African countries want to move beyond simply extracting and exporting raw materials. They are planning to build refineries, smelters and processing plants that will allow them to retain a greater share of the value added on their own continent. However, access to affordable and reliable energy is becoming a problem. The examples of Guinea, South Africa and Mozambique show that even ambitious industrial plans can fail without reliable electricity supplies.
As Reuters reports, African governments are using export restrictions, tax incentives and access to mineral deposits to encourage companies to invest in local processing. Organisations involved in projects of this kind include the US International Development Finance Corporation and the Africa Finance Corporation. The investment potential is substantial, but industrial development depends on more than the availability of minerals and capital. Energy infrastructure, regulatory stability and the ability to sell finished products are equally important.
One country placing particular emphasis on developing domestic processing is Guinea. The country has overtaken Australia to become the world’s largest producer and exporter of bauxite. Most of the raw material goes to China, where it is used to produce alumina, which is essential for aluminium manufacturing.
The government wants a greater share of this industrial value chain to be developed locally. According to Daouda Diakite, a senior adviser to Guinea’s Minister of Mines, three alumina refineries are under construction. By 2030, the country wants to have five such plants, with a combined annual production capacity of between 7 and 8 million tonnes. The next stage is expected to involve investment in aluminium smelters.
– The next step will be steel production – Diakite said at the African Mining Week conference in Cape Town, referring to plans to develop further stages of raw material processing.
Guinea also intends to accelerate the development of plants producing iron ore pellets. The authorities are considering restricting bauxite exports to avoid oversupply and downward pressure on prices. According to Reuters, the restrictions had been announced but had not yet been introduced at the time of publication.
Investors are expected to be attracted by mining rights and temporary tax incentives. Companies interested in bauxite extraction are also being encouraged to participate in the construction of smelters and railway infrastructure.
Energy is the biggest obstacle
Industrial expansion requires far more energy than Guinea currently has available. The country generates around 1,000 megawatts of power capacity, mainly from hydropower plants. During the rainy season, which lasts from April or May until November, it can export electricity to Senegal, The Gambia and Guinea Bissau. During the dry months, however, it has to import electricity from Côte d’Ivoire or Senegal.
According to Diakite, Guinea needs between 5,000 and 10,000 megawatts of power capacity to support industrialisation, including planned investments in aluminium production.
– The main problem is infrastructure and energy, above all energy – said the representative of Guinea’s Ministry of Mines.
– We need sustainable and stable energy. We are seeking investment in all economically viable energy solutions, including gas, coal and nuclear power – he added.
Guinea has no domestic coal deposits. Diakite suggested that ships arriving to collect bauxite could first load coal in South Africa or Mozambique. This illustrates the scale of the logistical challenges facing the country as it attempts to develop industry while ensuring a stable energy supply.
South Africa shows what happens without affordable electricity
The risks associated with high energy costs are evident in South Africa. The country holds more than 70% of the world’s known chromium resources, but its smelting industry has lost a significant share of its production capacity.
Dozens of ferrochrome smelters have closed in recent years. One of the main reasons has been the increase in electricity costs, which have risen approximately tenfold since 2008. Fewer than 12 of the 66 plants of this type are now operating.
– The most important lesson is how critical reliable and affordable energy supplies are to industrialisation – said Mzila Mthenjane, chief executive of the Minerals Council South Africa.
High electricity bills have weakened the competitiveness of South African ferroalloy producers in their competition with China. While South Africa’s industry struggled with energy costs, China expanded its processing capacity and ensured that plants had access to cheaper power. As a result, it became the world’s largest ferrochrome producer.
– Now we have to compete with that – Mthenjane added.
This example shows that having abundant mineral deposits does not guarantee industrial dominance. If local plants cannot compete on production costs, raw material processing may shift to countries offering cheaper energy and more favourable operating conditions.
Drought hits aluminium production in Mozambique
The problem is not limited to high energy prices. It also includes uncertainty over whether sufficient electricity will be available. Mozambique is one example. This year, Australian mining group South32 suspended operations at its aluminium smelter and placed it in care and maintenance after drought reduced electricity supplies.
For energy intensive metallurgical industries, such disruptions pose a serious threat. Plants require large amounts of electricity continuously, and interruptions can undermine the profitability of production and make it difficult to fulfil contracts.
Experience from southern Africa is particularly relevant to countries only now planning to build new smelters and refineries. Investing in production capacity without developing the energy sector at the same time can result in plants that cannot be operated efficiently.
Mohamed Zada, Egypt’s Deputy Minister responsible for strategic industries, also spoke about the importance of taking a comprehensive approach to investment. He identified four basic conditions for attracting investors: secure raw material supplies, access to energy, stable government policy and guaranteed buyers for products.
– We cannot focus on one of these and ignore the other three pillars, which must develop in parallel – Zada said at an industry conference.
This list shows that building a processing plant requires much more than access to mineral deposits. Investors need confidence that raw materials will be supplied in sufficient quantities, that energy will be affordable and reliable, and that operating rules will not change in ways that undermine the project’s viability. They must also find customers willing to buy the products.
Franklin Edochie, deputy director and head of mining at the Africa Finance Corporation, also highlighted access to capital. Projects involving the production of higher value added materials may require investments worth billions of dollars.
– Energy is one of those elements, raw materials and capital are others, because when we talk about value added products, we are talking about projects worth many billions of dollars – Edochie said.
He added that Africa produces high quality products and that companies have customers for them. The challenge is therefore to create conditions that allow production to expand on the continent rather than leaving countries primarily to export unprocessed raw materials.
Raw materials alone are not enough for industrial transformation
African plans to develop domestic processing are part of a broader effort to retain a greater share of the profits generated by mineral extraction. Guinea wants to expand alumina production and eventually aluminium manufacturing, while other countries are seeking to develop the processing of lithium and metals used in industry.
However, the experiences of South Africa and Mozambique show that a resource advantage can be wasted if industry lacks access to reliable and competitively priced energy. In Guinea, meanwhile, the scale of the planned investments means that existing power generation capacity will have to increase severalfold.
The success of this strategy will therefore depend not only on how quickly refineries and smelters are built, but also on the development of the energy sector, transmission networks and transport infrastructure. Without these elements, African countries may continue supplying raw materials to overseas plants instead of becoming major centres for industrial processing.
