Przemysław Kowalski
OECD Trade and Agriculture Directorate
Benjamin Katz
OECD Directorate for Financial and Enterprise Affairs
Economic Security in a Changing World
Trade of industrial raw materials is critical for transforming the global economy from one dominated by fossil fuels to one led by renewable energy technologies or for advancing digitalisation (hereafter critical raw materials – CRMs). Extraction and processing of raw materials has traditionally been highly concentrated not only in geographic terms but also in terms of ownership. This is mainly because the economic viability of the raw material industry requires extraction and processing to take place where these materials are the most naturally abundant, or where the geological and climatic conditions and available technology and resources make the extraction and processing the most economically viable. However, these natural characteristics of the raw materials industry also provide incentives for market participants and governments to leverage market power dynamics to purse economic and non-economic objectives. For example, export restrictions on unprocessed forms of cobalt, lithium and nickel have been used by some of the main producers with the aim of promoting the development of domestic processing industries (Andrenelli et al., 2024[1]). Other forms of state intervention, such as special regulations, state ownership, investment restrictions and subsidies are also pervasive in the sector.
Production and international trade of CRMs has become increasingly concentrated amongst a handful of extracting and processing locations which account for the bulk of global supply (Kowalski and Legendre, 2023[2]). For example, the three top producing countries in 2023 accounted for more than two thirds of the global production of cobalt (78%), lithium (92%), nickel (65%) and rare earth elements (90%) (Figure 3.1). Concentration of exports is particularly significant for unprocessed forms of cobalt, manganese, borates, chromium, magnesium and lithium (Figure 3.2).
Note: For lithium data refer to 2021.
Source: OECD based on US Geological Survey.
Demand for several of these highly geographically concentrated resources has grown rapidly as they have become CRMs for green and digital transformation industries.1 The sluggish growth of mining and processing capacities which require significant long-term investment and typically face extended approval periods, and the fact that deposits are not available everywhere, indicates that international trade and investment will continue to play a key role in securing raw materials for the foreseeable future. Consequently, policies of individual producer countries may continue to have important international spillover effects. Moreover, expansion of demand for industrial raw materials is taking place against a backdrop of growing geopolitical tensions and strategic rivalries (Box 3.1).
Restrictions on exports of raw materials which have the objective of favouring downstream domestic users to the detriment of foreign users are some of the most contentious forms of state intervention. Undermining the economic viability and thereby decreasing the output of domestic extractive industries hampers the global supply of the concerned materials. In addition, if the exporter controls a large share of the market, export restrictions increase world market prices, creating incentives for other exporters to impose similar measures,2 amplifying negative effects on international markets.
Global HHI index of export concentration across exporting countries and critical raw material products and sectors
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Note: The different sectors to which the specific critical raw materials products may belong are labelled with the following acronyms: PM – precious metals and stones; OM – ores and minerals; CC - chemicals and compounds; NFMM – non-ferrous minor metals; NFBM – non-ferrous base metals; WS – waste and scrap; and FM - ferrous metals.
Source: OECD calculations using the BACI data.
The most recent release of the OECD Inventory of Export Restrictions on Industrial Raw Materials which covers the period 2009-22 shows that export restrictions on industrial raw materials have seen more than a five-fold increase during this period (Figure 3.3). In the period 2020-22, approximately 13% of global trade in non-waste and scrap industrial raw materials was facing at least one export restriction measure.
Export restrictions on ores and minerals, in essence the raw materials located upstream in CRM supply chains, increased faster than restrictions in other segments of the CRM supply chain. This correlates with the broad trend of increasing concentration of production, imports and exports of upstream products, and is broadly consistent with the logic of supporting domestic downstream industries via restrictions on exports of upstream products.
The use of quantitative export restrictions, such as export prohibitions or quotas, has also been increasing, particularly in the most recent years covered by the Inventory. Remarkably, the incidence of export prohibitions, the strongest type of export restrictions, has increased significantly since 2020 and were the most used type of export restriction introduced in 2022.
Note: The count of all types of measures in place across all covered raw materials and all implementing countries takes into account the stock of measures in place at the beginning of the period, as well as new additions and eliminations.
Source: OECD (2024[3]), OECD Inventory on Export Restrictions on Industrial Raw Materials.
