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1. Dark Spots in the International Commodity Value Chain: The Case of Copper in Zambia

Author:
Dale Mudenda and Léonce Ndikumana
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
This paper investigates mineral export misinvoicing in Zambia as a channel of capital flight, with a focus on copper, gold, and gemstones. The analysis reveals major discrepancies between Zambia’s recorded exports and imports as recorded by its trading partners. In the case of copper, a large share of exports recorded in Zambia as headed to Switzerland does not appear in Swiss imports. The ‘missing copper’ cannot be traced through analysis of trade between Switzerland and its major partners either. Gaps in the opposite direction are observed in Zambia-China trade, suggesting export underinvoicing, a common mechanism of capital flight. These do not offset the gaps observed in mirror trade statistics between Zambia and Switzerland, which remain a mystery. Similarly, whereas the primary destination recorded for Zambian gold exports is South Africa, these do not appear in gold imports recorded by South Africa. The gemstones sector is characterized by high informality that enables smuggling and export underinvoicing. Zambia must implement measures to curb misinvoicing of mineral exports and address structural opacity in the trade value chain if it hopes to maximize the gains from the exploitation of its mineral resources.
Topic:
Political Economy, Commodities, Exports, Global Value Chains, and Minerals
Political Geography:
Africa and Zambia

2. The Prospects of Indonesia’s Nickel Boom Amidst a Systemic Challenge from Coal

Author:
Thibault Michel
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Institut français des relations internationales (IFRI)
Abstract:
Indonesia is a country that is booming economically and demographically. This not only matters for regional political and energy security, but also increasingly, for the world’s energy transitions, due to Indonesia’s large metal reserves, as well as its equally important coal consumption in industry and for power generation. Over the last 20 years, Indonesia’s economy has been characterized by very dynamic growth, massive increases in its electricity demand, and coal consumption and exports. Hence, its greenhouse gas (GHG) emissions are on a steady growth trajectory, although the country has committed to lowering them by 32% (unconditional) or 41% (conditional) by 2030. With its Organisation for Economic Cooperation and Development (OECD) membership application, occurring in the context of global energy transition requirements and geopolitical confrontations, Indonesia is today at a crossroads. Indonesia has 42% of the world’s nickel reserves, as well as substantial reserves of copper, gold, tin, and, notably, coal. This wealth in natural resources has given the mining industry crucial importance in Indonesia’s economic growth and has recently taken an even more prominent place: Indonesia has managed to become the world’s largest nickel producer within just a few years, as its share in global nickel extraction grew from 5% in 2015 to 50% in 2023. The country is also the world’s third copper ore exporter. Coal and energy transition minerals have progressively replaced oil and gas in Indonesian exports. Between 2011 and 2023, oil and gas exports fell by nearly two-thirds and their share in the national exports decreased from 20% to 6%. In 2023, export revenues from copper were larger than those of oil and equal to gas earnings. Yet, having major mineral deposits and mining activities is no longer considered sufficient by the Indonesian government. So far, the mineral industry’s growth has relied hugely on Chinese investments and on low-added-value activities, especially in pyrometallurgy processing. Diversification of trade partners and expansion into new, entire value chains is, therefore, a key objective for the Indonesian government. Indonesia is seeking to boost trade with the United States (US), the European Union (EU) and even the Eurasian Economic Union. However, negotiations over respective agreements are currently encountering hurdles due to American legislation (the Inflation Reduction Act and Foreign Entities of Concern status), which could seriously threaten Indonesian exports of battery mineral components to the US market while they also face hurdles to entering the EU due to environmental regulations. The second part of Indonesia’s strategy focuses on the development of new industrial segments of value chains: refining facilities, hydrometallurgical processing plants, battery factories, etc. To develop these activities, the Indonesian government is using two main tools: the divestment of foreign companies in local firms and export bans on crude ore exports. Such bans have been introduced for nickel in 2020 and for bauxite in 2023, while they are expected for copper in 2024 and perhaps even later for tin. Indonesia is today also confronted with the negative repercussions of mining activities on its soil, including protests over the lack of safety in its mines and smelters, citizens’ expropriations, the presence of indigenous tribes on mining sites, and, above all, damage to the environment. Such damage also has its roots in the substantial amounts of energy used to feed smelters, which mostly rely on the use of coal. Decarbonizing Indonesia’s economy has thus become a central challenge for the country, where the consequences of climate change are already palpable on the archipelago’s soil, with extreme weather events and the sinking of the capital city – Jakarta – as sea levels rise. To carry out the tremendous transformation towards net-zero emissions while ensuring steady and sustainable development, the country has signed a Just Energy Transition Partnership and prepared decarbonization scenarios within this framework. Key priorities in the coming years include renewable energy deployment, grid development and an early phase-out of coal. Deploying renewable energy sources as well as large and resilient grids is made more difficult by the country’s geography. The archipelago includes 17,000 islands, some of them being undeveloped, hard to access and far away from each other. Furthermore, the levelized costs of solar and wind power are currently high in Indonesia compared with other developing countries, while public subsidies for coal do not favor low carbon generation sources. If the two first points are thus very challenging, the last one appears to be the hardest, considering the Indonesian economy’s tremendous dependency on coal. Concerns are therefore rising about Indonesia’s ability and even willingness to pursue a genuine, albeit differentiated decarbonization pathway. There are also many questions regarding Indonesia’s mineral trade strategy. New bans on crude ore exports are expected to come into force, while new mining and mineral processing operations are under development across the archipelago, as quantities of nickel produced in the country are at historic highs. This extraordinary increase in nickel production, concomitant with a global economic slowdown, has resulted in a sharp fall in nickel prices, with nickel losing half of its value between January 2023 and February 2024. As a result, many producers are finding themselves in danger, especially in Australia or New Caledonia. While there could be a deliberate strategy to flood the markets and neutralize competition, notably by Chinese companies that control 75% of the global nickel supply (mainly from Indonesia but also from the Philippines), the country faces serious dilemmas. Indonesia’s oil and gas production is diminishing, and it increasingly relies on nickel exports and higher nickel prices for its economic stability, with coal also remaining very important. Indonesia’s resource nationalism and industrial strategy, which include attracting foreign investments, notably via its OECD membership pledge, require a credible pathway to reduce the carbon footprint of its electricity generation. Among the pathways towards both decarbonization and the development of industrial battery value chains, three steps could be considered: Deploying renewable energy sources, especially solar photovoltaic (PV) power and offshore wind farms, as well as progressively transferring subsidies from coal to renewable energy sources. Developing a clean battery industry based on high environmental, social and governance (ESG) criteria and on the wealth of Indonesia’s subsoil, which includes most of the metals used in battery manufacturing. Protecting climate and biodiversity by favoring innovative solutions for mining waste management and upholding high ESG standards.
Topic:
Natural Resources, Electricity, Coal, Lithium, Minerals, Energy Transition, and Nickel
Political Geography:
Indonesia, Southeast Asia, and Indo-Pacific

