The Lobito Corridor: A Highway to Heaven or Hewers of Wood and Drawers of Water? - Africa’s premier report on the oil, gas and energy landscape.

The Lobito Corridor: A Highway to Heaven or  Hewers of Wood and Drawers of Water?

By Gerard Kreeft

Is the Lobito Corridor, which traverses 1,300 kilometres east through Angola from the Atlantic Ocean coast to theborder with the Democratic Republic of Congo (DRC) and within easy reach of the Zambian border becoming a neo-colonial route for the transport of critical raw materials (CRMs) for China, Europe and the USA?

Will the countries who are investing in this corridor behave differently than, for example, the oil and gas industry who have left behind a checkered track record?

A case of beads and trinkets?

If the past is any indication of what to anticipate, Africa be forewarned!

Present Situation

The race is on to ensure that CRMS can be mined, transported and be used in

the products of the EV (electric vehicle) battery value chain. Certainly, the transportation of CRMs—namely the Lobito Corridor—has proven to be the missing link.

Angola Participation

THE Angolan government signed a 30-year concession with a consortium including Trafigura, Mota-Engil Engineering and Construction Africa, and Vecturis, Belgium, to operate rail services and offer logistical support for the Lobito corridor, which runs from Luau on the eastern border with Democratic Republic of Congo to Lobito Port on the Atlantic Coast.

The consortium will be responsible for the operation, management and maintenance for the transport of goods, minerals, liquids and gases. The consortium has agreed to invest “significant capital in improving the capacity and safety of the corridor” as well as invest in rolling stock for operation.

The group confirmed that it will spend $100Million in the initial concession premium, $170Million for infrastructure, and $170Million for rolling stock. The concessionaire will pay $319.4 million to the Angolan state in the first 10 years of the contract, $787 million in the second 10 years, and $919 million in the final 10 years.

African Development Bank and Donor Countries

The African Development Bank, together with the United States government, the European Commission, the Africa Finance Corporation (AFC), and the host governments of Zambia, Angola and the Democratic Republic of the Congo (DRC). signed a Memorandum of Understanding (MoU), to mobilize resources for the Lobito Corridor and the Zambia-Lobito rail line.

The works entail the construction of approximately 550 kilometres of rail line in Zambia from the Jimbe border to Chingola in the Zambian copper belt and the 260 kilometres of main feeder roads within the corridor.

The hope is that the programme will expand an economic corridor connecting the host countries to global markets to enhance regional trade and growth, and to advance the shared vision of connected, open-access rail from the Atlantic Ocean to the Indian Ocean. The Bank plans to contribute approximately $500Million to the project through a blend of sovereign and non-sovereign instruments, including concessional allocations.

Expectations are high. Amos J. Hochstein, Deputy Assistant to President Joe Biden for Energy and Investment stated:

“Demonstrating the Partnership for Global Infrastructure and Investment in action and leveraging both Western and African capital, this strategic transport infrastructure unlocks regional trade and enables additional investments in digital connectivity, agriculture value chains, green energy supply chains and rural health centre electrification, among other transformative economic imperatives”.

The Chinese Connection

According to E. D. Wala Chabala, an Independent Economic Policy and Strategy Consultant and MBA Lecturer, there are several challenges to developing the Lobito Corridor:

“…not only are the Chinese ubiquitously present on the African continent, but China is already far ahead in building supply chains for cobalt, lithium, and several other essential metals and minerals. …It is also not insignificant that China signed MoUs with most African countries a decade ago. The fruit of some of these are infrastructure developments that have already been rolled out on the continent through the Belt and Road Initiative (BRI).”

Hardships to Overcome

Chabala notes that ” EV battery value chain is not only complex, with almost 300 players already involved and regionalization being a big factor, but that the EU and the US are not currently leaders in EV technology. It is reported that almost 90% of cell component manufacturing, the most significant step in the battery value chain – 30% of players in the six-stage value chain are concentrated here – is undertaken in Asia.”