The growing use of export restrictions, which are becoming at once increasingly prevalent and prohibitive, suggests a rising influence of these measures on international markets and on the availability and pricing of industrial raw materials, with possible negative spillover effects cascading down GVCs.
Recent case studies on selected economic effects of export restrictions on cobalt, lithium and nickel introduced by the Democratic Republic of Congo (DRC), Argentina, Zimbabwe and Indonesia show that the (actual or perceived) positive domestic effects in restriction-using countries are likely to occur at the expense of trading partners. The bans introduced by the DRC and Indonesia appear to have resulted in a significant re-direction of exports of primary forms of cobalt and nickel from international markets towards domestic processing and were correlated with investments in domestic downstream capacity leading to larger downstream production. However, there were also limitations in terms of the impact of these measures. While export restrictions may have played a role in helping the DRC and Indonesia shift away from exports of primary products, the downstream impacts tended to be concentrated in the immediate next processing stages and involved mainly Chinese investors who already controlled large parts of these segments of the value chain. Argentina’s export taxes appear to have helped the country raise the tax revenue, but they also seem to have resulted in diminished exports.
These case studies also illustrate some of the mechanisms which led to China’s dominance in extraction and processing of several CRMs. The investments in downstream processing in both the DRC and Indonesia were dominated by Chinese investors. Export bans on primary lithium by Zimbabwe were also accompanied by announcements of increased Chinese investments in downstream processing. China already had a strong presence as an owner of mining facilities (in DRC) and a key importer and processor of raw materials (from DRC, Indonesia and Zimbabwe) prior to the bans, and Chinese investors were therefore natural candidates for participation in downstream industry expansions. In addition, investments in downstream processing activities were very large and, due to the high commodity price volatility, very risky. Representatives of the mining sector argue that typical commercial financial institutions in OECD countries face greater challenges in the financing of such sizeable and risky projects than state-supported Chinese actors.3 Some assessments also suggest that only a part of the value added from the expansion of downstream activities accrued to the host economies, and that some of these projects had mixed Environmental, Social and Governance (ESG) results (Andrenelli et al., 2024[1]). In addition, such policies may discourage investments in sectors which do not rely on country’s natural resources (Economist, 2024[4]).
The experience of the tantalum supply chain illustrates the complex interplay between responsible sourcing requirements, trade dependencies and security of supply for CRMs (Box 3.1). The ability of companies sourcing minerals and their due diligence programmes to parse their supply chains – mitigating risks where feasible and only disengaging from specific business relationships when necessary – is paramount. Such due diligence programmes comprise industry, civil society or government-backed initiatives supporting companies in facilitating risk identification or traceability upstream or conducting audits of smelters or refiners. When effective, due diligence aims to help companies identify and mitigate supply chain risks at an early stage before they escalate, or to help them disengage more surgically in the case of more severe risks without cutting off entire countries, regions or types of supply.
Meaningful due diligence can also help alert the market and decision‑makers on supply risks, whether real or potential. For example, a company seeking to assess the risk of illicit tantalum trade in the Great Lakes region in Central and East Africa is likely to observe that the absence of reliable, disaggregated data renders an independent evaluation of national tantalum production and exports nearly impossible. Addressing such knowledge gaps is of utmost importance both for supply chain risk mitigation and to safeguard a stable supply of tantalum over time.
Due diligence can also help bring greater transparency to risks linked to beneficial ownership of mines or other nodes along the supply chain, of increasing interest to policymakers concerned about trade dependencies. The increased trade flows and formality of the tantalum supply chain from the Great Lakes region associated with the emergence of due diligence programmes since 2010 may also be instructive for how to foster a more stable supply of other critical raw materials with similar risk profiles.
In the absence of strong due diligence, companies confront an undesirable choice between potentially contributing to conflict financing and accruing legal compliance risks on the one hand or trade disruptions on the other. In addition, concerns have arisen about the lack of a level playing field when not all companies are subject to, or endeavour to meet, due diligence expectations. With geopolitical tensions on the rise, natural resources often being a factor in conflicts around the world, and regulatory and market requirements on responsible business conduct expanding, this challenge is likely to become more acute. Strengthening the policy environment for effective due diligence may therefore be of interest to policymakers seeking to better absorb short-term shocks and help stabilise the supply of critical raw materials from diverse sources of supply over the medium and longer terms.
