Examining the rise of Resource Nationalism

Recently, China’s Zhejiang Huayou Cobalt company approved plans for a new $300m lithium processing plant in Zimbabwe. The company is aggressively expanding operations in line with CCP foreign policy, consolidating rare earth resources and the infrastructure needed to process them. The investment comes after the China-based firm purchased the Arcadia hard rock deposit from Australian Prospect Resources for $422m last year. It now brings total investment by Chinese firms in Zimbabwe to over $1 billion since 2021. However, it also raises the potential benefits that resource nationalism may bring to nations, particularly those in Africa.

That is because the investment comes on the heels of recent Zimbabwean export bans on lower grades of lithium and raw lithium ores in an effort to nationalise its lithium production. In December of 2022, Zimbabwean mining minister Winston Chitando stated that ‘no lithium-bearing ores or un-fabricated lithium shall be exported from Zimbabwe to another country except under the written permission of the minister’. This move was further galvanised by the incorporation of a larger group of ‘Approved Processing Plants’ by the government, which means that any firms looking to invest in lithium operations will have to invest in Zimbabwean infrastructure in order to do business. Furthermore,in addition to relying on government approved facilities, the mining firms will have to follow the prices set by the MMCZ when selling their raw ore to processing plants. 

This twofold measure not only confines the entire lithium extraction and refinement process to Zimbabwe, but also pressures foreign firms to have more vested stakes in the development of Zimbabwe. These measures have had no negative impact in Zimbabwe, as foreign investments have shown no signs of slowing. Zimbabwe is quickly reaching its target of $12 billion in production, with future plans to surpass that target in the coming years. This move by Zimbabwe, which is the 6th largest lithium miner globally,further cements the growing wave of resource bans that have become a popular way of raising revenue and encouraging passive investment in infrastructure at little cost.

Zimbabwe is an example in a growing group of nations who are racing to nationalise and control their natural resources. In the Americas, Mexico and Chile recently nationalised their lithium resources and now have total control over the extraction and refinement of the metal, which has allowed them to enjoy considerable economic benefits, in addition to increased infrastructure and employment. Whilst African and South American countries are consolidating their mineral deposits, Asian countries have also joined the fray. In 2020, Indonesia instituted a nickel ore export ban after a six-year debate. Since doing so, it has increased its smelting facilities from 2 to 13 and increased the value of Indonesia’s nickel exports from $57m in 2020, to $750m in just three years.These  

By looking at these cases, there seems to be an ironclad case for resource nationalism, which has seen a resurgence owing to the rise of China as a key economic player. Both Chile and Mexico are relying on Chinese investment and demand, whilst Indonesia’s key infrastructure was developed as a part of the ‘Belt and Road’ initiative.

The role of Covid-19, however, cannot be ignored either, as the pandemic persuaded many countries to nationalise their resources. Additionally, in the case of Chile and Mexico, there is a strong nationalist presence that demands the state have more control over mineral resources. Issues around resource policy became more prevalent during the pandemic, where resource and capital uncertainty pushed some nations to pursue more nationalistic agendas in regards to their resources.

The overall picture of resource nationalism seems to be a positive one, with countries that nationalised seeing a rise in revenue and infrastructure, with the latter being more important to allow for future economic expansion. Other nations have also moved to introduce resource bans. The move to curb artisanal mining has proven to be a positive one, but it could potentially fuel a rise in global prices and lead to more intense resource competition. 

There also are other potential complications that arise from resource nationalisation. In particular, the example of the DRC is one to be cautious of for prospective nations. After implementing their new Mining Code in 2018, the government gained more power to tax and intervene in the mining industry. This led to increased taxation, intervention and corruption as the government became more involved in the mining industry. This was seen when the Congolese government suddenly began revoking permits for mining projects, which resulted in a drop in activity and even legal action in the case of Sundance Resources.However, it should be noted that this did little to slow the creation of new mining ventures or operations, with the government granting 3053 different mining-related permits. In addition, the value of exports have risen since the law was implemented, showing that despite the challenges faced by the law, companies are still willing to engage in activity in the region.

Resource nationalism is gaining more popularity and continues to be a tested source of revenue generation for nations that are already invested in mining and metal industries. With current trends, it would stand to reason that resource nationalism could spread to soft commodities, as states look for ways they can expand their revenue and infrastructure more passively through legislation and private market action. 

Africa in the “white gold” rush

The global supply of lithium ore has become an increasingly tangible bottleneck as many countries move towards a green transition. The International Energy Agency (IEA) predicted that the world could face a shortage of this key resource as early as 2025, as demand continues to grow. The increasing popularity of electric vehicles (EVs), which saw sales double in 2021, as well as other products which require lithium batteries, have been primary factors in this supply crunch.

Demand for lithium (lithium carbonate in this case) has driven high prices, which also nearly doubled in 2022, over $70,000 a tonne, and put pressure on the mining industry to increase production. This has led to heightened competition over this strategic resource and a rush to explore new reserves. An emerging arena in this competition has been Sub-Saharan Africa which has the potential to become a major player in lithium production, behind already established producers in South America and Australia. This region does, however, pose a unique set of challenges for lithium production in terms of infrastructure as well as a diverse and risk prone political constellation.      

Within the region there are several countries which have already been tapped as potential producers or have already developed some degree of extraction capacity. Among these are Mali, Ghana, the DRC, Zimbabwe, Namibia and South Africa, at this stage most of these countries are at some stage of exploration, development or pre-production, currently only Zimbabwean mines are fully operational. 

The political instability in some of these countries is a primary concern in the future of lithium production. Mali stands out in this regard with the withdrawal of the French intervention force in 2022, after nearly 10 years, and the ensuing power vacuum. In other countries such as the DRC political risk has been largely tied to corruption in governance which limits competition potential as well as human rights and environmental concerns which emerged around cobalt mining.

Zimbabwe offers a perspective into the most developed lithium operation in the region. In early 2022, Zimbabwe’s fully operational Bitka mine was acquired by the Chinese Sinomine Resource Group. Also in 2022, Premier African Minerals, the owners of the pre-production stage Zulu mine, concluded a $35 million deal with Suzhou TA&A Ultra Clean Technology Co. which was set to see first shipments in early 2023. This was followed by a similar $422 million acquisition of Zimbabwe's second pre-production mine Arcadia by China’s Zhejiang Huayou Cobalt.  

Zimbabwe’s government responded to this mining boom by banning raw lithium exports stating that “No lithium bearing ores, or unbeneficiated lithium whatsoever, shall be exported from Zimbabwe to another country.” This move is intended to keep raw ore processing within the country, and despite initial appearances will not apply to the Chinese operation, whose facilities already produce lithium concentrates. Yet, this policy does demonstrate the active role that the government is able to play in the market, and their willingness to harness this economic windfall.

Even the most developed lithium mining operations in the region must pay close attention to the political situation unfolding around them. As competition over this strategic resource becomes more acute, the role of soft power will likely play a key role in negotiating favourable terms and preferential treatment in the exploitation of lithium reserves.