Seeds of Opportunity: The African Growth Series
May 2022 | Issue 4
In this week's issue, you will learn more about:
- Nuclear Power, Opportunity or Burden for Africa
- Increased LPG volumes at Sunrise Energy terminal
- Opportunity for Africa's Diverse Mineral Wealth
- Regenerative Agriculture in Africa
- The AfCFTA and Business Confidence in Africa
- Africa’s Rare Earth Element Opportunity
Nuclear Power, Opportunity or Burden for Africa
While the world is pushing for decarbonisation of the energy sector, Africa continues to face energy insecurities. Naturally, renewable technologies such as wind, solar, geothermal and biomass are at the forefront of this energy transition, but alternative voices have been raised supporting nuclear power and natural gas as baseload sources. The European Commission took a clear stance earlier this year on nuclear power by labelling it as a green source of energy. Apart from South Africa’s operational Koeberg Power Plant, countries which have plans in place to construct nuclear power plants include Uganda, Nigeria and Kenya, with Uganda having acquired land for the construction of the region’s first nuclear power plant. While nuclear power technology has come a long way since Chernobyl and Fukushima in terms of safety and the efficiency of the source in terms of capacity generation are without question, some factors challenge the suitability of nuclear power on the African continent. The main issue is the astronomical capital expenditure costs associated with this resource. Nuclear power agreements have historically been shrouded with secrecy but estimated total costs of one plant are around $25-30 billion, a sum way out of an average African country’s fiscal possibilities. African countries would therefore have to take out a loan, which typically is structured in a way that repayments start between 10-13 years after the loan is made and continue annually for 22-28 years thereafter. Once these installments kick in, consumers will be faced with a massive burden with annual interest rates potentially reaching up to 40%. This being said, if agreements can be struck where Africa is not extorted in the long-term, then nuclear power can certainly be an option for Africa. The African energy sector has plenty of opportunities available to it to diversify its energy portfolio, achieve universal energy access and bring about a sustainable energy transition of which nuclear power can certainly for part of, given the transition being sustainable for Africa and its people.
Increased LPG volumes at Sunrise Energy terminal
In 2017, South Africa saw the commissioning of Africa’s largest open-access liquefied petroleum gas (LPG) import and storage facility in Saldanha Bay. This LPG facility operated by Sunrise Energy was constructed to improve the country’s port infrastructure to maintain LPG imports as the demand for LPG increased. Since its commissioning, the Sunrise Energy terminal recorded significant growth in LPG volumes, which doubled between 2018 and 2021, recording a year-on-year growth rate of 36%. This positive growth signified a significant growth in local LPG demand, which suggested that more industries, households and businesses were, and are increasing ly making use of LPG as a safeguard against the rolling blackouts. Despite significant growth in LPG volumes, South Africa still has a very low use of LPG per person. The Department of Mineral Resources and Energy (DMRE) has, however, identified LPG as a reliable alternative to provide quick and effective solutions to households’ thermal requirements and has committed to increasing public awareness of its application.
By leveraging existing infrastructure and policies, South Africa could save up to 550 MW of its daily grid demand by switching to LPG.
Opportunity for Africa's Diverse Mineral Wealth
In 2019, Africa produced roughly 983 million metric tonnes of minerals, 5.5% of that year's global mineral output. A considerable amount of these mineral resources were exported as raw ores or only partially processed. In 2019, fossil fuels and minerals accounted for more than a third of exports from 60% of the continent's countries, with almost half of them having aluminium, gold, iron ore, diamonds and phosphates as their main non-fuel commodities. The prices for these raw minerals have increased due to the current Russia-Ukraine conflict, which has created an opportunity to sustain the added income by locally beneficiating its mineral resources. Currently, Africa exports commodities such as copper, cobalt and gold to Asian markets for downstream value-add processing. The finished goods are then sent to European markets for consumption. Instead, Africa could retain future income by investing in downstream value chains near the mines and exporting finished goods. Eve Bazaiba, the Environment Minister of the Democratic Republic of Congo (DRC), said that her country is actively looking to reduce its export of raw materials, highlighting the reduction in its raw cobalt exports. Other African commodity exporters are still looking to attract foreign investments into their domestic mining sectors, with Zambia and Namibia implementing strategies to create a business-friendly environment. Further improvements in locally beneficiating the continent's diverse mineral resources is an opportunity to establish Africa as a major supplier of value-added products.
Regenerative Agriculture in Africa
Regenerative agriculture, the practice of generating nutrient-dense soil, capable of capturing greenhouse gases, is beneficial to both farmers and farmland. The implementation of this system can revolutionise farming in Africa through both increased food production and increased levels of employment for millions of people. A positive byproduct of this system is its capacity to contribute toward a more sustainable second green revolution through the harnessing of greenhouse gases (distinct from artificial fertilisers). The creation of these resilient agroecosystems and adoption thereof for only 50% of farmland has been estimated to generate $17 million in potential savings for farmers. However, this system is difficult to implement and hard to maintain. One current means of fostering it is through extension officers who provide farmers with up-to-date weather information. Yet, these services are rare and, as such, technology may function to fill the gap, in the absence of early warning signs of weather events. A successful example of this is AI company Atmo, which has offered supercomputing services to farmers in Uganda to provide low cost and accurate weather forecasts. This will ensure that crops are not unnecessarily damaged through unforeseen and undetected weather events. On a more moderate scale, alternative and more accessible tech options include modular education materials which are easily sourced through mobile phones. The support geared towards small-hold farmers is vital as they produce 80% of the food in Sub-Saharan Africa. In addition, climate-smart agriculture evidence $1 trillion in investment opportunities in emerging markets between 2020 – 2030 while globally the use of AI in agriculture could reach between $3.6 to $5.2 trillion by 2030.