The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (hereafter the “OECD Guidance”) recognises the role that due diligence programmes play in pooling resources and leverage to support due diligence, but that companies in the supply chain bear ultimate responsibility for due diligence. In light of this, the current situation calls for companies to be more active and engaged, and less perfunctory, with their due diligence. For instance, in particular smelters, instead of relying on due diligence programmes alone to filter their supply, should use information such programmes generate to raise questions with their suppliers. Only an active approach will position smelters to engage and, if necessary, disengage in a targeted way instead of from the entire region. Due diligence programmes, with the support and direction of governments and companies using them as relevant, could strengthen mineral tracking to be more impervious to smuggling. In some cases, making programmes’ own governance to be more inclusive, transparent and responsive would build confidence and provide more paths towards addressing shortcomings, particularly since some are primarily industry‑driven and lack timely updates on programme information.
Conflict financing, human rights abuses and governance risks have been a backdrop to the supply of tantalum from the African Great Lakes region in Central and East Africa for over 25 years. Tantalum is important for the world’s electronics, aerospace and nuclear power industries. Its recent addition to US and EU lists of critical minerals underlines the strategic significance of tantalum. However, security of supply still tends to be seen as distinct from responsible sourcing expectations, despite high disruption risks in producing areas. Tantalum’s supply is highly concentrated in a region rife with conflict and instability. The Democratic Republic of Congo (DRC) alone accounts for 41% of mined production. The Great Lakes region, of which DRC is a part, account for well over half of global supply (Padilla and Nassar, 2023[5]) with 62% of global production in 2023 (USGS, 2024[6]).
The mineral’s exposure to conflicts has already affected production and trade in the past. The DRC banned production and exports in late 2010 for six months due to the involvement of armed groups (De Koning, 2011[7]). A recent analogue is the ban of tin exports by the United Wa State Army in Myanmar, officially to improve governance of a mining sector with similar governance and environmental risks. The highly informal nature of the supply chain also appears to have constrained investment, production and trade during the peak period of involvement of armed groups prior to 2010.
The mining ban in the DRC, however, was arguably a response to – rather than a feature of – conflict tied to the tantalum supply chain. It coincided with efforts to break the link between the trade in tantalum and conflict, human rights abuses and corruption. These efforts culminated in regulations in the DRC, Rwanda and the United States (and eventually the European Union), regional agreements between member states of the International Conference on the Great Lakes Region in addition to international norms on responsible business conduct (RBC) like the OECD Guidance. The London Metal Exchange (LME) similarly requires due diligence based on the OECD Guidance for tin, which is often mined from the same ore as tantalum in the Great Lakes region, in addition to six other non-ferrous metals including major commodities like cobalt, copper and nickel. While these initiatives aimed at fostering responsible trade in support of prosperity and stability in high-risk areas, they also called for disengagement from specific business relationships as a last resort in several situations. They include failed attempts at preventing or mitigating severe impacts; when adverse impacts are irremediable; where there is no reasonable prospect of a change; and when severe adverse impacts or risks are identified and the entity causing the impact does not take immediate action to prevent or mitigate them.
In the case of tantalum, responsible sourcing when carried out well appears to contribute to security of supply. However, when companies address responsible sourcing expectations without a risk‑based approach, and when they nuance or do not have ability to distinguish between different business relationships, the risk of disruption grows. The quality of due diligence may be determinative in this regard, in particular how effectively companies in the supply chain can navigate regulatory and market expectations on RBC while avoiding blanket disengagement. In the period during which due diligence programmes were established and scaled up to help companies meet RBC requirements following the 2010-11 DRC ban, tantalum production from the Great Lakes region surged to several times its pre‑2010 levels. In addition, even if reliable data on reserves are scarce and they tend to be under‑explored and poorly documented (Schütte and Näher, 2020[8]; BGR, 2021[9]), official production data since 2010 have better reflected the DRC having the largest observed production in the region.
