The EU’s partnerships around critical raw materials: Do its ambitions match reality?

The EU has set itself ambitious targets that seek to reconcile sustainability with economic competitiveness. But what began as a quest to spearhead the global green transition under the aegis of the European Green Deal has now morphed into a strategy to secure the EU’s own interests, specifically resources and energy to power the European industry and to maintain competitiveness in an increasingly transactional global order. Access to energy and resources has become inextricably linked to the EU’s security concerns.

Given the strained transatlantic relations on the one hand and China’s dominance in these supply chains on the other, the EU is rethinking its approach to secure its own interests. New, lighter deals, such as the Critical Raw Materials Partnership, or the Clean Trade and Investment Partnership with South Africa, seek to combine the EU’s supply chain security and trade agenda with the development interests of its partners. This includes graduating from being mere suppliers of raw materials, which is mostly the case now, to processing minerals and economic diversification.

Yet a critical question looms: Can the EU translate its partnership ambitions into tangible action? These partnerships are non-binding, so it is less about implementation and more about how the EU’s ‘offer’ is perceived.

Of ambitions and instruments: Technical assistance to deliver CRM investments?

The EU’s critical raw materials (CRM) partnerships offer training and skills, environmental and social governance (ESG), energy and infrastructure, research, development and technology, and business and investment environment. Ideally, this support would strengthen European firms’ operations in partner countries. However, the reality is that EU-listed companies have meagre single-digit stakes in CRM operations, dwarfed by China. Western firms have largely been withdrawing from the sector due to perceived risks and low profitability, making it difficult to attract investors. This goes on to show the EU's limited track record in aligning the private sector to fulfil its geopolitical goals.

By contrast, China has channelled significant aid and subsidised credits to select partner countries. This raises the question of whether the EU’s approach to technical assistance can truly compete with China’s strategy of competitive financing and asset acquisition, and whether the EU has the right instruments to achieve its geopolitical goals. 

Between geopolitical rhetoric and business realities: The Lobito corridor

The EU’s partnership agenda is partly driven by the acute awareness of its overdependence on China for CRMs and cleantech. However, while Brussels crafts policy, its execution depends on businesses.

Take the Lobito corridor, an existing colonial-era corridor connecting the copperbelt in the DRC and Zambia to the Atlantic port of Lobito in Angola. The corridor is declared a flagship project under the EU’s Global Gateway, ostensibly an alternative to China’s Belt and Road Initiative. A closer look, however, reveals extensive Chinese involvement – from the Chinese-funded upgrades of the Lobito port and Benguela railway to Chinese locomotives powering the railway operated by a mostly European consortium (though one firm has Chinese shareholding). Furthermore, a Chinese joint venture is behind the anchor investor on the railway line, with the supply chain leading back to... guess who? These are business decisions driven by market logic, with few signs of Western firms distancing themselves from Chinese firms. This goes on to show that the EU’s supply chain, in practice, is deeply intertwined with the very power it seeks to counterbalance.

Regulatory strength but diplomatic fragmentation

The EU’s sprawling web of partnerships (as shown in the map below) stems from its pursuit of multiple objectives. This is further compounded by the fact that within the EU’s bureaucratic labyrinth, roles and responsibilities are spread across different Directorates-General (DG). While DG GROW (internal market) champions CRM deals, DG ENER (energy) handles energy and hydrogen agreements, DG CLIMA (climate action) drives green alliances and just energy transition partnerships, while DG INTPA (international partnerships) oversees the Global Gateway. The new Clean Trade and Industrial Partnerships will be led by DG Trade (trade relations). Regulations such as the Carbon Border Adjustment Mechanism are spearheaded by yet other DGs (in this case DG Taxation and Customs Union).

While this illustrates the regulatory strength the EU wields internally, externally it signals diplomatic fragmentation, and the EU’s ambitious partnership agenda is proving difficult to translate to new CRM trade flows. 

The European Union's energy and climate partnerships since 2021

The EU’s engagement with partners contrasts with China's state-to-state model. Chinese projects, besides their larger scale, are implemented more quickly. Moreover, China’s offer of turnkey projects, combining mining operations with energy and/or infrastructure deals, appeals to African leaders seeking quick, tangible results. The EU’s fragmented and technocratic approach may frustrate partners who may think, ‘The Chinese make us an offer we can’t refuse; the Europeans make us an offer we can’t understand’. 

How it all lands in partner countries

In a world of partnerships, the EU's objective of securing CRMs is inextricably linked to Africa’s ambitions of resource-based industrialisation. While the EU’s CRM partnerships with countries like the DRC and Zambia embody these objectives, there is a question of how they can be fulfilled. The EU boasts technological expertise in clean technologies like batteries, but its manufacturing capabilities – especially in refining CRMs – are limited. In their absence, it is unclear how these partnerships contribute to African industrialisation.

Then there is the question of financing. While the European Investment Bank recently announced a stepping up of financing for CRMs, its requirement to fund only ‘green’ projects is deemed onerous, de facto excluding many interested parties, and local contractors struggle to access funding for mining and processing. Whereas the European side looks at sustainability from an environmental (ending fossil fuel financing) perspective, in Africa it is seen from an economic (local content development) and social (employment generation) perspective.

Way forward

The EU needs to navigate dilemmas and make choices between inward-looking protectionism and openness to the outside world, and between existing rules of international cooperation and the search for European self-interests.

European companies are major CRM consumers, but not big players in mining and mineral processing. To match demand and supply, the EU needs to facilitate offtake agreements. Given that it’s playing catch-up in this space, the EU should pursue different partnerships to

1. Focus on a limited number of countries: Select strategic countries, particularly in Africa to demonstrate the added value of an EU approach. This aligns with the broader EU-Africa Strategy Action Plan which aims to advance preferential inter-regional trade and access. However, this requires addressing the pre-existing challenges in Africa’s mining industry, including investments.
2. Increase financial heft: Facilitate necessary investments to increase CRM supply. This involves developing European mining capabilities on the one (supply) hand, and influencing corporate behaviour to prioritise supply chain diversification on the other (demand) hand. Investments are also needed in CRM processing which is currently limited in Europe due to weak incentives.
3. Promote processing in partner countries: To avoid reinforcing past power inequities, there is a need to respond to this partner priority. This also aligns with the EU’s own supply chain security agenda which cannot be achieved through domestic processing alone.
4. Work smartly with Chinese firms: While the need to de-risk supply chains from China is well established, competing with China on cost in every sector is unlikely to be efficient or effective. Given China’s strong foothold in Africa, the EU could work with Chinese firms rather than compete against them to establish a China-free supply chain, for instance by improving ESG and other outcomes.

The views are those of the author and not necessarily those of ECDPM.

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