SA should avoid following Brics policies on exports
The rise in China’s export restrictions for critical minerals highlights the economic diplomacy war chest it is willing to leverage as geopolitical tensions rise.
China has imposed export restrictions on critical minerals needed for national, energy and economic security, including rare earths, nickel, copper and silicon. When looking at the latest available data from the Organisation for Economic Co-operation and Development (OECD) in 2021, China had 35 natural resource export restrictions, compared with 17 from Russia and zero from the US, Australia and European countries. That is pretty damning.
The rapid acceleration of export restrictions is concerning. From 2009 to 2020, China increased its export restrictions on critical minerals by a factor of nine, including non-automatic licensing and export taxes.
The highest level of restrictions on these minerals— export bans — has yet to be seen, but is likely in the near future. China has already showed its willingness to use export bans when it imposed one on Japan in a fishing trawler dispute.
Historically countries, particularly developing ones, have used export restrictions to support broader socioeconomic goals, such as domestic value addition, employment creation and fiscal revenue generation. China’s is rooted in geopolitical motivations. Western countries still rely heavily on many of the minerals China is restricting, and are scrambling to create more secure supply chains.
Though Western countries have not imposed any export restrictions on commodities, a future with bilateral restrictions is highly likely in the spirit of reciprocity.
This can be a tough space to govern. The World Trade Organisation does permit export taxes, which account for more than a third of China’s restrictions, but one could argue these are a “legal” starting point, and one that’s still not utilised by the likes of the US, Europe and Australia.
It’s not just China. Brics countries on the whole are increasingly leveraging export restrictions. India and Russia were also among the top five countries rolling them out on critical minerals in 2009/20.
In 2021, beyond China’s 35 and Russia’s 17, India had 32 (though a decent share was for valid reasons such as health and/or environmental protection), SA 14 and Brazil seven.
This trend is disconcerting, given that the concentration of output in Brics countries rose in 2009/20. This is putting Brics countries increasingly at odds with other G7 members, including Canada, the UK, the US and the EU, which are rapidly forming alliances over critical mineral supply chains.
But do export restrictions yield economic benefits? When discussing preferential trade agreements, a colleague recently reminded me that free and preferential agreements are a tool rarely used to increase production or spur new economic activity. Rather, they facilitate trade diversion or a rewiring of trade flows. The same is true for export restrictions.
There are many examples to show export restrictions actually slow output and growth. In 2017, Tanzania announced an export ban on unprocessed nickel, copper, silver and gold concentrates and ores to mandate domestic value addition. It didn’t work that way. Annual gold output at Acacia’s Bulyanhulu mine fell from nearly 300,000oz before the ban in 2016 to fewer than 50,000oz amid the 2018 ban. Once the ban was lifted in 2020, production and export began rising, reaching 150,000oz in 2021.
Export restrictions have often been lifted within a few years of imposition due to their adverse effects on employment and public finances. Recent examples include Indonesia, Zambia and Tanzania.
At a time when China’s economy is trying to rebound from a series of prolonged and economically devastating Covid lockdowns, the effects of export restrictions should be weighed against what it stands to gain from escalating the geopolitical crisis.
Even with its considerable supply of key natural resources, Russia has still taken a hit from the restrictions imposed on it due to its war on Ukraine, though not as large as initially expected. While Russia could reroute its oil to Asia, it was heavily discounted, leading to a drop in revenue. Meanwhile, military costs have driven up expenditure.
SA is one of the wealthiest mining countries in the world. It should consider deviating from the direction of the other Brics countries with its export policies. These could backfire, considering that the US and Europe account for roughly 40% of our trade.
The tools in China’s economic war chest are significant. Its increasingly defensive approach to critical mineral supply chains is alarming. Nevertheless, Russia has given the world advance notice to accelerate its resilience-building efforts.