Saudi Arabia Has a Strategic Advantage in Sourcing Critical Minerals from Africa
In September the United States and Saudi Arabia advanced discussions to form a partnership to boost critical minerals supply from African countries. Saudi Arabia announced that it would purchase $15 billion in global mining stakes to secure minerals from countries such as Namibia, Guinea, and the Democratic Republic of Congo, to increase critical minerals supply for domestic processing and manufacturing, in support of its ambitious goal of producing 500,000 electric vehicles annually by 2030. Given it lacks significant critical mineral reserves, most of Saudi Arabia’s efforts to secure critical minerals have focused on developing countries.
It is a lucrative partnership for African countries in particular—Saudi Arabia has significant capital and experience in using its natural resources to become a development success story—both of which African countries are looking for. Saudi Arabia has shown they are willing to deploy the capital at a time when many private sector players are scaling back on investment. It has also shown that is willing to provide African countries with the support to ensure they get more from their resources. It is no surprise that over 25 African governments will be present at the Future Minerals Forum, convened by the Saudi Arabian government, in Riyadh in January 2024.
By partnering, Saudi offers the United States and its allies the most powerful counter to China’s dominance in critical minerals. The United States has had very limited commercial engagement with the African continent, which has over 75 percent of the word’s manganese, platinum and chromium, nearly half the world’s cobalt, and a fifth of the world’s graphite. On the other hand, Saudi Arabia has become increasingly close to Africa. Earlier this month, the kingdom hosted the Saudi Arabia-Arab-African Economic Conference in Riyadh. The Saudi Fund for Development signed $533 million in agreements with African countries, with support targeted at countries in debt distress. Saudi investment minister Khalid Al-Falih announced that the country would use its sovereign wealth fund to make “game changing” investments in Africa. Saudi energy minister Prince Abdulaziz bin Salman also announced preliminary energy cooperation agreements with Nigeria, Senegal, Chad, and Ethiopia.
There are two key reasons that Saudi Arabia is an attractive partner for African countries. First, Saudi’s development story of leveraging the extractive sector for equitable economic growth through its sovereign wealth fund is appealing to African countries. Between 2005 and 2010, oil accounted for nearly 90 percent of Saudi Arabia’s revenue. It used this revenue to improve the country’s standard of living. Saudi Arabia performs well on the human development index (HDI), which is a measurement of three key dimensions of human development: health (life expectancy at birth), education (average years of schooling and expected year of schooling), and standard of living (gross national income per capita). In 2021 Saudi Arabia performed in the top 25 percent of all countries in the world on the HDI, ranking 33 out of 143 countries. In contrast, when looking at the bottom quartile of countries in the HDI rankings, 74 percent of them are in Africa. And of the African countries in bottom quartile of global HDI rankings, 73 percent of them are categorized as resource-rich. This indicates that despite having significant reserves of minerals, oil and gas, these countries have failed to leverage it for socioeconomic development.
Saudi Arabia’s growth narrative is one that many African countries seek to emulate. African countries are urgently seeking to mobilize revenue to meet their development needs as they grapple with twin challenges of limited public finance and rapidly growing populations. A growing number of countries find themselves in debt distress, unable to meet their debt obligations. As countries struggle with limited public finances, they are grappling with the highest population growth rate in the world. Africa’s current population, 1.4 billion, is forecasted to reach 2.4 billion by 2050.
Second, Saudi Arabia is not sensitive to short-term price signals—so while global mining exploration and activity has contracted this year, Saudi Arabia has scaled up its overseas investments. Lithium prices have declined over 70 percent and nickel prices by 40 percent this year. Cobalt prices have fallen 50 percent from their peak in 2022. Firms have responded by curtailing their spending and activity. S&P’s Global Market Intelligence releases the pipeline activity index (PAI), a single score that measures the overall activity in the commodity supply pipeline worldwide by aggregating significant drill results, initial resource announcements, significant financing, and positive project development milestones. Between September 2022 and 2023, the PAI declined by 35 percent. Funds raised by junior and intermediate mining companies declined by 11 percent, largely owing to a decline in financing for minerals in the specialty commodities group, particularly graphite and lithium. In September 2023, the PAI reached its lowest level since May 2020 at the height of the pandemic.
While most firms have been responsive to price signals, Saudi Arabia has moved countercyclically. Its state-owned mining company, Ma’aden, bought a 9.9 percent stake in Ivanhoe Electric, a U.S. mineral exploration group and a 50/50 joint venture agreement with Barrick Gold for the Jabal Sayid copper mine. Manara Minerals, a joint venture between Ma’aden and the Saudi Public Investment Fund, the country’s sovereign wealth fund, is focusing on minority equity positions. Earlier this year Manara entered into a joint venture for a 10 percent stake in Vale Base Metals, a leading copper and nickel producer. Saudi Arabia’s equity stake approach eliminates the burden of exploring, permitting, building, and operating a mine—instead it lets the kingdom go straight to securing supply.
Saudi Arabia’s capital and development experience have been welcomed by African governments. Preliminary U.S.-Saudi discussions on partnering to advance critical minerals security is likely the start of many Saudi-centered alliances in the months and years to come. Over 9,000 people from across the world will congregate in Riyadh, Saudi Arabia, to advance these discussions next month.
Gracelin Baskaran is research director and senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.