The emergence of due diligence programmes has also coincided with the region gaining a significantly larger share of global supply, the distribution of official production within the Great Lakes region becoming more diverse, and higher accuracy of trade data despite some crucial gaps. Analysis of tantalum trade statistics have also shown that “the market structure of smelter countries sourcing tantalum from the region [shifted] from a China-dominated monopsonistic situation prevailing from 2006 to 2012 towards a less concentrated international market in 2013-17” (Schütte, 2019[10]). Over the medium to long term, due diligence appears to be associated with a more stable supply of tantalum. This may stem from improved monitoring and transparency, increasing formality and investment, fewer reputational concerns or reducing the chances that events linked to conflict or political disputes constrain supply unpredictably.
When companies are unable to mitigate risks effectively, they may determine that it is unfeasible to remain engaged responsibly and feel compelled to withdraw entirely from countries or regions to avoid falling afoul of regulations or market expectations on RBC. This represents a potentially more disruptive scenario for responsible sourcing expectations. It merits recalling that initially, following the introduction of responsible sourcing requirements by the United States in 2010, the sourcing of tantalum and other minerals by OECD countries from the region plummeted in what some have termed a de facto “embargo”. Although due diligence programmes have helped the global tantalum sector source responsibly from the region since then, such programmes have been strained by a resurgence of conflict, with concerns mounting over companies’ ability to use them effectively to mitigate related risks in their supply chains. In particular, the recent expansion of rebel group M23 and other non-state armed groups into large swathes of territory in North Kivu province of the DRC has put global markets under renewed pressure to demonstrate responsible sourcing of tantalum, in addition to tin, tungsten and gold.
One major challenge is the lack of comparable and precise data, especially regarding intra-regional trade at different steps of the supply chain. This issue is further complicated by the absence of information on tantalum content in mixed mineral production. The International Conference on the Great Lakes Region has a mandate to establish a database about smuggling practices. International diplomacy could step up efforts to operationalise this database and improve public access to production and trade data. Diplomacy and trust-building measures will also be central to addressing the root causes of the conflict.
Concerns about the strains that due diligence is showing in the face of increased conflict and smuggling risks in the Great Lakes region underline the need to address existing challenges (US State Dept., 2024[11]). The control by non-state armed groups over a number of highly productive artisanal mining sites and trading centres in tantalum-rich areas has prompted upstream due diligence programmes to suspend due diligence and traceability efforts in 2023 and 2024. Such disengagement may have been the only option to manage risks, but it has disrupted formal trade in tantalum and led to an increase in smuggling (UN Security Council, 2024[12]). The prevalence of smuggling has also raised concerns about potential infiltration of minerals connected to conflict or other risks into legitimate channels of trade in the region. It is conceivable that, in the short term, the more smuggling flourishes, the less likely it is that due diligence weaknesses will cause trade shocks, since trade will continue under a veneer of legitimacy. This would lead to uncertainty in the market persisting, though, with unpredictable results. Tantalum smelters are already voicing doubts about the viability of continued sourcing from the Great Lakes region while complying with regulatory and market requirements, which hints at the possibility of a more serious shock.
One scenario that could increase the risk of a shock might stem from greater fragmentation in sourcing from the Great Lakes region. If companies facing more regulatory or reputational pressure to source responsibly disengage, while less scrupulous peers or suppliers carry on without meaningfully addressing the risks, market concentration and supply chain vulnerabilities could increase and the leverage of companies trying to source responsibly could decline. This dynamic could trigger a race to the bottom in sourcing tantalum and other critical minerals, while also making coercive economic behaviour involving critical raw materials like tantalum easier.
Emphasising RBC standards that advocate proportionate responses to the risks, progressive improvement and adapting risk mitigation to the circumstances may help companies remain engaged in high-risk areas without compromising their competitiveness. Promoting broad buy-in to and co‑operation on international norms on responsible sourcing will be important for maintaining a level playing field. This may include extolling the benefits of RBC for mineral producing countries with a range of risk profiles through diplomacy on critical raw materials and integrating provisions on RBC into emerging and prospective agreements on the supply of critical minerals.
Concentration of production and trade of several CRM is a growing cause of concern, making governments consider several types of policy responses. First, with no country having all the minerals needed for all purposes and given the global ramifications of a potentially impeded green transition, there is a strong case for plurilateral or multilateral co-operation to restrain the use of export restrictions. Among others, such co-operative solutions for mitigating harmful export restrictions will require a better understanding of the motivations of countries using them as well as their impact on their trading partners and of how the different interests could be reconciled in an effective multilateral agreement.
