Energy transition, electromobility, digitalization: The fact that global demand for minerals and metals will increase significantly in the coming years is currently the subject of much discussion. As an important business location in the European Union and with its export-oriented industry, Germany is hugely dependent on a reliable supply of raw materials. This is particularly true for the automotive industry, mechanical engineering, and the chemical industry. Every product, every production step requires different raw materials or a different composition of raw materials. This makes metal supply chains both complex and crucial: If a raw material becomes scarce, the production of key goods can be jeopardized.
Dependent on Imports
Only a fraction of the raw materials used in the German and European industrial sector are currently extracted from domestic deposits. For many other raw materials, companies in Europe are dependent on imports from other countries. And Europe will not be able to become completely self-sufficient in its supply of raw materials. It is true that raw materials that are already being exploited, or could be exploited in the future, are present in European Union countries. The increase in recycling quotas and approaches for implementing a circular economy offer an additional opportunity to use metals in the long term. However, this will not cover the increasing demand for raw materials in the foreseeable future, as high import figures show. According to the German Mineral Resources Agency (DERA), Germany imported metals worth €121.7 billion in 2022—and the trend is rising.
However, how Germany organizes its supply relationships in the raw materials sector doesn’t just affect the immediate question of a secure supply. It is also important in terms of foreign policy—or more precisely, geopolitics. China in particular has developed into a hub for metal supply chains over the past 20 years. The People’s Republic is an important supplier of many mineral raw materials, or products processed from them, that are urgently needed in Europe.
The EU sources almost 100 percent of its rare earths from China alone. Dependencies are also
high for other raw materials. 97 percent of magnesium imports, 71 percent of gallium imports, and 67 percent of scandium imports currently come from China. If Europe wants to reduce these high levels of dependency, European countries must take a coordinated approach and act quickly—because the competition to establish new supply relations with resource-rich countries is already in full swing.
Beijing at the Heart of Supply Chains
Since joining the WTO in 2001, China has established itself as a hub in global raw material supply chains. Chinese companies are involved in various stages of mineral and metal supply chains. This is not only true for the mining of raw materials by Chinese mining companies in their own country and in other resource-rich countries.
The Chinese leadership has also been pursuing an active industrial policy since the 1990s in order to place itself at the center of raw material supply chains. It actively supports Chinese companies in opening up new markets by removing bureaucratic hurdles and giving them access to the capital they need. Through the Belt and Road Initiative, to which currently 148 countries belong, China has created the energy infrastructure in resource-rich partner countries that is essential for the highly energy-intensive industrial mining sector. The construction of ports and rail networks ensures the transportation of raw materials to China. The Chinese leadership has also concluded a whole series of lucrative contracts: it supports raw materials projects in resource-rich countries with loans from Chinese banks and, in return, Chinese state-owned companies gain access to raw materials.
Many minerals are therefore not mined in China at all, they simply take a detour via the country before they reach Germany or Europe. The People’s Republic has secured its central role along raw materials supply chains as a global location for smelters and refineries. Chinese companies process various minerals and metals from all over the world in order to make them usable for industrial production.
Underestimated Cluster Risk
Until the Russian war of aggression against Ukraine, these dependencies, also known as “cluster risks,” were hardly at the focus of political attention. Although supply risks in earlier times led to the adoption of the first German Raw Materials Strategy in 2010, and the EU published its first “list of critical raw materials” in 2011—which at the time included 14 raw materials and today already comprises 34—the bloc was a long way from a common approach to raw materials procurement.
The coronavirus pandemic, with its supply and production bottlenecks, particularly for critical goods such as medical products, has put the issue of supply security high up on the political agenda. And with it the question of how politicians can better support companies in protecting themselves against potential supply risks. However, geopolitical considerations and the question of whether the EU—as one of the world’s largest economic centers—can and should rely on individual countries for central supply in critical sectors were only discussed in passing. This changed with Russia’s attack on Ukraine.
