African countries seeking to increase the value of their mineral resources through local processing face a major obstacle: a shortage of affordable and reliable electricity.
Governments are using export restrictions, tax incentives and access to mineral deposits to encourage investment in refineries and smelters, but officials warn that inadequate power supplies could undermine these ambitions.
From Guinea’s bauxite industry to Zimbabwe’s lithium sector, African governments are seeking to retain more value from their mineral wealth instead of exporting raw materials for processing elsewhere.
Investors, including the US International Development Finance Corporation and the Africa Finance Corporation, are backing mineral-processing projects on the continent, with plans to expand their investments.
However, the decline of South Africa’s ferrochrome and steel processing industries highlights the risks associated with high electricity costs and unreliable power supplies.
Guinea, which recently overtook Australia as the world’s largest bauxite producer and exporter, is pursuing an ambitious downstream processing strategy.
Daouda Diakite, a senior adviser to Guinea’s mines minister, said three alumina refineries were under construction, with the government targeting five by 2030. The facilities are expected to have a combined annual production capacity of between seven million and eight million tonnes.
The country also plans to invest in aluminium smelters and is accelerating the development of iron ore pellet plants as part of efforts to expand domestic mineral processing.
Unlike Indonesia, which attracted billions of dollars in investment in nickel processing and battery production after restricting unprocessed nickel exports, Guinea intends to limit bauxite export volumes to prevent oversupply from depressing prices. The proposed restrictions have yet to be introduced.
Diakite said investors seeking access to bauxite would also be encouraged to invest in smelters or railway infrastructure, with mining rights and certain tax exemptions offered as incentives.
“The next step will be steel production,” he said on the sidelines of the African Mining Week conference in Cape Town.
However, electricity supply remains a major challenge to Guinea’s industrialisation plans.
Diakite said the country generates about 1,000 megawatts of electricity, mostly from hydropower. Guinea exports electricity to Senegal, The Gambia and Guinea-Bissau during the rainy season but imports power from Côte d’Ivoire or Senegal during the dry months.
He said Guinea would need between 5,000 megawatts and 10,000 megawatts to support its industrialisation ambitions, including the development of aluminium smelters.
“The main issue is infrastructure and energy, mostly energy,” Diakite said, adding that the government was seeking investment in economically viable energy sources, including gas, coal and nuclear power.
He also suggested that vessels arriving in Guinea to load bauxite could transport coal from South Africa or Mozambique on their return journeys.
South Africa’s ferrochrome industry offers a warning about the consequences of high energy costs. Dozens of smelters have shut down in recent years, with electricity costs reportedly increasing roughly tenfold since 2008.
Fewer than 12 of the country’s 66 ferrochrome smelters are operating.
Mzila Mthenjane, chief executive officer of the Minerals Council South Africa, said affordable and reliable electricity was essential to industrial development.
High power costs have weakened the competitiveness of South African ferroalloys against Chinese production. China has expanded its processing capacity alongside electricity supplies to support energy-intensive industries, becoming the world’s largest ferrochrome producer despite South Africa holding more than 70% of known global chrome reserves.
“Now we have to compete with that,” Mthenjane said.
The challenges extend beyond South Africa. Australian diversified miner South32 placed its aluminium plant in Mozambique on care and maintenance this year after drought affected electricity supplies.
Mohamed Zada, Egypt’s deputy minister for strategic industries, identified four key requirements for attracting investment in mineral processing: reliable feedstock, affordable and dependable power, stable government policies and committed buyers.
“We cannot focus on one and ignore the four pillars that are very important to be moving together,” he said.
Franklin Edochie, deputy director and head of mining at the Africa Finance Corporation, said access to capital was another critical requirement, given the substantial investment needed to establish processing facilities.
“Energy is one of them, feedstock and capital are another one because when we talk about value-added products, you’re talking about multi-billion-dollar projects,” he said.
Edochie added that African producers were capable of producing high-quality products and that buyers were available, but developing the infrastructure and securing the necessary investment remained essential to expanding local processing.
Reporting by Olivia Kumwenda-Mtambo