The AfCFTA and Business Confidence in Africa
The business environment in Africa is experiencing positive changes in several countries, as an outcome of changes in regulatory environments, increased focus on developing trade networks, and investments into critical infrastructure. From recent announcements of a new tool to measure inter-Africa trade (the African Continental Free Trade Area (AfCFTA) Country Business Index) to an MOU between the AfCFTA and the International Trade Centre (ITC) to grow small businesses, the dedication to the success of the intra-trade is evident. One of several countries that have shown improvements in ease of doing business in the past year in Ghana. The top 5 contributors to the growth were improvements in the availability of advanced technology (67%); telecommunication facilities (61%); power supply and availability of universities and training facilities (57%) and sophistication in firm management and strategies (53%). The improvements of these factors and other key infrastructure point to a positive road for business in Africa, subject to adequate implementation. Namibia, Nigeria, and Ethiopia are other key countries that have recently announced new intervention strategies.
Africa’s Rare Earth Element Opportunity
Africa is well-endowed with Critical Raw Materials (CRM) which are of essential importance for not only the energy transition but also the electric vehicle (EV) market and other tech-related industries. These CRMs present in Africa include, among others, platinum-group metals (PGM) as well as rare-earth elements (REE). REEs are becoming increasingly sought after on a global scale as they are crucial in the manufacturing of components in renewable technologies, EVs as well as superconductors. REEs have been in short-supply for some time now with supply expected to be even more tight since Russia’s invasion of Ukraine and the subsequent embargo of the Western world on Russia’s commodities.
Africa can emerge as a major REE production region, especially driven by the demand for REE and other metals required for new technologies in renewables and EVs. The continent is home to several REE deposits, especially in Eastern and Southern African countries such as Burundi, Kenya, Madagascar, Malawi, Mozambique, South Africa, Tanzania, Zambia, and Zimbabwe. However, despite this great opportunity, Africa has not yet progressed beyond the stage of potential assessment. Ongoing mining activities are limited to Burundi (Gakara Rare Earth Project), with the Steenkampskraal deposits in South Africa having nearly completed the construction of necessary infrastructure and expects the start of operations soon. Other notable projects at different stages in Africa include Angola (Longonjo), Namibia (Lofdal), Madagascar (Tatalus), Malawi (Kangankunde) Mozambique (Xiluvo), South Africa (Glenover and Phalaborwa), Tanzania (Ngualla) and Uganda (Makuutu). While the potential for REE extraction in Africa is high, the development of these projects is hindered by high costs, the need for investment, as well as lacking policies and regulations, and environmental and social aspects that need to be considered. African governments need to subsidise the mining of REEs to enable the markets to compete globally, especially with China .
Case Study - Steenkamskraal Rare Earths Mine: The mine contains all fifteen (15) rare earths, most notably it contains those Rare Earth Oxides (REO) required in the manufacturing of Wind and EVs technologies. The resource includes 15,630 tons of neodymium, 4,459 tons of praseodymium, 867 tons of dysprosium, and 182 tons of terbium with a combined grade of 3.49%, which is higher than the average total rare earth grade of between 1-3% found in most other in-situ grade deposits. The REO economic value is displayed in the below graph.
In most cases, as it is with the Steenkampskraal deposits, the processing stage ends after beneficiating the REOs (Rare Earth Oxides). The actual problem remains in the absence of a robust and fully integrated value chain with sufficient capacity to turn the REE ore into valuable end-products such as solar PV panels, wind turbines, or EV engines. This vertical integration is not only limited to the actual mining and primary beneficiation of REEs but also needs to encompass the separation and purification of the individual REO and further refining to meet the specific downstream applications. China is the only country that has achieved this vertical integration and therefore holds control of the market. While it may be difficult for South Africa, and even more so for other sub-Saharan African countries, to set up an entire value chain, it is possible for the nations to integrate parts of the value chain within the African borders, especially given the trade agreements in place between the African nations.
REE mining is characterised by potentially severe environmental impacts, especially if the extraction and downstream refining produces radioactive waste. This is where in-depth, detailed, and articulate legislation, policies, and regulations need to come into play, as well as proper waste disposal plans. Alternatives include recycling of REEs obtained from e-waste, improvements to the economics of processing existing sources as well as identification of new uses for co- or by-products such as RE substitution. Africa is often the target of e-waste from the developed world, hidden under the label of ‘donations’. By setting up proper recycling facilities capable of extracting not only REEs but also other abundant precious metals (Ag, Au, Pd, Pt, etc.), the region could benefit from the economic opportunity while simultaneously limiting environmental and social harm.
In summary, Africa has the opportunity to become a major supplier of high-grade REEs to the rest of the world. Through onsite beneficiation, floatation, and subsequent hydrometallurgical processes at the mines, refined metal REOs can be supplied to one central facility in an industrially developed location with further downstream production possibilities as well as export opportunities. This requires collaboration between African mining companies, support from the government, waste storage and treatment facilities, the creation of tax incentives to attract the private sector as well as international export trade agreements and off-taker markets. The opportunity for Africa is there, it just needs to be taken advantage of.
To find out more about opportunities in Africa, please contact Lynne Martin.