He adds that “ two major European car manufacturers have recently been reported to have acquired stakes in Chinese EV manufacturers to gain access to their EV technology”. Plus, “the largest Chinese EV manufacturer, BYD, has surpassed Tesla in terms of EV production as per the Q4 2023 figures. Both TESLA and BYD are also major players in EV battery technology.”

Local Content

The DRC produces 51% of the world’s cobalt, and no longer wants to have the sole role of only being a raw material supplier. Instead, it wants to build its own battery supply chain in the country; also, a battery factory is being considered.

The first step, however, is the construction of a pilot plant for the production of cobalt precursors for cathode production. Also, a complete battery cell factory is being considered.

A Bloomberg NEF study investigated the feasibility of establishing special economic zones for manufacturing battery precursors in the DRC and Zambia: costing $2.7Billion. Such a facility in the DRC would be three times cheaper than it would cost to building a similar plant in the USA because of cost competitiveness and proximity to raw materials.

EU + DRC strategic partnership

Recently the EU and the DRC signed a strategic  partnership. Both parties express commitment to sustainable development, local value addition and respecting each other’s rights in extending raw materials and net-zero technologies value chains within their countries.

The partnership covers non-energy and non-agriculture raw materials along the entire value chain, with a primary focus on strategic and critical raw materials. Five areas of collaboration are identified:

  1. Integration, where feasible, of (critical) raw materials and renewable hydrogen value chains, including networking, new business models and promotion and facilitation of trade and investment linkages.
  2. Mobilization of funding for the development of infrastructure required for project development.
  3. Co-operation to leverage environmental, social, and governance (ESG) criteria and align with international standards, including through increased due diligence and traceability.
  4. Co-operation on research and innovation along the raw materials value chain.
  5. Capacity building to enforce laws and regulations and increase training and skills.

On the same day, the European Union announced a similar MoU with Zambia and a separate MoU with the Angola, DRC, the United States, Zambia, the African Development Bank, and the Africa Finance Corporation to support development of the Lobito Corridor, which would connect the mining regions in Southern DRC and Northern Zambia to ports in Angola to facilitate export of raw materials.

Future Chinese and US Challenges

To date, 52 African governments signed Memorandums of Understanding (MoU) with China regarding the BRI and the initiative has translated into billions of dollars invested in the construction of critical infrastructure for railways, roads and ports. Chinese FDI in Africa remains much higher than Western nations.

In recent years the competitive edge has shrunk. An economic slowdown post-pandemic and weakening lending capabilities have caused BRI-related investment to fall from a peak at $125Billion in 2015 to $70Billion in 2022.

Due to increasing concerns about the risk of debt distress in various African nations and internal economic challenges in Beijing, the Chinese government has decided to halt funding for energy projects in Africa. This has led to a significant decline in lending to the continent, bringing it to below $1Billion, the lowest in approximately two decades.

The USA’s late involvement is the Lobito Corridor is an attempt to foster economic development, create job opportunities, and build lasting partnerships that can serve both African nations and US interests. Probably too little too late.

Yet the Chinese presence continues to be omnipresent and dominant throughout the continent.

Some Final Remarks

It is claimed that the Lobito Corridor Transit Transport Facilitation Agency Agreement (LCTTFA) – signed by the governments of Angola, the DRC, and Zambia – will accelerate domestic and cross-border trade along the Corridor and foster the participation of small and medium enterprises (SMEs) in value chains. While the intention is clear, specific goals and strategies for industrial development are not.

Have the governments of Angola, the DRC and Zambia initiated studies and strategies to ensure economic harmony and plans for growth? On a country and regional basis?

The irony is that western countries are enjoying the benefits of their EVs, priding themselves on their progress in furthering the energy transition. Based on what? Battery technology—cobalt produced mostly in the DRC and sent onward ore for processing abroad.

To date few signs of added value.  While plans exist to design and set up battery value chains within the region there are few visible signs that indicate any urgency in this direction.

EV technology as is presently implemented has little to do with a serious contribution towards the energy transition. While EV technology is fast becoming commonplace, the value chain for production of CRMs has exposed some gaping holes—namely that Africa is again slated to become a Hewer of Wood and a Drawer of Water.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis). His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition

 

 

 

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