The absence of Russian gas supplies at the start of the war in February 2022 made Germany in particular aware of the risks of high dependency on individual states. As several European countries have been affected by shortfalls since the start of the Russian war of aggression, the first European tender to promote joint gas purchases took place in 2023. In view of the growing supply risks and in order to increase its own strategic capacity to act, raw materials policy should now also follow a coordinated European approach.
Europe’s Raw Materials Act
In March 2023, the European Commission presented its proposal for a common raw materials strategy, the Critical Raw Materials Act (CRMA). This includes the development and expansion of European capacities, i.e., strengthening domestic mining and processing of raw materials within the EU, for which approval procedures should be facilitated and financial resources provided. In addition, there are plans to expand recycling capacities.
The second focus of the CRMA is on the expansion of international raw materials cooperation. Many raw materials are not stored, or not in sufficient quantities, in the EU, and the implementation of new projects in the EU can only be realized in the medium to long term as it takes several years from exploration to extraction.
The EU therefore wants to diversify its imports of critical raw materials as quickly as possible and find new raw material partners. By 2030, no more than 65 percent of a raw material imported to the EU should come from a single third country.
With the formal adoption of the EU CRMA—which could possibly take place around Easter 2024—implementation can begin with the help of the Critical Raw Materials Board, a committee that will steer European efforts in the raw materials sector. The European Commission will chair the board, and each member state will be able to send a representative to the board.
It will not be easy to coordinate the different and far-reaching needs of European industrial nations. The EU member states must succeed in developing common objectives in a timely manner and, despite their own interests and competition, work together rather than against each other.
The fact that three important industrialized nations—Germany, France, and Italy—have already been coming together in a working group since September 2023 to develop joint perspectives is an important step, especially as all three countries have announced their intention to provide financial resources. The European Commission is also working on identifying a list of strategic raw materials projects at home and abroad. Raw materials projects are considered “strategic” if they secure supplies in the following four sectors: clean tech, digital tech, defense, and aerospace.
The Race for Raw Materials Partnerships
Although the commission’s efforts to implement the CRMA have progressed remarkably fast compared to other European processes, the risk of missing out on favorable opportunities is currently particularly high in international raw materials cooperation, as global competition to establish new raw materials partnerships is in full swing.
In the United States, President Joe Biden has long since made securing the supply of raw materials a top priority: The US wants to develop new supply chains primarily through financial incentives such as the Inflation Reduction Act for American and other companies and through foreign direct investment. The United States already signed an agreement with the Democratic Republic of the Congo and Zambia in 2022, which aims to promote industrial parks to build components for battery production. These batteries are then to be purchased by American companies in the long term, providing planning security and increasing local value creation.
New Players, New Ambitions
The Chinese government has also stepped up its efforts. At a BRICS meeting in October 2023, the People's Republic assured African countries of support for industrialization projects that also affect the raw materials sector. In addition, China is launching new projects to further establish the solar industry in African countries: Beijing is supporting the countries in developing the supply chain through to solar panel production, from which Chinese companies are set to benefit.
Saudi Arabia is now another financially strong player on the market for mineral resources. In its “Vision 2030,” Saudi Arabia has defined the goal of developing new industries, including mineral resources. The Saudi leadership is investing in the development of this sector, making use of the extensive and established knowledge gained from the extraction of fossil raw materials. In 2022, the “Future Minerals Forum” took place for the first time in Riyadh, a major raw materials conference that will be continued annually and is intended to help underline the government’s ambitions.
Resource-rich countries in the Global South have recognized geopolitical competition as an opportunity to evolve from the position of raw material supplier by establishing further stages of industrial production in their countries. This is because higher added value can be achieved in the later stages of industrial production, i.e., after raw material extraction and further processing in smelters. The establishment of new partnerships is thus linked to their own industrial policy ambitions.
This is already evident on the African continent, where many countries are particularly dependent on raw material exports. The African Union is preparing its own “Green Minerals Strategy” to support African countries in upgrading their raw materials sector. Some countries such as Namibia, Ghana, and Zimbabwe are even going one step further: They have imposed export bans on unprocessed raw materials. They expect new raw material partners to support the development of infrastructure projects, which is essential for the creation of further industrial production steps, and—similar to what the US and China are already doing—to offer lucrative, long-term prospects.
