GRACELIN BASKARAN: SA must not be a pawn in power struggle over rare earth minerals

British journalist and satirist Malcolm Muggeridge once said: “All new news is old news happening to new people.”

Within the next 10 years we’re likely to wake up to news that China has invaded Taiwan. And it will have an important economic weapon: a near monopoly on rare earths, a group of 17 metallic elements. These are required for nearly everything we need: electronics such as televisions, computers and smartphones; key national defence instruments such as precision guided weapons, GPS equipment and night vision goggles; vehicles; and most renewable energy technology, including wind turbines, solar panels and electric vehicle batteries.

Sound familiar? It probably does if you’ve turned on the news since February. And when it happens, we’ll at least be partially surprised that a single country can disrupt a value chain of critical economic and energy security, globally.

It’s an old tool out of the economic diplomacy playbook. Arab Opec countries withheld oil from countries that supported Israel in the 1970s, China cut off rare earth exports to Japan over a fishing trawler dispute in 2010, and more recently Russia shut off oil exports to Europe.

The key question to ask is whether we’ve learnt our lesson as we look ahead at the Taiwan Strait. In an article published for the Washington Post before she landed in Taiwan for her recent visit, US speaker of the House of Representatives Nancy Pelosi wrote that “the visit should be seen as an unequivocal statement that America stands with Taiwan, our democratic partner, as it defends itself and its freedom”.

Newly elected British Prime Minister Liz Truss was in alignment. “What I’ve been clear about is that all of our allies need to make sure Taiwan is able to defend itself, and that is very, very important.” She also noted that Group of Seven countries were working together on this matter.

When (not if) the day comes that China advances on Taiwan, rare earth exports are likely to come to a grinding halt. China has 30% of the world’s reserves but produces or controls 70%, indicating that it owns large reserves in other countries. It refines about 85% of the world’s rare earth elements.

A halt in rare earth exports would cripple the clean energy transition — a second blow to global energy security. These elements are a key part of electric vehicles, solar panels and wind turbines. Consider that up to 600kg of rare earths are needed to operate a single wind turbine, while 1kg is needed to manufacture every electric vehicle battery.

The critical nature of rare earths is captured by skyrocketing demand. In 2021 annual demand for these elements reached 125,000 tonnes, and it is forecast that by 2030 demand will reach 315,000 tonnes.

Africa needs to think strategically and diversify at the earliest opportunity. First we need to reconsider financing. Many African countries struggle to access international financing due to low credit ratings and high debt levels. China’s resource-for-infrastructure investments have strong appeal to these countries, which have large mineral and/or oil endowments and need cheap loans for infrastructure development.

However, this further aggregates key resources into Chinese control. Development finance institutions have a larger role to play in this space to prevent China from being the only affordable lender.

Second, African countries need to remember that if China opts to use aggressive economic diplomacy, they’ll lose too. Though Russian President Vladimir Putin is working to strengthen Russia-Africa relations, all African countries are facing higher oil prices because of his actions in Ukraine. It’s in no-one’s interest (except the monopoly holder) to keep a supply chain in a single country’s hands.

SA is on the cusp of becoming an important player in the rare earths industry. Located in the Western Cape, Steenkampskraal Mine has one of the highest grades of rare earth elements in the world. Each tonne is valued at $3,750, a significantly higher price tag than other deposits.

The mine was run by Anglo American between 1952 and 1963, when it was abandoned. In June 2010 it came back to life when Steenkampskraal Monazite Mine was awarded mining rights for 20 years. Production is expected to commence soon.

In May Steenkampskraal Holdings announced that it was negotiating offtake agreements with prospective customers. Most of the product that would be sold would be a mixed rare earth carbonate — buyers would undertake the separation process. It’s a competitive market. To rival China, the US department of defence recently financed a separation facility in Texas.

With the simmering geopolitical conflict SA must develop its own economic diplomacy strategy for rare earths to avoid becoming someone else’s pawn.

• Dr Baskaran (@gracebaskaran), a development economist, is a bye-fellow in economics at the University of Cambridge.