Navigating geopolitical tensions: Strategies for African governments in mining negotiations

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Negotiations between African governments and foreign investors in the mining sector are often shaped by diverse skills, technical expertise and information imbalances, influencing the outcomes significantly. Particularly in extractive and infrastructure projects, these agreements can bind African countries for decades. Africa’s rich reserves of minerals critical for the clean energy transition make it a key arena in the global race involving China, the United States, Europe and others. The International Energy Agency projects that by 2040, demand for lithium, graphite, nickel, and cobalt will surge significantly compared to 2020 levels.

The growing demand for these minerals fuels geopolitical rivalries, with China leading in establishing supply chains for cobalt, rare earth elements and lithium. Despite a strong presence of European and North American mining companies in Africa, China has emerged as a major player in the Democratic Republic of Congo (DRC) and Zambia. The U.S. faces vulnerabilities due to its reliance on China for over half of its critical mineral supplies, many of which are abundant in Africa. As the U.S. and other countries seek to reduce dependency, African nations must negotiate mining deals that ensure they benefit from their resources and drive their own development.

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To explore ways for African stakeholders to leverage the renewed interest in their mineral resources, the Carnegie Endowment for International Peace’s Africa Program hosted a closed-door workshop during the 2024 Investing in African Mining Indaba in Cape Town. This workshop brought together government officials, multilateral and nongovernmental organizations, academics, legal experts, and policy professionals to discuss the dynamics of mining agreements and strategies to maximize benefits from these negotiations.

Government perspectives: Crafting effective policy frameworks

The workshop allowed government representatives to share their experiences and lessons learned from past mining negotiations:

1. Learning from setbacks: Many past agreements suffered from information asymmetries, lack of transparency, environmental concerns, and inadequate provisions for local economic development. Often, contracts included stabilization clauses that shielded foreign investors from political risk while leaving governments at a disadvantage due to incomplete geological data.
2. Developing policy frameworks: African governments are encouraged to establish comprehensive policy frameworks before negotiating individual contracts. These frameworks should include:
   • A clear vision for mineral resources, discouraging unprocessed raw exports.
   • Holistic approaches to investor relations, focusing on strategic partnerships rather than piecemeal negotiations.
   • Up-to-date geological data to inform decisions on domestic processing versus export.
   • Legislation that aligns with broader sectoral objectives, including community consultation, environmental management, and fiscal regimes.
3. Avoiding fragmentation: To prevent fragmented negotiations, governments should avoid hasty MoUs and instead develop overarching policy frameworks that integrate with national strategies, aiming to domesticate mining activities from extraction to manufacturing.

Investor perspectives: Navigating complex negotiations

Insights from former mining executives and legal experts highlighted key investor considerations:

1. ESG compliance: Investors are increasingly influenced by environmental, social and governance (ESG) standards, especially from regions like the EU. African governments should create stable and consistent policies to attract and retain investment.
2. Risk appetite: Chinese investors, often backed by state capital, display a higher risk tolerance compared to Western counterparts. Understanding these risk profiles can help governments better negotiate terms and ensure community benefits.
3. Defining criticality: Investors’ definitions of “critical” minerals vary, impacting negotiations. Governments should understand these varying definitions to align their own priorities with investor needs.
4. Detailing contracts: Attention to detail in contracts, including clauses for renegotiation and local content definitions, is crucial. Governments should conduct thorough due diligence and consider potential long-term impacts on future administrations.

Lessons from Indonesia: Strategic approaches

Muhammad Lutfi, former Indonesian Minister of Trade, shared Indonesia’s approach to maximizing mineral benefits:

1. Export restrictions: Indonesia’s export bans on raw nickel and bauxite, aimed at increasing domestic value addition, have successfully shifted exports to higher-value products and attracted investment in processing.
2. Trade agreements: Effective trade agreements and defense mechanisms, such as those used by Indonesia, are vital for managing market access and regulatory challenges.
3. Economic development targets: Setting clear development targets and avoiding the middle-income trap were essential components of Indonesia’s strategy, which could serve as a model for African countries rich in strategic minerals.

Bridging capacity gaps: Strengthening negotiation skills

The final workshop session focused on addressing expertise gaps:

1. Increasing leverage: External experts can help address imbalances in information and technical capacity. Governments should also enhance their in-house expertise and ensure knowledge transfer.
2. Transparency and training: Exposure to previous negotiations, learning and training can prepare governments for complex contracts and increase transparency.
3. Engaging with Chinese entities: Governments should improve their capacity to negotiate with Chinese companies, including learning the language and understanding Chinese business practices.
4. Continental collaboration: Implementing the African Mining Vision and leveraging regional organizations can improve negotiation processes and ensure sustainability.

Conclusion

The workshop underscored the need for patience and strategic planning amidst geopolitical rivalries. African governments must enhance their bargaining power by negotiating collectively, defining clear interests, and utilizing insights from past experiences. Balancing the interests of governments and investors, understanding criticality, and adopting successful strategies from other regions can help African countries maximize benefits from their mineral resources.

Acknowledgments

The author thanks all workshop participants for their contributions and the Carnegie Endowment for International Peace’s Africa Program for organizing the event. The 2024 Investing in African Mining Indaba conference is also acknowledged for providing the venue.

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