The European Union (EU) faces significant economic and geopolitical challenges in reducing its dependency on China for critical raw materials (CRMs), particularly those essential for green energy technologies like electric vehicle (EV) batteries, solar modules and wind turbine magnets. The EU has made efforts to de-risk its CRM supply chains by pursuing strategic partnerships with politically aligned countries, especially in Africa, to secure alternative sources of these materials. However, the actual results of these efforts have been underwhelming, particularly when it comes to meaningful European private sector investment in mining and processing operations in African countries.
Key Challenges:
1. Continued dependency on China: Despite EU policies aimed at diversification, European states remain heavily reliant on China for CRMs. Imports from China reached €515.9 billion in 2023, highlighting the breadth of the EU’s dependency, not just for CRMs but across a wide range of vital goods.
2. Lack of private sector engagement: The EU has been slow to see substantial European private sector involvement in CRM supply chains in partner countries. Market dynamics, including price volatility, high upfront costs, and competition from other global players (such as Saudi Arabia, Turkey, and the UAE), have deterred European companies from making the necessary investments.
3. Weak incentives for European companies: Despite the EU’s political ambitions to build out CRM supply chains, private companies are not being sufficiently incentivized to enter the market. The EU’s strategic partnerships, such as with Namibia, have thus far failed to generate significant commercial outcomes. In fact, some of these partnerships may even be benefiting Chinese firms more than European ones.
4. Geopolitical competition: The EU faces competition from other global players, particularly China and countries like Saudi Arabia and the UAE, who are also eyeing resource-rich African countries for CRM extraction and processing. This makes it increasingly difficult for Europe to secure favorable agreements or gain a foothold in the rapidly developing CRM sector.
5. Financial barriers: One of the central problems is the lack of adequate financial mechanisms to support European investment in CRM supply chains in Africa. High risk, political instability, and unclear market returns are major barriers for private companies. The EU’s existing financial mechanisms have not been sufficient to mitigate these risks or to align private sector interests with European strategic goals.
Namibia as a case study:
The EU’s strategic partnership with Namibia, aimed at developing sustainable CRM value chains, serves as a valuable example of both the potential and the limitations of such agreements. While politically and diplomatically, the partnership aligns with the EU’s broader geopolitical and de-risking objectives, the commercial reality is more complex. The Namibian example underscores the difficulty of translating strategic intent into commercial success, particularly when Chinese firms are also heavily involved in the same markets. This dynamic reflects the broader challenge the EU faces: navigating the intersection of politics, economics, and global competition to ensure European interests are met in the CRM sector.
Proposed solutions:
To address these challenges, the paper proposes several solutions:
1. Enhanced financial incentives: The EU and its member states must develop and deploy new financial mechanisms—such as grants, loans, or risk-sharing arrangements—that would make it more attractive for European companies to invest in CRM mining and processing operations in Africa and other partner countries. These incentives could help bridge the gap between the EU’s political ambitions and the commercial realities of the sector.
2. Market stabilization measures: The EU should explore ways to insulate European companies from price manipulation by China and other actors. This could include mechanisms to stabilize the prices of critical raw materials or protect against sudden supply shocks, ensuring that European companies are not disadvantaged in the global market.
3. Public-private partnerships: Strengthening public-private partnerships (PPPs) could provide the necessary support and resources to encourage European firms to engage more in CRM value chains. The EU could play a central role in coordinating these partnerships, ensuring that both public policy objectives and private sector interests are aligned.
4. Increased EU political and diplomatic engagement: Beyond financial mechanisms, the EU needs to ensure that its political and diplomatic efforts are closely tied to commercial opportunities. Strategic partnerships should be more focused on tangible, commercially viable outcomes, rather than simply political alignment. This might involve focusing on countries with more stable governance and a higher degree of market openness.
Conclusion:
In order to meet its strategic goals of de-risking its CRM supply chains and reducing reliance on China, the EU will need to adopt a more comprehensive approach that includes enhanced financial support, greater market stability, and closer alignment between political objectives and private sector interests. The current gap between the EU’s ambitions and reality indicates that the bloc is not doing enough to motivate private companies to invest in the African CRM sector, which risks leaving Europe exposed to further dependence on China. Without urgent action, the EU may struggle to diversify its CRM supply chains in time to meet its green energy and economic security goals.
