Africa is currently experiencing great uncertainties over its base and precious metals supply. We examine whether the continent is ready to tackle this challenge.
The continuation of the Ukraine war and resulting sanctions which have been imposed on Russia have resulted in a violent shift in the global oil and natural gas markets, as well as major disruptions to energy supplies and agricultural resources.
Additionally, the increasingly spiralling shortages of basic supplies and dwindling reserves of precious metals are increasingly concerning Africa’s business leaders, as the effects of this scarcity continue to exacerbate multiple industries.
The sanctions against Russia – one of the world’s largest exporters of raw materials – is causing knock-on effects that are rippling throughout many spheres of business, from the sustainability of Africa’s mining operations to the stable functioning of the manufacturing base.”
Igor Hulak, Partner, Kearney
Due to foreign shipping operations being suspended, a chaotic domino effect has been triggered, causing a drastic worldwide shipping container shortage. Existing infrastructure is currently proving insufficient as a method of handling the redirection through Asia of materials, so a broad range of industries is continuing to search for solutions.
This collection of dramatic sanctions and shutdowns looks set to continue to affect Africa’s consumers as well, leading to increased prices for both food and fuel.
Further adding to this tumultuous time for the industry, over the course of the last 12 months, the five base metals that Russia produces on a vast scale – nickel, aluminium, copper, iron, and zinc – have all seen dramatic increases in price.
“Nickel, which is a critical ingredient in lithium-ion batteries and essential for global energy transitions such as in Africa, is in short supply. Russian companies such as Norilsk Nickel, the world’s largest nickel producer, had historically supplied global markets. However, the sanctions have made Russia, which accounts for roughly 10 percent of the global share of nickel, unable to meet this global demand,” Hulak notes.
“This deficit in global supply presents an opportunity for African nickel producers, such as Zimbabwe and Botswana, to step in and fill the gap. However, overcoming existing inadequate export infrastructure will be a major challenge, requiring government buy-in and a collaborative multi-sector approach. Though the challenges are formidable, Africa must find a way to seize this opportunity and emerge as a key player in the new global metals market,” he asserts.
Precious metal prices have, by contrast, shown less volatility. However, as these too are crucial to the electric economy, experts are continuing to warn that price increases are still very much on the cards.
According to Hulak, market and pricing drivers are currently indicating long-term price increases for the platinum group metals. This presents a golden opportunity for South Africa, which is still the world’s largest producer of these metals, to step in and fill the supply gaps. Moreover, this is a unique opportunity for South Africa to leverage its already strong position and expand its operations in the sector to meet the escalating global demand.
“Traditionally a reliable safe-haven investment, gold (of which Russia is a major producer) is likely to see moderate price increases. This could work in favour of Africa’s gold production powerhouses like Ghana and South Africa.”
At this pivotal crossroads for the energy transition, the major concern now is whether the market can find enough of the critical raw materials needed to support it. Apart from exacerbating the disruptions driven by the COVID pandemic, these supply shocks are compounding the price pressures associated with this global shift and the resources this requires.
Supply disruptions are projected to continue to place strain on global markets, therefore some companies may need to pivot or scale down operations in order to withstand the current strains and maintain their workload.
Africa however, with its wealth of natural resources, such as many of the basic and precious metals currently facing shortages, could allow the continent to potentially leverage the opportunities surfaced by the shift towards an electric economy. By taking full advantage of these resources, Africa will look to utilize this potential to drive further economic growth, develop industries along the value chain, and vitally, create new jobs.
To conclude, the balance in global supply will not change significantly, yet still, for some commodities, like nickel and other precious metals, price increases unfortunately look like they’re settling down for the long haul.
ABOUT IGOR HULAK
Igor Hulak is a Partner at Kearney, the leading business consulting and services provider predominantly responsible for supporting a multitude of clients active in the resources and energy value chain, in both the private and public sectors across the Middle East and Africa.
Drawing from more than 25 years of varied industry senior management and consulting experience predominantly within the industrial and energy sectors, Hulak currently provides support to energy, resources, technology and industrial companies throughout Europe, the Middle East and Africa with strategic and operational projects of national importance.
Hulak will be making a guest appearance as an expert, speaking at this month’s Mining Indaba event, the world’s largest mining investment conference, dedicated to the capitalisation and development of mining in Africa.