The United States is directly injecting funds into African rare earth projects that private investors avoid. Although private money has scarcely flowed in because the projects are highly risky and profitability is hard to guarantee, Washington is stepping up to shoulder the early-stage investment risk that the private sector shuns to reduce dependence on China for rare earths.
According to Reuters on the 19th (local time), the U.S. International Development Finance Corporation (DFC) will invest a total of $62.8 million (about 87.4 billion won) in rare earth projects in four African countries—Malawi, Angola, Madagascar and South Africa. About $50 million (about 69.6 billion won) of the total funding has been allocated to the Phalaborwa rare earth project in South Africa. The project is backed by TechMet, a mining investment firm in Dublin.
China is the reason DFC is putting money into Africa's rare earth sector. Rare earths are a key raw material for magnets used in electric vehicles, wind turbines and the defense industry. China is the world's largest producer of rare earths and is considered to wield overwhelming influence in the global supply chain. In recent years, it has also tightened export controls related to rare earths.
Separate from the recognition that dependence on China for rare earths is high, private investors are reluctant to commit capital to African rare earth ventures. A DFC official said investors are cautious because the risk profile of African rare earth projects is relatively high and because China's market intervention could depress rare earth prices and the commercial viability of projects.
Industry voices also note that the economics of rare earth projects themselves are uncertain. Olympia Filich, chief strategy officer at Critical Minerals Africa, said the rare earth projects announced to date far outnumber demand for neodymium-praseodymium magnets. Supply projects are moving ahead one after another, but it is uncertain whether demand will be sufficient to support them.
Even so, from Washington's perspective, it needs to secure a supply base outside China to diversify rare earth supply chains. In Africa in particular, where it is difficult to push projects with private capital alone, DFC is working to build a critical minerals supply chain linked to the West by de-risking projects to the point where private money can come in. Africa currently accounts for about 20% to 25% of DFC's global investment portfolio.
Thus, U.S. investment in African rare earths is seen as an effort to diversify a critical minerals supply chain concentrated in China. Even as private investors hesitate because of project risk and China's market clout, lowering dependence on China for rare earths requires securing supply bases outside the country. Ultimately, whether Washington can first inject funds to reduce project risk and draw in private investment will be key to developing Africa into a new source of rare earth supply.