A new EU report on the global supply of raw materials shows just how much the role of the developing world has changed from being the traditional "hewers of wood and drawers of water".
It is a role some have tried to escape from after independence from their various colonial masters. This economic dependence was often enshrined in law and continued well after independence, for various reasons. Mahatma Gandhi well understood this fundamental economic injustice. He wove his own clothes and collected his own salt as a protest to highlight what was essentially a means of keeping the colonialised dependent on the powerful.
After the era of colonialism, countries tried to change this relationship, with varying degrees of success. It’s not just the larger profit to be had from transforming the raw into a value-added good. Success is also measured by the expertise, training and education that goes along with manufacturing higher end goods.
Some countries – like Guyana and bauxite – went the way of nationalisation. Many lost as a result of political and economic boycotts or mismanagement, corruption, the discoveries of new sources for the raw materials, and changes in demand and technology.
India’s experiment – championing the creation of local industries to produce everything from rotgut whiskey to vehicles through protectionism – has in the end worked more or less to establish an indigenous economy that was relatively ready for the stresses of globalisation.
Others – like the major oil producers – just got together and charged much higher prices for their commodities.
Of course, the market for raw materials is vastly different from the time when the poorer countries lived under the admonition of Joshua 9:23: “Now therefore, you are cursed, and you shall never cease being slaves, both hewers of wood and drawers of water for the house of my God.”
A snapshot of this market can be seen in a report issued by the European Commission yesterday (17 June) forecasting that the EU is going to undergo shortages of 14 of the 41 critical mineral raw materials it needs to keep its economy growing.
As you can see from the image below, developing countries are an important feature in this economic mapping of the sources of those 14 minerals. The Democratic Republic of Congo (the former Zaire) is a source of cobalt and tantalum. Rwanda is a source of tantalum, South Africa for platinum, Brazil for niobium and tantalum, Mexico for fluorspar and India for graphite.
These countries are sitting pretty as they are in control of their prices. It is those whose raw materials are not in a critical supply state that are in a less powerful negotiating position in relation to the market.
The raw facts
The expert group who wrote the report considers that the 14 raw mineral materials are critical for the European Union: antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, PGMs (platinum group metals), rare earths, tantalum and tungsten.
The rare earths include yttrium, scandium, lanthanum and the so-called lanthanides (cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, rebium, thulium, ytterbium and lutetium. The PGMs are platinum, palladium, iridium, rhodium, ruthenium and osmium. Most of us have never heard of these chemicals, but they are important components of many of our high tech toys and equipment, as detailed in the report.
Forecasts indicate that demand for the 14 might more than triple by 2030 compared with the 2006 levels.
In fact, the “growing demand for raw materials is driven by the growth of developing economies and new emerging technologies” is driving the shortage, the report states.
The high supply risk for the critical raw materials is a result of the production concentration, compounded by low substitutability and low recycling rates.
“Many emerging economies are pursuing industrial development strategies by means of trade, taxation and investment instruments aimed at reserving their resource base for their exclusive use,” the Commission darkly concludes. This statement seems aimed at China, which as you can see has an impressive segment of the 14 critical minerals under its belt.
In the case of the African countries, the European Commissioner for Industry and Entrepreneurship, Antonio Tajani, said the EU and the African Union Commission had agreed at a meeting in Addis Ababa on 8 June to develop bilateral cooperation in access to raw materials and to work together on “governance, infrastructure and investment and geological knowledge and skills”.
This means that the EU will invest in training, knowledge transfer and infrastructure for raw material production in return for access, a bid that is probably repeated by every major power also looking at securing their sources.
Tajani’s statement is in keeping with the EU’s commitment to promote “sustainable access to raw materials in the field of development policy” by building “capacity, to ensure good governance and transparency in resource rich countries through an enhanced use of budget support and support to international initiatives such as the Kimberley Process (which deals with the diamond sector), the Extractive Industries Transparency Initiative (EITI), and the World Bank initiative on governance for extractive industry (known in the parlance of bureaucrats as EITI++).
The EU will also pursue a policy of seeking “fair play on external markets, a good framework to foster sustainable raw materials supply from EU sources as well as improved resource efficiency and more use of recycling”, Tajani continued.
The results of the report will be used by the Commission in drafting a communication on strategies to ensure the EU's access to raw materials, which will be published in autumn 2010.