Reinforcing a raw materials diplomacy

Published in February 2011, a European Commission Communication highlights the challenges Europe faces in commodity markets and on raw materials – issues affecting Africa too. Proposals to ensure access to resources have won praise from industry, while NGOs have reacted with scepticism.

Africa’s share in the global production of raw materials is relatively limited. The potential of the continent is, however, enormous, with much territory yet unexplored. Already, Africa produces over 60 metals and minerals, including copper, nickel and iron. Resource-poor Europe, meanwhile, is increasingly concerned by the surging global demand and volatile markets that threaten access to raw materials – and the 30 million jobs that depend on them.

These concerns were highlighted in the European Commission Communication, “Tackling the challenges in commodity markets and on raw materials”.[1]  Echoing its Raw Materials Initiative launched in 2008, the EC calls for action under three pillars: fair access to raw materials on world markets, sustainable supply from European sources, and efficient use of resources. The 2011 Communication also broadens the scope to include energy, agriculture and food commodities, and calls for improved regulation and transparency of financial and commodity markets.

Progress on raw materials in recent years includes new EU guidelines on extraction in protected areas and new research opportunities in mining. But the fundamental challenges are, if anything, growing. Demand for key metals shot up between 2002 and 2008, and is expected to continue: demand for gallium is set to rise 20-fold and for indium 8-fold between 2006 and 2030. Total demand for food is expected to rise about 70% from 2006 to 2050. Meanwhile, markets have shown unprecedented volatility, with price swings occurring across all major commodity markets including energy, metals, minerals, food and agriculture. This phenomenon has been linked to large-scale new investment flows: speaking in Brussels, Internal Market Commissioner Barnier noted that the volume of financial contracts for commodities derivatives tripled from 2002 to 2008. Though the precise impact on market stability is disputed, the EC confirms the need for more research into the link between financial and physical commodity markets.

The EU has set ambitious economic targets by 2020; as the world’s largest importer of raw materials, it cannot grow withoutthem. High-tech sectors are particularly affected, while innovative and clean energy industries are dependent on materials defined as “critical” to the EU – those of high economic importance and high supply risk. While Africa as a whole has a low share of global production of critical materials, a few countries are major players, such as South Africa (almost 80% of global platinum production) and the Democratic Republic of Congo (40% of cobalt produced). The EU’s list of critical raw materials, to be updated every three years, also includes rare earths,needed forenergy-efficient products such as hybrid cars or solar panels. China currently produces 97% of rare earths and the EU is 100% dependent on imports; the announcement in 2009 that Chinese exports would be restricted was a striking reminder of Europe’s dependency.

Exploring alternatives through “raw materials diplomacy” is therefore an EU priority. In the case of Africa this also means using development policy instruments.The 2011 Communication proposes support for geological surveys and for increased financing for industry. The EC is also to “encourage partner governments to develop comprehensive reform programmes” with objectives for example in taxation and transparency. But working with governments is only one side of the issue: “On transparency for companies, the EU is lagging behind”, says Isabelle Ramdoo of ECDPM, a think tank, citing binding US laws compared to EC proposals to “promote EU standards” among European firms. Increased support for the Extractive Industries Transparency Initiative is welcomed by the Böll Foundation, a German NGO, but the NGO warns that “without binding regulation, there will be no real change on the ground”.

As well as using development tools, the EU is stepping up its trade policy. Trade barriers will be tackled through dialogue, but also at the WTO if necessary. International NGO Oxfam has criticised what it calls an attempt to “force developing countries to ban or curb the use of export taxes, which many rely on to help them develop”. Investment provisions are also to be “further embedded” within trade negotiations – a major issue for African countries.In a joint report, “The new resource grab”, five development NGOs warn that foreign investment can be positive, but “this EU push will make it more difficult for governments to regulate investment to promote local development”.

While looking to the global markets, the EU will also expand sustainable extraction within Europe: exploitation of rare earths could restart from 2015. Efficient use of resources is also tackled, with the 2011 Communication proposing best practices in waste collection and boosting competitiveness of recycling industries. For some, the importance of this third pillar has been underestimated. “Scarcity is not the only challenge”, argues Member of the European Parliament Reinhard Bütikofer. “A strategy with its primary emphasis on access to resources may help for a while, but it doesn’t help industry to reduce its basic dependency on resource supply”.

Though the EU approach raises challenges, it also suggests opportunities. Above all, the debate around natural resources indicates an opportunity for African governments to develop their own strategies. If Europe desperately needs raw materials, many African countries are also heavily dependent on them. Managing those resources effectively will become ever more important – for both continents.

Anna Patton

[1]European Commission, 02.02.2011, COM(2011) 25 final. See http://ec.europa.eu/enterprise/policies/raw-materials/files/docs/communication_en.pdf