3. The Raw Materials of Economic Security: South Korea’s Evolving Energy and Critical Minerals Policies in an Era of Disruption

Author:
James Bowen
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Korea Economic Institute of America (KEI)
Abstract:
This paper argues that resource security is central to South Korea’s broader economic security and President Yoon Suk-yeol’s Strategy for a Free, Peaceful, and Prosperous Indo-Pacific Region. The paper contends that postwar Korea has maintained an energy and minerals-intensive economy despite domestic resource scarcity and import dependence. Recent disruptions have, however, threatened the resilience of this relationship. These disruptions include COVID-19, Russia’s war in Ukraine, the escalating climate change crisis and energy transition, and the geoeconomic and geopolitical erosion of the liberal order. Korea’s most important energy security priority is diversifying its energy mix towards cleaner energy—what this paper calls “green security.” This will be a difficult task given the intense national dependence on fossil fuels and policymakers’ desire to avoid disrupting Korea’s manufacturing-heavy, export-focused development model. Korea’s idiosyncratic decarbonization pathway, including a strong presence of hydrogen and, under Yoon, a downgrading of renewables in favor of nuclear, could provide additional challenges. Critical minerals are another rising resource security concern for Seoul. The major priority is to accelerate the development and diversification of international supply chains, particularly away from China. A major obstacle to progress is intense competition across the value chain, influenced by disparate economic and strategic priorities. The paper argues that Seoul must find ways to manage its energy and critical minerals security challenges in a way that is consistent with its preferred development model. The alternative is to accept a new equilibrium in which it has less domestic dependence on foreign resources and on resources-intensive economic activity in aggregate.
Topic:
Geopolitics, Strategic Competition, Minerals, Economic Security, and Energy
Political Geography:
Asia and South Korea

