Success Factors in State-State Mineral Partnerships, Value Addition and Regional Cooperation

Oluwatoyin Ojo, Senior Legal Counsel and Head of Partnerships, ALSF:

In the blog post “Deals Without Details: Exploring State-State Mining Partnerships and Their Implications” you and your co-authors raise an interesting point about strategic or politically driven partnerships—between what you describe as buying partners and resource-rich, often low-income countries, querying the extent to which these partnerships will be truly beneficial for the producer countries. The details of these partnerships are not always publicly disclosed. What do we know about the scope of some of these partnerships? From those you have examined, are they supportive of regional initiatives or not? What needs to be done to leverage regional potentials and is there not a risk of the strongest buyers being the biggest winners?

Thomas Scurfield, Senior Africa Economic Analyst, NRGI:

On state-state partnerships, we don't know a lot about many of them. Most of them come with pronouncements of a “win-win” for the mineral-rich country and the buying partner. But despite contract disclosure being an established norm, public information on many of these partnerships is scarce.

When we wrote the piece earlier this year, out of the 35 partnerships that we were aware of, we couldn't find any useful public information about 22 of them. For some of these partnerships, that's probably because they were at an early stage of development. For others, it's possible that they're just a political signalling tool, with no real intention to go much further than an announcement or a statement—a high-level memorandum of understanding (MoU).

But for other partnerships, there are likely lots of details that have been agreed that aren't being disclosed in the public domain. So, for example, the partnerships between the European Union and various low- and middle-income mineral-rich countries. The MoU sets out an intention to develop a road map of how the partnership will be implemented. And we know that some of these road maps are still being still being developed, yet to be finalized. But there are others that that have been finalized where what's in the public domain, for example in the case of Namibia, is just a very limited summary of the implementation plan. So there does need to be a lot more disclosure of these partnerships to inform public understanding, to ensure that civil society in mineral-rich countries can provide effective oversight.

There also needs to be more public information to understand whether these partnerships might help or hinder regional coordination. But based on kind of what's in the public domain there are some partnerships that explicitly state support to regional coordination efforts. For example, there's a plan between the DRC and Zambia to start producing battery precursors. The DRC and Zambia have signed an MoU with the U.S. that explicitly supports that goal. So, if that partnership is meaningfully pursued, then that could really shift the needle on that project. There's also the Lobito Corridor project, a plan to rehabilitate and extend a railway between the DRC and Angola, possibly to Zambia and even Tanzania—another example of how these state-state partnerships can support regional collaboration.

But it's possible that some of these partnerships might, perhaps unintentionally, hinder regional coordination.

Going back to the DRC-Zambia project, that project is going to need to source nickel and manganese from other countries, most beneficially if they were sourced from nearby: so other parts of southern Africa. Tanzania, next door, should in the next few years start producing battery grade nickel, but based on a U.S. government statement, it seems that there's been an agreement signed between the U.S. and Tanzania that means that a lot of that nickel will be exported to the to the U.S. I'm not criticizing Tanzania for this; that agreement seems to make sense for Tanzania and for that project. First, it means that project is going to get Mineral Security Partnership funding. Second—around the question of whether the strongest buyers are always going to win out over nascent projects—the DRC-Zambia project is not advanced enough to offer a credible offtake commitment right now. So, it makes sense for Tanzania, but it it's a demonstration of how the race for minerals by buying partners could hinder regional collaboration.

In general, these state-state partnerships have potential to support regional collaboration efforts. The likes of the U.S., the U.K., Saudi Arabia and China can all bring a combination of financing and technical support, and the ability to align a range of private sector actors, in a way that a single private investor can't. Such actors have the potential to convert regional collaboration visions into more tangible opportunities, both by aligning private sector interests across different countries, but also by helping to address one of the fundamental challenges with regional collaboration, which is how to share the benefits across the countries that are collaborating, opening up more options for benefit sharing. So, if one country hosted a shared smelter, then perhaps another country could get more support for infrastructure. So, I think there is great potential; but the onus is not just on the buying partners to be willing to provide this support, though they definitely should. But it also requires mineral-rich countries to identifying the regional collaboration opportunities so they can come to the table with them when they start negotiating these state-state partnerships.

Ojo:

To what extent are national priorities and regional mining supply chain collaboration complementary, if at all, and how could we strike the right balance between regional collaboration and national interest?

Scurfield:

National priorities and regional collaboration can be very complementary. Take value addition. Earlier there was a discussion around the first order conditions that need to be in place for value addition to be viable in a given country. One of those is scale, so you need a lot of minerals to make a value addition facility like a smelter or a refinery viable. There will be many countries where they just don't produce enough minerals to be able to make a facility profitable on their own; but that's where regional collaboration can help by enabling the combination of feedstock from different countries. This could be done without the involvement of government, without governments collaborating.

But, going back to the challenge of supplying nascent projects and the rush by overseas buyers to lock in long-term offtake agreements, to be able to find and combine enough feedstock from multiple countries you will likely need government intervention to strategize how you do that for a nascent project, to line up the design of the project and the financing.

There are going to be policy areas and projects where national priorities and regional coordination are very much aligned. So countries really need to develop strategies which are specific to individual minerals, and specific to stages of the value chain, where they identify when they can go it alone and when they might need regional collaboration. But even in instances where there is alignment between national priorities and regional collaboration, it’s still going to be very, very challenging. I'm from the the U.K., so having gone from through Brexit from the EU, I know how difficult it can be to make the politics of regional collaboration work.

There's a whole range of economic and political dynamics that that countries are going to have to overcome. There's still going to be an inherent tension between cooperation and competition—thinking about where you would locate a shared smelter, for example. There still needs to be lots of thinking and work around how to make regional collaboration happen; at NRGI, we've just started some research on that, looking at existing and attempted regional coordination initiatives to identify lessons, to identify success and failure factors both within and outside of the mining sector. We aim to support countries to make regional collaboration happen when it makes sense for them.