China’s Export Controls on Critical Minerals: Diversifying Supply Chains through Africa

Introduction

In August, China will impose export controls on vital minerals – gallium and geranium. These minerals are crucial for semiconductor technology, and restricting access is part of China’s strategic power competition with Washington. The consequences are significant, as it will disrupt U.S. and Taiwanese chip manufacturers. China’s dominance in the global mineral supply chain, especially rare earth metal extraction and processing, gives it the power to manipulate access at will. Additionally, China’s status as the world’s top manufacturer puts raw material building blocks like plastics, chemicals, and agricultural products at risk due to Beijing’s geopolitical ambitions. Diversifying through Africa may be the only hope for the U.S.

The Need for Diversification

The vulnerability of U.S. industry’s reliance on a single supply chain calls for a pivot strategy. While decoupling completely is unrealistic, diversifying the supply chain is a vital long-term approach. Africa presents a promising opportunity for diversification.

Africa’s Emerging Market

Africa has captured attention as an emerging market, offering diverse trade, investment, and sourcing opportunities across its fifty markets. Boasting a population of over one billion, Africa has the youngest and fastest-growing population globally. Notably, eight of the world’s fifteen fastest-growing markets are in Africa, including countries like Cote D’Ivoire, the Democratic Republic of the Congo, Rwanda, and Senegal.

Beyond Humanitarian Challenges

Africa’s reputation often centers around humanitarian challenges, but the continent has shown remarkable economic growth through development assistance. It is abundant in raw materials, oil and gas reserves, and agricultural potential. Moreover, Africa’s growing workforce, innovation clusters, and rising middle class make it an attractive destination for mutually beneficial trade relationships.

Promising Investment Destinations in Africa

Several African countries offer promising investment destinations, creating ample collaboration opportunities for U.S. industry. Nigeria, Ghana, and South Africa are already established as reliable investment locations. Morocco’s free trade agreement with the United States and Kenya’s attention from the U.S. Trade Representative’s Office further attract transatlantic partnerships and foreign direct investment.

Strategic Investments from Peers to Africa

While the U.S. is beginning to recognize Africa’s potential, its peers have already made strategic investments on the continent. The European Union (EU) conducts over $250 billion worth of trade with Africa annually, nearly five times more than the American trade relationship. With more than 20 free trade agreements across the continent, the European Commission prioritizes Africa as a “Global Gateway.” China’s controversial One Belt One Road initiative has also established a significant presence on the continent, making it the largest trading partner for many African states.

Supporting U.S. Industry in Africa

For the past two decades, the U.S. government has encouraged safer trade and investment conditions in Africa. Initiatives like Prosper Africa and Power Africa offer tools such as risk insurance, business intelligence, and matchmaking, aligning American industry with the continent’s opportunities. The African Continental Free Trade Area further facilitates supply avenues, promotes trade through tariff removal between African states, regional cooperation, common rules, and regulatory reform.

Navigating the Risks of trade in Africa

Emerging markets come with risks, including rapidly changing governance structures, political instability, stubborn trade barriers, and persistent corruption. Capital moves slowly, and results can be unpredictable. Challenges like flight scarcity, limited shipping routes, language barriers, and time differences add complexity. However, recognizing each country’s unique profile, setting reasonable expectations, and understanding Africa’s nuances can help mitigate risks.

The Case for Africa

While Africa may not solve all supply chain challenges, it deserves serious consideration from forward-thinking entrepreneurs who understand the risks of relying on a single source. The continent presents a compelling case for U.S. industry partners seeking growth opportunities in emerging markets. For those willing to navigate the complexities, the potential for two-way commercial relationships is clear.

Conclusion

China’s export controls highlight the fragility of global supply chains, emphasizing the need for diversification. Africa emerges as a promising destination for U.S. industry to establish trade relationships and secure reliable access to essential resources. By recognizing the opportunities and navigating the challenges, American companies can position themselves strategically in this growing market.

FAQs

1. How will China’s export controls impact the global market? China’s export controls on gallium and geranium will disrupt semiconductor technology, affecting U.S. and Taiwanese chip manufacturers.
2. Why is diversifying the supply chain important for U.S. industry? Diversifying the supply chain reduces dependence on a single source, addressing vulnerabilities in the supply chain.
3. What makes Africa attractive for U.S. industry? Africa offers diverse trade opportunities, a rapidly growing population, and abundant raw materials across its fifty markets.
4. What are the risks involved in engaging with Africa’s emerging markets? Risks include political instability, trade barriers, and corruption. Understanding each country’s unique profile helps mitigate risks.
5. How can American companies support their first steps in engaging with Africa? Initiatives like Prosper Africa and Power Africa offer tools and support, including risk insurance, business intelligence, and matchmaking, assisting American industry in Africa.