Debt Trap Or Golden Opportunity For Africa?

So the United States is leading a coalition of western nations to help various African countries manufacture minerals previously purchased for pennies on the dollar.

The United States and key partner countries have announced the establishment of the Minerals Security Partnership (MSP), an ambitious new initiative to bolster critical mineral supply chains. This announcement was made in Toronto during the Prospectors and Developers Association of Canada convention, the largest mining event in the world.

The goal of the MSP is to ensure that critical minerals are produced, processed, and recycled in a manner that supports the ability of countries to realize the full economic development benefit of their geological endowments. Demand for critical minerals, which are essential for clean energy and other technologies, is projected to expand significantly in the coming decades. The MSP will help catalyze investment from governments and the private sector for strategic opportunities —across the full value chain —that adhere to the highest environmental, social, and governance standards.

MSP partners – including Australia, Canada, Finland, France, Germany, Japan, the Republic of Korea, Sweden, the United Kingdom, the United States, and the European Commission – are committed to building robust, responsible critical mineral supply chains to support economic prosperity and climate objectives.

United States Department of State

Usually, rare earth minerals & metals are mined & extracted raw, only to be exported elsewhere, leaving the countries in Africa impoverished & damaged (the latter from mines destroying forests & rivers).

The United States, along with partner nations, ultimately hopes to secure a reliable source of processed resources from the African continent to wean off its dependence upon China.

Too often, the relationship between minerals-producing and minerals-purchasing countries has been extractive and characterized by abusive working conditions.  Often, it’s left behind environmental degradation and devastated communities.

We want to break this cycle through meaningful collaboration and consultation with local communities near mining sites, and especially with groups that have historically been neglected.  And we aim to make sure that minerals-rich countries benefit from all stages of the value chain, from extraction to processing to recycling.  That’s ultimately how we can make sure that each project actually serves your communities and uplifts your citizens.

Now, we’re already beginning to see new projects that are supporting economic growth on all sides. Just to cite one example, a graphite mine in Balama, Mozambique, which employs hundreds of local workers, contributes millions of dollars in community development, and undermines the aims of those who would sow conflict. The graphite from this mine will soon be sent for further processing to a plant in Louisiana, where it will create more jobs and where it will provide graphite used for batteries by American electric vehicle companies.

Secretary of State Antony Blinken (United States Department of State)

The United States is also using an entity called Prosper Africa to help companies on The Continent secure financing & investment from America to improve the economy in various African countries.

Unfortunately, the United States is utilizing the classic debt diplomacy strategy to help launch these various manufacturing projects on the continent of Africa. However, they are trying to ease concerns (with yours truly expressing thoughts about this below).

Now what that support will look like varies, of course, from project to project. For some projects, it could mean that the United States or a partner country helps with reducing the risk of the project, including by providing a loan guarantee or debt financing. And I know that the chair of Export-Import Bank, Chair Lewis, will have a lot more to say about that in a few minutes. For other projects, it could mean connecting companies with our countries’ private sectors or supporting them with technical assistance through our embassies.

Secretary of State Antony Blinken (United States Department of State)
Personal Thoughts (good & bad) about this hybrid financing/investment offer from the United States

Doing business with debt is always dangerous, as most African countries need to offer some form of collateral that does not benefit the country in the long term.

Although unlikely, countries in Africa should push for unsecured financing but should limit the amount of debt taken to 10% of the cost of the projects.

The rest of the funds should be secured from various governmental & private grants, plus investments from the private sector.

While creating manufacturing hubs in African nations is essential for lifting most Africans out of poverty en masse, it should not be done in a way that hurts future generations.

Discovered via The Africa Report (latter provides more in depth coverage of this issue).