(Ecofin Agency) - Indonesia tripled its investment in local mineral processing between 2019 and 2022. In contrast, Africa attracted only 2.8% of the global foreign direct investment (FDI) for critical minerals processing from 2019 to 2023, despite holding 30% of the world's reserves.

Indonesia's development of a local minerals processing industry provides valuable insights for African mining nations. A December 2024 report from the Atlantic Council outlines these lessons, highlighting the challenges of directly applying Indonesia's strategies in Africa.  

The report, titled “Resource Nationalism and Downstreaming: Lessons for African producers of critical minerals from Indonesia,” emphasizes Indonesia's significant role in global nickel supply, holding 42% of the world's reserves. The Indonesian government has enacted a progressive ban on raw nickel exports since 2014, tightening restrictions in 2020.

This policy has spurred investment in processing. From 2019 to 2022, investment in Indonesia's mineral processing infrastructure rose from $3.6 billion to $11 billion. By July 2023, Indonesia operated 43 nickel smelters, with another 28 under construction and 24 planned. These facilities mainly rely on coal-fired power plants for energy.

However, Indonesia has not succeeded similarly with other resources like bauxite and copper. The report explains that most value in the copper supply chain is created during extraction and concentration, making local refining less profitable. After banning raw copper exports in 2014, Indonesia saw a 35% drop in production. For bauxite, the export ban led customers to seek supplies from countries like Guinea and Australia.

Africa Must Leverage its Strengths

As export bans on critical minerals increase in Africa—seen in Ghana, Zimbabwe, and Namibia—the Atlantic Council report suggests a different approach for the continent. The authors recommend leveraging the African Continental Free Trade Area (AfCFTA) and creating Special Economic Zones (SEZs) to attract investment in local processing.

Although Africa holds 30% of the world's critical mineral reserves, these are unevenly distributed across countries. This distribution poses challenges for investment in processing facilities. The report advocates for cross-border cooperation to create a unified market that can justify the significant investments needed for industrialization.

“Leverage the African Continental Free Trade Area (AfCFTA) to accelerate the formation of continental commodity markets capable of attracting international investment. AfCFTA holds significant potential to support the development of local mineral-processing industries in Africa by expanding the local market,” states the report.

A June 2024 report highlighted the advantages of consolidating critical metals production in Africa. According to Tralac, regional collaboration would enhance African countries' influence over global supply and strengthen their bargaining power, attracting investment in local processing plants and refineries. This can be combined with establishing special economic zones for minerals that offer tailored policies to attract investment.

Examples include the DRC and Zambia's agreement to create an SEZ for electric battery production and South Africa's Platinum Valley project to develop a hydrogen ecosystem based on its platinum-group metal reserves. Identifying metals with high profitability potential for local processing is also crucial, considering infrastructure (energy and transport) and technology requirements.

The report emphasizes that mineral processing requires significantly more energy than extraction. Specifically, it points out that extracting bauxite consumes around 34 kilowatt-hours (kWh) per metric ton, whereas refining it into aluminum demands over 3,000 kWh per metric ton.

Both the Tralac and Atlantic Council reports do not specify how to implement their proposed strategies given that major mining projects are owned by foreign companies. Also, China currently dominates critical metals refining while its main customers are developing processing infrastructures in Europe and the USA. In this context, African countries must consider whether investing heavily in local processing is the best option or if it would be wiser to strengthen their extraction position while negotiating better commercial terms.

Emiliano Tossou