4. Reclaiming leadership: Australia and the global critical minerals race

Author:
Ian Satchwell
Publication Date:
04-2024
Content Type:
Special Report
Institution:
Australian Strategic Policy Institute (ASPI)
Abstract:
Climate policy, geopolitics and market forces are coalescing to deliver Australia a global leadership opportunity in critical minerals. To grasp that opportunity, Australia needs both to utilise its domestic mineral endowment and its mining knowledge and technology and to leverage the global footprint of Australian companies to help build a global supply chain network. How Australia responds will not only determine economic benefits to the nation but will also affect the world’s ability to achieve minerals security and the sustainability required for the global energy transition and inclusive economic growth. The global energy transition and other high-technology applications have increased demand for critical minerals, particularly in countries that have strong complex manufacturing industries. At the same time, the concentration of production of many critical minerals, the dominance of China in supply chains and its actions to restrict supply and influence markets, are disrupting both minerals production and availability. In response, developed nations have formulated critical minerals strategies and entered into bilateral and multilateral agreements, involving supplier nations and customer nations, to build alternative supply chains that are more diverse, secure and sustainable. Australia has committed in multiple agreements to work with like-minded nations to achieve this. This report is intended to provide the government with a road map to ‘step up’ to (re)activate Australia’s global mineral leadership.
Topic:
Climate Change, Science and Technology, Leadership, Alliance, Emerging Technology, Minerals, and Energy Transition
Political Geography:
Australia, Asia-Pacific, and United States of America

5. North of 26 degrees south and the security of Australia: views from The Strategist, Volume 9

Author:
John Coyne and Henry Campbell
Publication Date:
06-2024
Content Type:
Special Report
Institution:
Australian Strategic Policy Institute (ASPI)
Abstract:
The Northern Australia Strategic Policy Centre’s latest report, North of 26 degrees south and the security of Australia: views from The Strategist, Volume 9, contains articles published in ASPI’s The Strategist over the last six months. Expanding on previous volumes, this edition introduces thematic chapters focused on a range of subjects relevant to northern Australia. These include; 1. Defence in the North, 2. Developing Northern Australia, 3. Northern Australia and the Indo-Pacific 4. Critical Minerals, Energy, and Commodities, 5. Space, Food Security and Climate Trends As in previous editions, Volume 9 contains a range of expert opinions across these varied topics. Volume 9 also features a foreword by the Hon. Eva Lawler, Chief Minister of the Northern Territory. Chief Minister Lawler calls readers attention to the relevance of northern Australia in light of the National Defence Strategy and updated Integrated Investment Program as well as Australia’s economic ambitions, stating “the strategies in this volume can inform our efforts to unlock northern Australia’s full potential and build a stronger, more resilient nation.” The 36 articles discuss practical policy solutions for decision makers facilitating development, prosperity and security of northern Australia. These policy solutions tackle both the challenges and opportunities present in the north, and reflect the potential of the north to increasingly contribute to Australia’s national security and economic prosperity.
Topic:
Defense Policy, Climate Change, National Security, Food Security, Space, Defense Industry, and Minerals
Political Geography:
Australia, Asia-Pacific, and Indo-Pacific

6. The Congolese Fight for Their Own Wealth

Author:
Tricontinental: Institute for Social Research
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
Tricontinental: Institute for Social Research
Abstract:
The DRC’s vast mineral wealth contrasts with its extreme poverty, caused by exploitation and conflict. The dossier emphasises sovereignty and dignity, echoing Congolese activists’ visions for freedom.
Topic:
Poverty, Sovereignty, Conflict, Minerals, Exploitation, and Activism
Political Geography:
Africa and Democratic Republic of the Congo

7. Assessing the Fiscal Regime in Ghana’s Lithium Agreement

Author:
Thomas Scurfield and Denis Gyeyir
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
NRGI modeling indicates that the Ghanaian government has negotiated a government take for the country’s first lithium mine that is higher than Ghana’s legislated fiscal regime and the regimes of many other current and imminent lithium hard rock producers, such as Australia, the Democratic Republic of Congo and Zimbabwe. Modeling suggests an average effective tax rate (government revenues as a share of mine profits) of 58 percent (excluding paid state equity). Seventy percent of these government revenues depend on the profits that mine leaseholder Barari DV Ghana reports. To limit the risk of revenue shortfalls, the agreement should define the process for pricing the lithium, limit the deductibility of interest from taxable income, ensure state equity is non-dilutable and establish rules in the shareholders’ agreement about dividend payments. Given that modeling indicates an after-tax internal rate of return for investors in the Ewoyaa mine of around 102 percent (after debt financing), the government may be able to negotiate an even higher take in future deals for similarly profitable mines. A variable rate royalty could help achieve this higher take. To increase the prospects for a lithium refinery in Ghana—the government’s other key objective—the government should ensure Barari conducts a rigorous feasibility study, publish it and then hold a multistakeholder consultation to agree on subsequent actions.
Topic:
Tax Systems, Fiscal Policy, Lithium, Revenue Management, and Minerals
Political Geography:
Africa and Ghana

