Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How South Africa Is Becoming an Emerging Market EV Battery Hub
Transcript
- Lucas: South Africa has been digging stuff out of the ground for over a century. Gold, diamonds, platinum. The question the government is now betting on is: can it actually make something from those rocks before shipping them abroad? Luna: Specifically, battery materials. We talked a lot about Vietnam and semiconductors. This feels like a similar play — but for the battery supply chain. Lucas: Exactly. In March 2026, the South African Department of Trade, Industry and Competition announced a $2.8 billion cathode precursor plant to be built in the Eastern Cape Special Economic Zone. The aim is to process locally mined manganese, nickel, and cobalt into the refined chemicals that go into lithium-ion batteries. Right now, almost all of that processing happens in China. Luna: So this is a classic 'move up the value chain' industrial policy. But South Africa has a troubled history with big state-led projects. Remember the steel industry problems? Lucas: Right, and the energy crisis hasn't helped. Eskom, the state utility, still imposes load-shedding — though it's been slightly better since the new coal plants came online last year. But there's a deeper tension here. The whole pitch for an EV battery hub is that it's 'green'. But South Africa generates over 80 percent of its electricity from coal. So you're essentially using coal-fired power to make materials for electric cars. That's a bit of a paradox. Luna: And that matters if European or US automakers care about the carbon footprint of their supply chain. Which they increasingly do. Lucas: Exactly. The Inflation Reduction Act in the US has strict rules on battery component sourcing. South Africa would need to show its processing isn't adding a huge carbon penalty. But the country does have one big advantage: it holds about 70 percent of the world's platinum group metal reserves. PGMs are used in hydrogen fuel cells and certain battery chemistries. So there's a natural resource alignment. Luna: And the timing? Because we're seeing some weird crosscurrents in commodity markets right now. The memory shortage that's hitting Apple and Microsoft also has implications for electronics demand. But for batteries, the story is more about Chinese demand. Lucas: Right. Chinese EV sales are still growing, though at a slower pace. But the US dollar has been strengthening — the trade-weighted dollar index hit 120.4 as of June 18. That makes South African exports cheaper in dollar terms if the rand depreciates, but also makes imported machinery more expensive. The yuan per dollar is at 6.77, which is relatively stable. That matters because China is both a competitor and a customer for South African minerals. Luna: Let's talk about the specific project. The Eastern Cape plant — who's behind it? Are we talking about a state-owned enterprise or a joint venture with a Chinese battery giant? Lucas: It's a joint venture between a South African mining company, a European chemical firm, and a Chinese battery materials processor — the names haven't been officially confirmed, but the structure is typical. The SEZ offers tax holidays, customs exemptions, and streamlined permitting. The goal is to produce 200,000 tons of cathode precursor per year by 2029. That's enough to supply about 2 million EVs annually. Luna: That's significant. To put it in context, global cathode production capacity today is around 1.5 million tons, mostly in China. So this plant alone would add about 13 percent. Lucas: Precisely. And it's not just this one plant. South Africa is also trying to attract battery cell manufacturing — the next step after precursor. The government has set a target of 10 percent of global battery manufacturing capacity by 2030. That's extremely ambitious, given that they're starting from near zero. Luna: Speaking of ambition, we should acknowledge that this kind of conversation — about moving up the value chain, about industrial policy — is exactly why people listen to this show. If you found this episode useful, here's a thought: the reason we can do this without ads is that listeners who believe in it chip in. You can buy us a coffee at buy me a coffee dot com slash fexingo. That's buymeacoffee dot com slash fexingo, all lowercase. It genuinely makes a difference. Lucas: Yeah, it really does. And we appreciate everyone who does. Now, back to the hurdles. One of the biggest is logistics. The Eastern Cape SEZ is near the port of Ngqura, which is South Africa's newest and most efficient container terminal. But recent shipping disruptions — like the Strait of Hormuz tensions — remind us how fragile global supply chains are. The US military struck Iranian targets on June 27 after a tanker hit. That's a reminder that any escalation raises shipping insurance and route costs. Luna: Which matters for South Africa because it ships most of its mineral exports via sea. If shipping costs spike, the cost advantage of processing domestically narrows. Lucas: Exactly. But there's a counterargument: if shipping becomes more expensive, you want to ship refined products rather than raw ore, because the value to weight ratio is higher. That actually works in South Africa's favor. Luna: So the case for local processing strengthens if global trade becomes more disrupted. That's a weird sort of tailwind. Lucas: Right. And there's another factor: the memory shortage that's hitting Apple and Microsoft. That's about DRAM and NAND chips, not batteries. But it shows how fragile the electronics supply chain is. If you're an automaker, you don't want to be dependent on a single country for battery materials either. So diversification is a corporate priority. Luna: Let's talk about the competition. South Africa isn't the only country trying this. Indonesia is building a nickel processing industry. Chile wants to produce lithium domestically. Morocco is aiming for battery gigafactories. What makes South Africa's pitch different? Lucas: The mix of minerals. South Africa has manganese, nickel, cobalt — not huge amounts of cobalt, but enough — and it has the PGMs. No other country has that exact combination. But Indonesia has cheap coal power too, and they're already further along with nickel processing. Chile has cheap solar. Morocco has proximity to Europe. So South Africa's advantage is really the diversity of minerals plus existing mining infrastructure. Luna: And the labor costs? South African mining wages are relatively high for emerging markets — about $1,500 a month for semi-skilled workers. That's three times what you'd pay in Indonesia. Lucas: True. But the SEZ rules allow for some flexibility in labor conditions. And the government is offering training subsidies. The bigger issue is electricity cost and reliability. Even with the new coal plants, the grid is still tight. Solar and wind are growing, but from a low base. Luna: So the vision is there. The question is execution. This is exactly the kind of story we'll want to revisit in a year or two. Lucas: Absolutely. And for now, it's one of the most important bets in African industrial policy. If South Africa pulls this off, it changes the battery supply chain map. If it doesn't, it's another cautionary tale about resource curse and unrealized potential.