Shaping the DRC's Electric Vehicle Manufacturing Sector
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Shaping the DRC's Electric Vehicle Manufacturing Sector through Sustainable Cobalt Mining
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By Davis Mwania, Research Analyst, Botho Emerging Markets Group
September 28, 2022
On 29th April, the Democratic Republic of Congo (DRC) and Zambia signed a memorandum of understanding to develop their cobalt reserves and enhance the value chain of electric vehicle (EV) batteries and the globally acclaimed clean energy sector. The two countries are home to 80% of the world’s cobalt reserves, the majority (70%) of which are in DRC. According to the Global Electric Vehicle Outlook, the global electric vehicle supply chain is on a growth trajectory despite a lack of diversified battery manufacturing and a constrained supply of critical minerals, such as cobalt, which is one of the raw materials used in the manufacturing of Li-ion EV batteries. As producers of electric vehicles look to expand their reach, the DRC should hasten the implementation of the Maluku Special Economic Zone, partner with China, and adopt a no-child labor policy to ensure that cobalt mining is more sustainable in securing better livelihoods for citizens both in the short and long run.
The fact that cobalt is the most valuable battery metal per kilogram is a double-edged sword. As the world turns green, adopting cheaper and widely used lithium-iron-phosphate by some battery makers may decrease cobalt demand by 15% and reduce profits. On the other hand, with higher sales of electric cars and more models available, the hike in electricity demand is projected to drive cobalt demand up in the short term. Prices in May 2022 for cobalt, lithium, and nickel were more than twice the prices in January 2021, implying that the cost of battery packs could rise by 15%, increasing the potential gains in the DRC cobalt manufacturing sector. To reap these benefits the onus is on the government to foster partnerships, possibly with China and Saudi Arabia. China has more than half of cobalt processing and refining capacity, while Saudi Arabia is heavily investing in lithium mining, and manufacturing of EV batteries, parts, and chips in an effort to become a leader in the global electric vehicle value chain. These partnerships could aid in developing the DRC’s local human and technical ability for cobalt processing.
The regulatory environment of DRC places the country at a vantage point to reap more from its mining sector. The recent 2018 mining code revised the investment incentives to gain more government revenue from the mining sector. Specifically, the government removed a stability clause that increased royalty rates by 8% to 10% and elevated tax rates on crucial metals. Mining companies that earn huge profits at the end of the year are mandated to pay higher taxes. These reforms will solidify the cobalt mining sector as a critical contributing sector to the growth of the economy.
The vision of local cobalt refining, processing, and exporting means that more investors are a prerequisite. Enter the Maluku pilot special economic zone (SEZ). Maluku SEZ is under a public-private partnership and offers 10-year import duties and tax exemptions to planners and companies investing within it. Created 12 years ago, it has not yet taken off despite receiving support from the International Finance Corporation. During the 49th meeting of the Council of Ministers of the Government of the Republic held on 20th April 2022, President Tshisekedi renewed his commitment to ensuring that the SEZ is fully operational. He asked Prime Minister Jean-Michel Sama Lukonde and the ministers responsible to urgently pay the balance of funds to finalize the servicing works of the SEZ. This would attract metallurgical companies such as Katanga Mining Limited to process cobalt which would spur job creation during its inaugural activities.
DRC should emulate Morocco in positioning itself as a growing leader in the African renewable sector. Morocco seeks to increase its share of renewables from 37% to 52% of installed capacity by 2030 by widening the private sector’s share of total investments from a third to two-thirds by 2035. Some of the country’s investment incentives include state aid to companies to set up industrial hubs in remote areas and 100% exemption of import duty and VAT for 36 months. These incentives have catalyzed the growing international investments in electronic mobility. For instance, STMicroelectronics inaugurated a new production line for silicon carbide products for electric vehicles in Bouskoura, Casablanca-Settat region, that will employ 700 people. According to the Minister of Trade and Industry, Ryad Mezzour, the expansion will improve Morocco’s contribution to the automotive value chain and make it a destination for international investments in electric mobility.
After signing the bilateral cooperation between Zambia and DRC on manufacturing electric vehicle batteries and the renewable energy sector, Zambian President Hakainde Hichilema highlighted that the partnership would propel Africa’s development outcomes. Africa will be recognized on the global map, no longer as an exporter of cheap raw materials but more of a key participant in the global automotive value chain and decarbonization efforts. The agreement will deepen meaningful ties between these two neighboring countries around cobalt, a metal in which they both have a comparative and absolute advantage. The economies of these countries will grow through improved job creation and the forward and backward links that the mining sector creates in hospitality, agriculture, and manufacturing. For example, a $300M investment in a copper and cobalt processing plant in Mufulira, Zambia has led to 300 potential permanent jobs.
As the larger producer of cobalt between the two and the fourth-largest producer of copper worldwide, DRC has more at stake. For DRC to tap into the opportunity presented, it needs to strike a balance between having a monopoly on raw materials, attracting the necessary players in the EV industry, and bolstering local capacity through strategic partnerships. In setting up industries locally, including in remote parts of the country, DRC’s small artisanal miners will have access to formal opportunities helping them escape the risk of landslides as they mine. The government also needs to adopt a no-child labor policy in cobalt mining to address human and child rights abuses in the mining sector that have demotivated battery makers from using cobalt-intensive chemistries. With such measures in place, cobalt mining will be more sustainable, safe, equitable, and thus: a blessing in the guise of a metal! This will be a key milestone in the African landscape.
Davis Mwania is a Research Analyst at Botho Emerging Markets Group