8. Tax Avoidance, Tax Evasion and Trade Misinvoicing: Risks to Senegal’s Mining Sector

Author:
William Davis
Publication Date:
09-2024
Content Type:
Special Report
Institution:
Natural Resource Governance Institute
Abstract:
Tax evasion, trade misinvoicing and multinational companies’ efforts to avoid tax are important risks in the extractive sector, especially in developing countries, including Senegal. Senegal’s extractive governance arrangements are strong in many areas, including in preventing multinational tax avoidance. However, there is cause for concern in two areas: misinvoicing of international trade (imports and exports), and cost inflation by subcontractors in the extractive industries. Quantitative estimates of trade misinvoicing suggest the former is a significant problem for Senegal (including for its mining sector), which could lead to the loss of 1–3 percent of the country’s tax revenues. Authorities in Senegal should address such risks, especially before the country begins large-scale oil and gas production. Unless they do so, revenues from the country’s hydrocarbon resources will be at risk. Measures that Senegal can take include strengthening the tax authorities—especially customs and auditing accounts of extractive industry suppliers.
Topic:
Corruption, Government, Gas, Mining, Minerals, Tax Evasion, and Public Finance
Political Geography:
Africa and Senegal

9. Behind the Schemes: Anticorruption Gaps in Mining Sector Certifications

Author:
Susannah Fitzgerald, Robert Pitman, Matthieu Salomon, and Phesheya Nxumalo
Publication Date:
11-2024
Content Type:
Special Report
Institution:
Natural Resource Governance Institute
Abstract:
Decisionmakers are increasingly looking to certification schemes to provide information on the sustainability of mining operations, yet these schemes have significant room for improvement regarding how they address corruption in their standards. The report assesses the content of the performance standards used by the Aluminium Stewardship Initiative (ASI), the International Council on Mining and Metals (ICMM), the Initiative for Responsible Mining Assurance (IRMA), The Copper Mark, and Towards Sustainable Mining (TSM). Schemes address some topics, such as revenue and payments and anticorruption procedures, relatively well; this may reflect the extent to which legislation and regulations address these topics. Schemes’ standards less frequently covered other issues, such as beneficial ownership and allegations of corruption. Many schemes, and the mining companies that use them, are missing an opportunity to assess the implementation of corporate-level anticorruption policies in mine-site assessments. The quality of certification schemes’ governance and assurance processes is essential to their effectiveness, yet many fall short of best practice. This undermines their credibility. Key governance challenges include the unbalanced representation of different interests within schemes and the risk of conflicts of interest in the auditing process. Decisionmakers risk becoming overreliant on certification schemes as indicators of responsible business conduct, which may be facilitated in part by industry influence over policymaking processes. Certification schemes are not a replacement for ongoing, robust due diligence into the environmental, social, and governance impacts of mining operations, including corruption, and the design and enforcement of robust regulatory frameworks. In a shifting standards landscape where there are efforts to both consolidate and review existing certification schemes, and a moment where the risk of corruption is heightened by growing demand for transition minerals, governments, mining companies, and certification schemes themselves must do more to address the topic of corruption. To do so effectively, they should focus their attention on solutions that will have the most impact in addressing this issue.
Topic:
Corruption, Environment, Governance, Accountability, Mining, Transparency, and Minerals
Political Geography:
Global Focus

10. What needs to change for green funds to be truly green

Author:
Jan Fichtner, Robin Jaspert, and Johannes Petry
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies (DIIS)
Abstract:
Green investment funds are growing rapidly. However, their impact on climate change mitigation and sustainability remains unclear. Recent research has identified key shortcomings that need to be addressed in order to reduce greenwashing and make these funds truly green. Green finance is playing an ever more prominent role in recent years. Environmental, social and governance (ESG) funds, which constitute a key pillar of green finance, saw record inflows of hundreds of billions of US-dollars in recent years, primarily by retail investors. Essentially, these ‘green’ funds are integrating environmental, social and governance criteria, such as greenhouse gas emissions, labour rights and gender diversity into their investment strategy. They claim to invest less in the stocks of firms that are highly polluting or have bad governance practices, and instead buy the shares of corporations that appear to be more sustainable. In industry and policy debates, ESG funds are often cited as advancing the promotion of sustainability and helping to address climate change. However, the ESG concept, its underlying criteria, and its potential effects are highly controversial. Many critics see ESG primarily as ‘window dressing’, with no significant positive impact – either for the environment or for investors and employees.
Topic:
Climate Change, Environment, Oil, Gas, Capitalism, Sustainability, and Minerals
Political Geography:
Global Focus