The accelerated growth in electric vehicle adoption is opening up opportunities for Africa to benefit from its nickel production, Fitch Solution says.
Nickel is a preferred battery metal for use of electric vehicles, and it holds enormous importance in the green energy transition. While this recent development provides potential benefits to nickel-producing countries, there are downside risks that may surface.
Although there are other alternative battery metals such as lithium and cobalt, nickel will be the key beneficiary of electric vehicle adoption, Fitch Solutions indicates.
Nonetheless, this is opposed to the description by others that the metal will only play a weak role. And that, it is replaceable by other commodities as technology evolves.
Per Fitch Solution’s assessment of the metal’s potential in the electric vehicle battery market, the metal has significant energy density. This in turn provides it an unrivalled advantage to vehicle range and charging capacity.
The demand for the metal may hike as battery makers continue to minimize the proportion of cobalt metal in batteries.
Also, it anticipates that the production of nickel in Africa will rise, with South Africa and Tanzania benefiting the most. Meanwhile, currently, most of Africa’s nickel production occurs in Botswana, Zimbabwe and South Africa. In the latter two countries, the metal is mined as a by-product of platinum group elements (PGM).
Already, the rise in nickel demand for batteries, and the accompanying increase in prices have begun whipping up investments in the metal. Tanzania leads the region in terms of nickel production projects, with four new projects underway.
Downside risks to slow down investments in the metal
Although Africa boasts of a rich resource base in nickel sulphide, “high exposure to resource nationalism risks will pose challenges to project investment,” Fitch Solutions warns.
According to the research firm, the risks of resource nationalism within the sub-sector may further elevate as nickel prices rise. It forecasts nickel prices to rise, averaging $16,250/tonne by 2025 compared with $13,860/tonne on average in 2020.
This perceived rise in nickel prices highlight the risk of nickel-producing countries seeking to benefit from increasing mining royalty as a result. Within East Africa, Burundi also holds mineral deposits of nickel, specifically laterite ore.
However, reputational risks related to the government’s human rights record and the political unrest in the country yield significant risks. According to the research firm, this will be a key barrier to investment, Fitch Solution notes.
Again, infrastructure delays and poor electrification rates will also heighten the downside risks to investments in the metal. Particular to Tanzania’s infrastructure development, Fitch Solutions analysts consider that the death of President John Magufuli will delay Tanzania’s Standard Gauge Railway Project before eventually built.
More broadly, sub-Saharan Africa receives the lowest regional score for electrification rates at 12.6, Fitch Solutions asserts. This is significantly below Asia’s score of 55.0. Accordingly, this will pose significant challenges to nickel-producing countries like Botswana and South Africa.
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