Second, several countries are pursuing different national, bilateral or plurilateral policy initiatives. In addition, the emerging inter-governmental partnerships, which can also involve the private sector, such as the Minerals Security Partnership and the European Union’s raw materials diplomacy partnerships, are initiatives which aim to secure stable supply of CRMs from reliable foreign sources. A relatively new element of these approaches is their explicit acknowledgement that the stable and resilient supply of critical minerals should occur hand-in-hand with value addition and wider economic development in resource-rich countries.
More broadly, greater investment, including in mining and processing infrastructure and in line with high ESG expectations, including by implementing OECD standards on RBC in the minerals sector, can help deliver the economic benefits of greater domestic value addition without compromising the stability of global markets.
References
[1] Andrenelli, A. et al. (2024), Trade and domestic effects of export restrictions: insights from exploratory case studies of cobalt, lithium, and nickel, https://doi.org/(forthcoming).
[9] BGR (2021), Tantalum - Sustainability Information, https://www.bgr.bund.de/EN/Gemeinsames/Produkte/Downloads/Informationen_Nachhaltigkeit/tantal_en.html;jsessionid=14823F18901B02EE2834349369ECF9EF.internet001?nn=1548104.
[7] De Koning, R. (2011), Conflict Minerals in the Democratic Republic of the Congo: Aligning Trade and Security Interventions, Stockholm International Peace Research Institute, https://www.sipri.org/sites/default/files/files/PP/SIPRIPP27.pdf.
[4] Economist (2024), The false promise of Indonesia’s economy, https://www.economist.com/finance-and-economics/2024/02/08/the-false-promise-of-indonesias-economy.
[13] IEA (2021), Net Zero by 2050: A roadmap for the energy sector, International Energy Agency, https://www.iea.org/reports/net-zero-by-2050 (accessed on 8 December 2021).
[2] Kowalski, P. and C. Legendre (2023), “Raw materials critical for the green transition: Production, international trade and export restrictions”, OECD Trade Policy Papers, No. 269, OECD Publishing, Paris, https://doi.org/10.1787/c6bb598b-en.
[3] OECD (ed.) (2024), OECD Inventory on Export Restrictions on Industiral Raw Matierials, https://www.oecd.org/en/topics/export-restrictions-on-critical-raw-materials.html.
[5] Padilla, A. and N. Nassar (2023), “Dynamic material flow analysis of tantalum in the United States from 2002 to 2020”, Resources, Conservation and Recycling, Vol. 190, https://doi.org/10.1016/j.resconrec.2022.106783.
[10] Schütte, P. (2019), “International mineral trade on the background of due diligence regulation: a case study of tantalum and tin supply chains from East and Central Africa”, Resources Policy, Vol. 62, https://doi.org/10.1016/j.resourpol.2018.11.017.
[8] Schütte, P. and U. Näher (2020), “Tantalum supply from artisanal and small-scale mining: A mineral economic evaluation of coltan production and trade dynamics in Africa’s Great Lakes region”, Resources Policy, Vol. 69, https://doi.org/10.1016/j.resourpol.2020.101896.
[12] UN Security Council (2024), Final report of the Group of Experts on the Democratic Republic, https://documents.un.org/doc/undoc/gen/n24/118/80/pdf/n2411880.pdf.
[11] US State Dept. (2024), Statement of Concern Related to Certain Minerals Supply Chains from Rwanda and Eastern Democratic Republic of the Congo Contributing to the Ongoing Conflict, https://www.state.gov/statement-of-concern-related-to-certain-minerals-supply-chains-from-rwanda-and-eastern-democratic-republic-of-the-congo-contributing-to-the-ongoing-conflict/.
[6] USGS (2024), Mineral Commodity Summaries 2024; Tantalum, https://pubs.usgs.gov/periodicals/mcs2024/mcs2024-tantalum.pdf.
← 1. For example, see (IEA, 2021[13]).
← 2. Incentives to introduce own export restrictions would reflect concerns about the economic viability of downstream domestic users of CRMs for which inputs are becoming more expensive. That said, in some countries and industries, there may be a countervailing incentive for other exporters to seize the opportunity of higher global prices to export more.
← 3. This issue has been identified as one of the main challenges for Western firms active in the CRM mining and processing industries during recent discussions at the OECD Forum on Critical Supply Chains held in March 2024.