Europe’s Critical Juncture: Reducing Dependence on China for Raw Materials
Despite intensified Western focus on reducing reliance on China, Europe's economic dependence on the Asian giant has only deepened in recent years. EU imports from China reached €515.9 billion in 2023, encompassing many crucial products necessary for advanced economies. The European Union's reliance on China is particularly concerning regarding critical raw materials (CRMs) needed for producing green technologies, such as solar modules, EV batteries, and wind turbine magnets.
To counter this dependency, the EU has pledged to diversify its energy sources and build supply chains independent of China. This approach, termed "de-risking," encompasses reducing dependence across green energy technologies, military technologies, and other sectors crucial to the EU's energy security. The EU has forged strategic partnerships with resource-rich African countries to build sustainable CRM value chains and unlock opportunities for European participation in African supply chains.
However, progress has been slow, with Europe struggling to overcome market dynamics and secure access to necessary CRMs. Other players, including Saudi Arabia, Turkey, and the UAE, are also expanding their CRM investments in Africa, adding urgency to the EU's efforts. Despite strategic partnerships with countries like Namibia, the Democratic Republic of Congo (DRC), Zambia, and Rwanda, European companies have hesitated to engage in CRM mining and processing activities, underlining the disconnect between EU geopolitical ambitions and private sector interests.
The EU has implemented several key policies to tackle its dependency on China for CRMs. These include the Critical Raw Materials Act (CRMA), which aims to secure a stable supply of CRMs, and the Net-Zero Industry Act, which focuses on boosting European capabilities in net-zero technologies. Additionally, the Global Gateway initiative seeks to mobilize €300 billion in investments between 2021 and 2027 for energy, transport, and digital infrastructure worldwide, particularly in Africa.
Africa has emerged as a pivotal arena in the global race for CRMs. The continent holds around one-third of the world's mineral resources, with significant deposits of cobalt, copper, lithium, graphite, and rare earth elements—all crucial for technologies like EV batteries and solar panels. Yet, despite the EU's initiatives and strategic partnerships, European companies remain hesitant to venture into CRM supply chains, largely due to the high cost of compliance with environmental, social, and governance (ESG) standards and the challenge of aligning their commercial interests with EU goals.
As other countries rapidly secure stakes in African mining projects, Europe risks falling behind in the race for CRMs. The U.S., for instance, has attracted considerable investment through incentives like the Inflation Reduction Act, while Chinese companies continue to dominate both CRM mining and processing globally. To succeed, the EU will need to innovate its financial mechanisms, offer greater support to European companies, and provide incentives that align the private sector's interests with its broader geopolitical goals.
One promising case is the EU's partnership with Namibia. Although Namibia offers political stability, abundant land, and a conducive investment environment, European companies have been slow to engage in CRM projects there. Local regulations requiring the processing of raw minerals in-country, coupled with the high costs of mining and ESG compliance, have presented challenges. In contrast, China has moved ahead, constructing a lithium refinery in Namibia, highlighting the limitations of Europe's market-based approach.
For the EU to reduce its dependence on China and establish sustainable CRM value chains, significant financial backing is essential. The bloc must ensure its strategic partnerships result in tangible CRM projects involving European firms. Offering price protection through public financial institutions, expanding political risk insurance, and reducing electricity costs in Europe are all steps that could make CRM projects more attractive to European companies. Additionally, better consultation mechanisms with the private sector could help tailor support and incentives to real industry needs.
The stakes are high. Europe's energy security, political influence, and economic strength depend on diversifying CRM supply chains and reducing its dependency on China. Effective financial interventions and proactive policy support will be crucial to ensuring European companies are willing and able to engage in CRM supply chains—particularly in Africa, where the potential for CRM production is vast but remains largely untapped.
