Insights for USAID from IEA Report

Author

Niki Linganur

International Development Agency Question:

Imagine that you are an economic advisor within USAID’s Office of the Chief Economist. The Administrator is interested in prioritizing USAID support in emerging markets to cultivate sustainable critical mineral supply chains that support the green transition. Her team has asked you to draft a memo based on the IEA Critical Mineral report identifying trends in critical mineral markets that would inform USAID’s prioritization of mineral sectors using data analysis and visualizations based on the IEA’s Critical Mineral Report.

Insights For USAID From IEA Report

Executive Summary:

  • Unprecedented demand in critical minerals could provide tremendous economic growth potential for emerging markets if value chains are adequately supported.

  • Sustainability standards throughout supply chains must be prioritized.

  • Trends in export bans could provide opportunities to capture higher value.

Introduction:

The global transition to clean energy technologies has prompted an unprecedented level of demand for critical minerals. These factors provide a tremendous opportunity for many resource-rich emerging markets to advance economic growth. From 2017 to 2022, demand from the energy sector was the main factor behind a tripling in overall demand for lithium, a 70% jump in demand for cobalt, and a 40% rise in demand for nickel. This demand has coincided with related dramatic increases in investment into the critical minerals sector. USAID programming can support emerging markets by 1. Providing investment incentives to catalyse private capital into diversified viable emerging market projects 2. Supporting sustainable practices across supply chains. 3. Fostering higher value mineral refining processes in emerging markets.

Analysis:

Investment in critical mineral mining rose by 30% in 2022 as strengthening momentum for energy transitions offers prospects for robust demand growth. On top of that, venture capital (VC) actors have been particularly more confident in the sector. In 2022, critical minerals start-ups raised record amounts of equity, reaching USD 1.6 billion, of which USD 0.25 billion was for higher risk early-stage ventures. Public policy and incentives have been a major driver for this private sector interest. USAID could play a critical role in channelling these vast amounts of private capital into sustainable projects that boost economic development in emerging markets by providing catalytic first loss capital or other investor incentives.

USAID can further assuage investor confidence in emerging markets by supporting programming that increases compliance with international sustainability norms in emerging market mineral supply chains. Investors in the sector are increasingly concerned with ESG performance. This effects access to capital for projects in emerging markets. Unfortunately, the critical minerals sector is hamstrung by a multiplicity of standards, non-disclosure by major corporations, and lack of compliance expertise at firms in emerging markets. USAID can support the expansion and initiation of new compliance certification and training initiatives across a wide range of emerging markets to minimize risk to investors and ensure positive social impact from the sector.

Capturing greater value from mineral supply chains is also an important element for emerging markets to maximize their economic development. Mining policies in countries such as Mexico, Indonesia, Chile, Namibia, and many other countries have targeted export restrictions or nationalization to incentivize refinement of raw materials within their markets. Major EV and battery companies are increasingly investing in refinery projects globally, but more development is needed in this space, especially in emerging markets with new public policy incentives. USAID could respond to these trends and incentivize value capture in key emerging markets by prioritizing programming which fosters workforce development, international partnerships, technology transfer, and market development for refineries.

Conclusion:

USAID has a range of potential policy tools that it can deploy to meet the rapidly developing opportunities and risks from increased critical mineral demand. It is vital that USAID strategy strategically deploys resources to orient investor focus on priority markets for economic development. Sustainability must also be prioritized, or else current trends demonstrate that non-transparency and confusing standard systems will continue to manifest. This can only result in antithetical outcomes to the desire for a global clean energy transition. Finally, it is also paramount for USAID country strategies and mission staff to identify and support opportunities for capturing of value in mineral supply chains in emerging markets.