July 27, 2023

This week’s edition covers risks posed to the global economy and the opportunity for the African continent. We start by reviewing the supply of critical minerals and the impact geopolitics may have on China’s role in the marketplace. Then, we move into the next big economic risk as forecast by three veteran investors. Thereafter, we examine the effects of Russia’s exit from the Black Sea grain deal. To end on a positive note, we assess how African countries may take advantage of the current scramble for alternative sources of energy.

The Critical Minerals Race is Heating Up

The global fight for critical minerals is costly and damaging

Nature

China controls the supply of crucial war minerals

The Economist

Three inconvenient truths about the critical minerals race

The Editorial Board, Financial Times

The race to supply the world with critical minerals is running up against geopolitical realities that risk sustainability, equity, and security in the marketplace. Currently, China has become the leader in refining and processing minerals, creating dependency for much of the world, including Western countries, on Chinese minerals manufacturing. While many of these minerals are important for clean energy technology, their use goes beyond just renewables. In fact, China’s move to restrict gallium and germanium to the US will impact US readiness, as both are used in military technology.

As such, diversifying the market has become a priority for Western countries, the US included. Expansion opportunities are presenting themselves both in the domestic context, such as the US’ planned mineral purification factory in Texas set to open in 2025, and internationally, as countries seek to expand access to minerals in Asian, African, and South American countries and even look at the acquisition of minerals from the seabed. Yet as friendshoring takes hold and countries become caught between competing geopolitical interests, it is important to ensure that the market functions effectively, lest access to critical minerals become spotty, creating a more inefficient and costly marketplace.

Selloffs, Inequality, China Tension: Here Are the Next Big Risks

Sonali Basak, Bloomberg

Three prominent investors discuss the next big risk to be expected over the next five to ten years. First, Boaz Weinstein, chief investment officer of Saba Capital Management, is focused on the risk of an extreme selloff in the market where the Fed would be unable to come to the market’s rescue. Facilitating this risk are malinvestments stemming from low interest rates and money printing. Second, David Rubenstein, co-founder of the private equity firm Carlyle Group Inc., sees a clash between the haves and have-nots as meriting significant risk. Conflict could be between the old and young as an increasing number of workers hit retirement age with sparser benefits available; between have and have-not nations; or between the rich and poor as wealth inequality rises and social mobility declines. Third, Ida Liu, Citigroup Inc.’s global head of private banking, sees conflict between the US and China as a principal risk. Given the importance of both countries as the first and second largest economies, the risk of war, particularly over Taiwan, poses a significant risk. A conflict over Taiwan represents a second and critical concern as well, given the island’s central role in the global supply of semiconductors.

Russia’s Actions Threaten Global Food Supply

Disruption to Ukraine Grain Exports Could Worsen Hunger in Some Countries, Experts Warn

Matthew Mpoke Bigg, The New York Times

What Russia’s Grain Deal Actions Mean for Ukraine

Matthew Mpoke Bigg, The New York Times

Why Russia’s bombings of Ukrainian ports have jolted wheat prices

The Economist

The Black Sea Grain Initiative, the deal that Moscow pulled out of last week, allowed Ukraine to export its grains through the Black Sea, an agreement which helped avert a global food crisis even as the conflict between Russia and Ukraine continues. The end of the grain deal and Russia’s bombing of grain storage facilities at Ukrainian ports caused grain prices to rise sharply in the immediate aftermath. While the prices didn’t reach the heights that they did in the wake of the invasion in February 2022, experts warn that countries in the Middle East and Africa will have to pay increased shipping costs and suffer longer shipping times. Other countries, specifically Brazil, Australia, Canada, the US, and Russia itself, have seen strong harvests, which is likely to depress prices in the short term.

Additionally, Russia’s decision to treat all ships bound for Ukraine’s Black Sea ports as a military threat has all but ensured that Ukrainian grain must rely on other, more costly land and river routes to be exported. This has significantly kneecapped Ukraine’s exports, which will have the ultimate effect of further concentrating the world’s supply of grain among a few large exporters, making the market more vulnerable to supply shocks. Climate change and sudden demand increases make these shocks more likely. In all, Russia’s actions have made the world’s food supply a lot more susceptible to sudden risks.

Why Africa is poised to become a big player in energy markets  

The Economist

Energy markets have been thrown into near-chaos due to Russia’s invasion of Ukraine, sending Europe into a scramble to find energy supply outside Russia in order to keep homes warm and factories running. Africa may be the answer to Europe’s immediate needs, as it has around 13% of the world’s natural gas reserves, 7% of the world’s oil, and immense potential for green energy. There has been a flurry of investment and re-investment in African energy, and funding that was once shelved due to security concerns is now being reconsidered thanks to energy-hungry Europeans.

Investment in sources of green energy is increasing too, albeit at a slower pace. Africa’s vast, sunny deserts, windy coasts, and roaring waterways could be a massive source of energy. So far, energy from these technologies in Africa largely goes to small markets through inefficiently-run state-controlled utilities. If African countries are to take advantage of their unique geographical resources, including both natural gas and green energy, they must do it quickly before other regions rush to fill the void. Domestic security is yet another hurdle for some of these nations, with a number of projects having been delayed due to security threats. Finally, African nations must ensure that inflows of capital reach a broad section of society, not just the richest politicians and businessmen. African nations have a tremendous opportunity seize this once-in-a-lifetime moment to enhance their position in the global economy.