are an essential input.

    China-Position-Global-Battery-Value-Chain.png
    Graphic: ECDPM

    Authors, based on various sources (RMIS, IEA 2022, Benchmark source).

    With strong backward and forward linkages, China has the most existing battery manufacturing capacity as well as the highest battery demand in the world. These are then used to produce consumer products, mainly EVs.

    Apart from being the largest EV manufacturer, China is also their largest consumer, with Chinese customers buying more EVs than the rest of the world combined since 2016.

    EV-Manufacturers.png
    Largest EV manufacturers

    Sources: EV Volumes cited by Daly 2023.

    Note: includes battery electric vehicles as well as plug in hybrids and fuel cell electric vehicles. Even if brands like Tesla, GM, Volkswagen, Volvo have their headquarters in countries other than China, most production of EVs still takes place in China.

    EV-Car-Sales-2015-2021-2.png

    Sources: IEA database (last accessed 16 October 2023).

    African industrialisation to ‘de-risk’ EU and US supply chains?


    China’s dominance in CRMs supply chains and crucial green tech applications is seen as a major risk, especially in the US and the EU. Both are rethinking their supply chain security, and are looking to boost domestic manufacturing in a wide range of green technologies and strategic industries. While the US is providing generous incentives for US produced batteries and EVs under the Inflation Reduction Act (IRA), seeking to stimulate investments in sustainable CRM supply chains through its Minerals Security Partnership, the EU is developing its own targets for CRMs mining and processing under the Critical Raw Materials Act and reshoring LIB and related industries with support of the Net Zero Industries Act.

    Some of these initiatives could be very costly. Given higher land, construction and labour costs, it can cost up to a third more to build an LFP battery facility in Germany instead of China. These costs add up, impacting the final price of the product. A battery pack made in North America and Europe currently costs 24% and 33% more respectively than in China. This may suggest potential interest in Africa, not just as a supplier of CRMs, but also as a producer of cheaper batteries.

    Both the US and the EU have signed agreements with the DRC and Zambia to develop CRMs along with commitments to expand and refurbish the Lobito corridor connecting the eastern DRC to the Atlantic ocean.

    These external partners could avoid reproducing past extractive relationships, where African countries are mere raw material suppliers, by prioritising CRM processing in Africa. This could be beneficial both to African producers in their quest to add more value to their mineral riches, as well as to external partners who seek to de-risk their supply chains from China. While African countries are increasingly positioning themselves by insisting on greater domestic value addition, their bargaining power to do so will depend on the interactions of interests and incentives within and between African countries.

    Different entry points in the battery value chain


    Given the diverse context in terms of natural resource endowments as well as productive capabilities, there are different ways in which African countries can move into the battery value chain. Countries can leverage their CRMs for upstream processing – transitioning from mineral extraction to mineral refining – before advancing into manufacturing, including that of battery cells. Zimbabwe, Zambia, the DRC, among many others are increasingly adopting this approach, and can draw lessons from other countries such as Chile or Indonesia, that have taken steps to encourage investment in processing and manufacturing.

    Others can leverage their existing manufacturing capabilities and automotive industry linkages. Long-term investments by lead firms in the value chain can also present opportunities in downstream activities like assembly of final goods, particularly EVs (typically low-skill but high-employment), which can then potentially lay the foundation for production of higher tech intermediate goods including battery components and cells (using local or imported CRMs). Morocco is a notable example of a country following this trajectory, similar to Mexico.

    National industrialisation through regional integration?


    Beyond markets, technology and geopolitical dynamics highlighted above, several other factors influence the potential for an African battery value chain.

    To transcend Africa’s ‘pit-to-port’ mining model, and bring processing and manufacturing to the continent, requires reliable and affordable electricity, infrastructure as well as skills. Sustainable resource-led development also means addressing the socio-economic, environmental, and governance risks that come with extensive mining.

    Successful establishment of the battery value chain in Africa also hinges on regionalisation. Economies of scale and specialisation are needed to overcome small national market size and availability of skilled workforce. However, high transport costs within the continent due to delays and insecurity, and fragmented regulations continue to make cross-border and regional trade difficult and cumbersome.

    Smart industrial policies are needed to address all of these challenges and bring about strategic coordination among actors and agendas. Governments should prioritise complementary investments to build domestic and collective productive capacity and avoid the trap of a narrow resource nationalism.

    African regional industrialisation efforts in the past have not been successful, and countries have often failed to find a balance between cooperation and competition. Greater coordination is needed to ensure a more equitable distribution of value across partners, while acknowledging that benefits are unlikely to be equal given that some countries have more capacity than others to engage in greater value addition.

    At the same time, now is the time to act. In order to develop a regional battery value chain, countries will need to prioritise long-term benefits over short term gains.

    How-Can-Countries-Enter-Battery-Value-Chain-ECDPM-2023.png
    Graphic: ECDPM

    Source: Authors.

    What does this mean for an African battery value chain?


    While African countries produce CRMs, they do not write the rules of engagement on clean technologies. African economies face significant barriers to integrate in global supply chains, as well as structural weaknesses that have hindered industrialisation for decades.

    Therefore, what is then the real potential for an African regional battery value chain?

    Even if prospects for cell component and battery manufacturing are limited, opportunities exist, both upstream, in mineral processing and refining by scaling leveraging existing capabilities, and downstream, in assembly and application industries such as EVs. This is illustrated by the ‘vibrant battery assembly sector’ in South Africa, or the recent announcements about EV production in Morocco. These opportunities are linked to both domestic and export markets.

    Opportunities-African-Battery-Value-Chain-ECDPM-2023.png
    Graphic: ECDPM

    Source: Authors.

    For a more detailed overview, see our study: ‘Green industrialisation: Leveraging critical raw materials for an African battery value chain’. For more information, get in touch with Poorva Karkare (African economic integration and industrialisation expert at ECDPM) or Alfonso Medinilla (head of climate action and green transition at ECDPM).

    Loading Conversation