European Raw Materials Diplomacy
The European Commission has not been idle either. It has consolidated its relationships in the raw materials sector with a number of countries and concluded strategic raw materials partnerships with Argentina, Canada, Chile, the Democratic Republic of the Congo (DRC), Greenland, Kazakhstan, Namibia, Ukraine, and Zambia. Further partnerships are planned. Through the Global Gateway Initiative, Brussels is supporting the development of the so-called Lobito Corridor, a transport infrastructure in the triangle between Zambia, Angola, and the DRC. The corridor is intended to support the implementation of raw materials cooperation between Zambia and Angola. as well as to benefit other sectors.
European support for the Lobito Corridor is linked to the Partnership for Global Infrastructure and Investment (PGII), an initiative of the G7 countries through which they seek to pool their infrastructure initiatives in third countries, also in order to form a counterweight to China.
The US in particular is striving for greater coordination within the G7. It has also launched the Minerals Security Partnership (MSP), a transnational initiative to which Washington has invited various like-minded states in order to bundle state and private investments in the raw materials sector. The MSP currently comprises 13 countries—including Germany, France, and Italy—and the EU is also a member. In its efforts to achieve greater coordination within the G7 or the MSP, the US is pursuing the concept of “friendshoring,” whereby economic cooperation and trade relations are to be established primarily with allied or friendly states.
The Dependency Trap
At first glance, increased coordination via these transnational alliances is attractive for Germany and the EU, as it allows financial resources to be pooled and better coordinated. On the other hand, the EU must be careful here that it does not fall into the trap of relying on American initiatives in a similar way to its dealings with security. Because even if Joe Biden is re-elected, the United States is primarily—and for understandable reasons—pursuing the goal of securing its own raw materials, which it is trying to achieve with an increasingly protectionist economic and trade policy.
It remains to be seen what impact the resurgence of industrial policy will have in the long term. However, US National Security Advisor Jake Sullivan is already talking about the “New Washington Consensus,” which could lead to less rather than more economic cooperation with other countries. In a scenario in which Donald Trump is re-elected as president, cooperation in the raw materials sector—and beyond—would be even less predictable.
Not Just a Question of Money
In order to survive in the geopolitical competition for access to raw materials partnerships and the development of new reliable and resilient supply chains, the EU must mobilize considerable financial resources. This can only succeed if the member states, which are particularly dependent on a secure supply of raw materials, are prepared to lead the way. France has already made early commitments.
In January 2024, the German government agreed to provide €1 billion for the so-called raw materials fund, which is to be allocated primarily in the form of guarantees. The fact that this fund—which, in view of the high demand, is not a lot of money anyway—almost fell victim to the budget cuts would have thwarted the urgently needed efforts at European level. However, as the most important European industrial nation, which is heavily dependent on imports of raw materials, Germany in particular is called upon to take an active lead here.
The Global Gateway Initiative can also only provide limited impetus if the funds are merely reallocated from other areas and no new capital is available for investment. It remains to be seen whether the desired crowding-in effects can be achieved in the context of Global Gateway funding, i.e., whether additional private capital can be attracted via government investment.
Many German and European companies do not yet assign sufficient importance to diversifying their supply chains. The aspect of security of supply tends to be viewed from the perspective of the availability of goods, while geopolitical risks are still not sufficiently attended to.
However, the issue of securing raw materials is not just a question of money, it also requires a strategic foreign policy on raw materials. Concrete offers to resource-rich countries can only be negotiated in dialogue with potential raw material partners. They will only enter into new supply relationships if their economic and industrial policy interests are adequately taken into account.
Melanie Müller is a senior associate specialized in Southern Africa at the German Institute for International and Security Affairs (SWP) and co-head of the Research Network Sustainable Global Supply Chains.
