The Democratic Republic of Congo and the good fortune it deserves
In my travels in Africa over the decades, the tremendous economic potential of the continent has always been obvious. But, a standout for rapid economic growth has always been the Democratic Republic of the Congo (DRC).
More than 70% of the world's mined cobalt is produced in DRC. However, approximately 80 percent of DRC’s industrial Cobalt mines are owned or financed by Chinese firms. (The New York Times)
The DRC is a nation endowed with vast natural resources whose economic potential wholly conflicts with its economic performance. DRC’s economy continues to perform poorly, with high levels of food insecurity, wide spread poverty, and rising unemployment for a young population. GDP grew by over 6 percent last year, but real GDP per capita made no significant gains in the past half decade. Remarkably, the DRC continues to get richer as a nation while its people do not see similar gains in fortune.
The mining sector in DRC is the source of most its export income. This has boosted DRC’s fiscal position and GDP growth over recent years. However, the DRC like many African countries is at the mercy of international commodity prices especially for Copper and Cobalt. If Copper and Cobalt do better on international commodity markets so does DRC, or vice versa. As of late, the DRC’s economic challenges also include a depreciating currency, high inflation, and by default a growing fiscal deficit.
DRC’s large mining sector continues to be mismanaged and this has implications for the wider economy. The DRC has the largest Cobalt reserves in the world, which account for nearly half of the world's reserves of this metal. Cobalt is a rare element with a frequency in the Earth’s crust of 0.004 percent.
More than 70% of the world's mined cobalt is produced in DRC. Any nation that produces electric cars and various electronics is always reliant on Cobalt for manufacturing giving the DRC unparalleled economic comparative advantage. In fact, forecasters predict that the supply for Cobalt won't be able to keep up with demand by as early as 2025 which should forecast untold riches for the DRC under the right circumstances.
However, approximately 80 percent of DRC’s industrial Cobalt mines are owned or financed by Chinese firms. This greatly disadvantages domestic mining companies in DRC and the government’s ability to reap additional economic gain from this rare Earth element.
Of course, the electric vehicle market (EVs) and their manufacturers need Cobalt for their car batteries. Cobalt demand from EVs is expected to reach 63,167 tonnes by early 2023, and will increase to 110,218 tonnes by 2026. This is because of the projected growth in the EV sector.
Cobalt also serves as a key temperature resistant alloy for cell phones, jet engines, magnets used in advanced technology, and alloys used in things like munitions. China reaps tremendous economic advantage from being the bulk producer of processed cobalt providing this product to companies like Apple, and indirectly to Tesla. Mined Cobalt has significantly lower value addition than processed Cobalt.
Unfortunately, the DRC is disproportionately losing out on its potential economic gains from Cobalt as it is Chinese manufacturers and investors that are reaping most of the value addition. For DRC, the riches from Cobalt have yet to avail themselves while waste generated from mining Cobalt and Copper are contaminating its beautiful rivers, poisoning its water supply, and polluting its air and soil. This in turn is beginning to adversely affect its crop yields and contaminate its harvests. Also, cobalt mining consistently involves child labor, and respiratory and reproductive health issues have begun to surface in greater numbers in the broader population.
So, what can be done in a country like DRC where regardless of its mineral wealth poverty remains extremely widespread? This is in the context of the DRC failing to meet virtually all of its Millennium Development Goals, while it remains mired in economic hardship.
The only way forward is for DRC to be able to claim a larger portion of the wealth that comes from having comparative advantage in Cobalt. As stated, that wealth comes not just from mining, it comes from the production and processing of Cobalt. This is where the value addition is. The DRC must be able to claim a larger portion of this pie from Cobalt investors. To be socially responsible, these investors must play a bigger role in helping the DRC offset environmental damage coming from mining Cobalt. Support also has to be directed to the education of a fast growing population, and to helping the agricultural sector meet its vast economic potential, while curtailing the pollution of DRC’s soil, and its water supply.
Giving this amazing country the opportunity to process a percentage of its cobalt is key to it reaping the riches from its own natural resources. This wealth can in turn help other sectors to grow like agriculture furthering employment and opportunity for its citizens. Every country deserves to keep enough of the riches its comparative advantage provides, and to give its people the wealth and the quality of life they justly deserve.