EM winners and losers from the global green transformation

EM winners and losers from the global green transformation
EMs that are home to essential minerals needed for the green transformation will be lifted in the coming decades, while others that have been growing thanks to deposits of oil and gas will take a hit and see growth slow.
By Ben Aris in Berlin March 19, 2024

The global green transformation will create a windfall for many Emerging Markets (EMs) that are home to large deposits of essential raw materials needed for the revolutions, while others like oil producers will take a hit and see their growth slow.

Countries like Nigeria, Colombia and Angola, which have not sufficiently saved their windfall from oil production, are set to face hardships. In contrast, nations rich in essential minerals for clean technology, such as Chile and South Africa, are poised for a boost in export revenues, according to Capital Economics.

The increasingly fractured world means countries are seeking to secure critical supplies to the advantage of EMs, many of which are benefiting from shifting commodities demand.

"India and Mexico stand out as potential beneficiaries from Western investment in alternative suppliers of green technology" as they move towards diversifying their energy sources, according to Capital Economics. North Africa's prospects for solar and wind power development place it in a strategic position to attract both Chinese and Western investments as a new source of green energy for Europe.

China plays an especially prominent role in the green supply chain and will reap significant benefits from the changing landscape that will span manufacturing and exporting cleaner technologies. Although countries allied with China, such as the Democratic Republic of Congo and South Africa, will see a surge in export revenues, neither are expected to progress up the value chain significantly.

Western firms, wary of China's dominance, may look to develop alternative supplies from closely aligned countries as a result of the global fragmentation, which could potentially benefit EMs like India, Mexico and Poland. Morocco and other North African regions are uniquely situated to harness investment from multiple geopolitical powers, given their strategic positions and potential in renewable energy production.

For EM oil producers, the transition to greener energy heralds the most substantial impact. While Gulf countries might face the most severe immediate effects, their substantial savings and diversification efforts could offer some resilience. By contrast, countries like Nigeria, Colombia and Angola are less prepared to weather the transition due to smaller sovereign wealth funds and persistent deficits.

0324 GLOBAL who controls key green inputs PIIE

Oil producers at risk

The most vulnerable to the green transformation are those countries that have built their economic models on the production and export of fossil fuels.

Several countries in the Gulf will be negatively affected by declining fossil fuel usage, while a handful in Africa (Angola, Nigeria) as well as Russia and Colombia look vulnerable too, according to Capital Economics.

0324 GLOBAL EM net energy exports percent GDP 2022 CAPECON

However, oil and gas extraction in the Gulf is exceedingly cheap, so that even while demand and prices fall producers there will still be able to turn a profit and increase market share. Moreover, the Gulf states have extremely large sovereign wealth funds ranging from about 50% of GDP (Saudi) to over 200% of GDP (Qatar) that will tide them over and gives them the opportunity to diversify their economies into such things as tourism and financial services.

Other EM energy exporters are less dependent on hydrocarbons than the Gulf, so the higher cost of oil extraction, falling demand and less savings gives them fewer options to offset the hit from the green evolution in the energy markets.

“The most egregious in this regard are Nigeria, Angola and Colombia. Their respective SWFs are relatively small and all three countries tend to already run persistent current account and structural budget deficits. The green transition will only add to their challenges,” says Capital Economics.


0324 GLOBAL importance of critical minerals for clean erngy technologies  CAPECON

Industrial metals producers

Oil demand will fall, but demand for specialist metals and minerals needed by green technologies will soar. Aluminium, copper and nickel are used in a wide range of products, including solar panels and wind turbines. Chromium and zinc are only marginally less important. Meanwhile, lithium and cobalt are vital inputs into electric vehicles (EVs) and battery storage.

0324 GLOBAL share of global production of green metals and minerals percen t 2022 CAPECON

A few EMs dominate the production of several of these metals. South Africa produces over three-quarters of the world’s platinum and half of its chromium. The Democratic Republic of Congo (DRC) dominates production of cobalt, while Chile and Peru play a key role in the production of copper and lithium. Indonesia is a major nickel producer. And China has an outsized role in the production of rare earths, while also accounting for a significant share of bauxite and zinc output. 

The rising demand for these minerals will bring in extra money, but the scale of production and demand also plays an important role. For example, South Africa’s dominance of chromium production counts for little, as the revenues it earns from exports are tiny in comparison with its GDP. Likewise, Vietnam and India have large deposits of rare earths but they account for only a fraction of global production. Brazil’s endowment of nickel is believed to be almost as large as Indonesia’s, but little is mined at the moment.

Politics may play a role too above profitability as the two global camps centred around China and the US seek secure supplies of key metals from “friendly” countries. China has a large head start in this regard as it dominates both the production and processing of many rare earth minerals. The Peterson Institute for International Economics (PIIE) argued in a recent paper that China’s reach “extends beyond what is commonly assumed” once the “non-transparent webs of ownership and influence” are accounted for. Even if China does not have the deposits on its own territory, it typically has a 50% share or more of refined metal production.

0324 GLOBAL share China in mined refined metal rare earth minerals percent   CAPECON

Value added green goods

Those EMs that have successfully moved up the value chain to the manufacturing and export of green technologies have seen faster income convergence with richer economies. Income convergence amongst the EMs with the US has been much more rapid in manufacturing-led economies in Emerging Europe and Asia than it has been in commodity-rich Latin America, Africa and MENA over the past four decades.

0324 GLOBAL GDP per capita EMs percent of US for value added  CAPECON

Progress on moving up the value chain has been slow amongst the EMs other than China. Indonesia has come closest by moving into refining its minerals, due to restraints in labour and technology, to allow them to compete with the developed markets.

Semiconductors are a case in point, where most EMs other than China are technological generations behind the West, with the exception of Taiwan, which is a world leader and also firmly in the US camp. South Korea is another EM exception, also in the US camp, which has been rapidly developing its technological base.

China does better in the production of solar panels, where it has not only the lion’s share of global solar panel production, but also leads in the technology of not only the panels themselves, but the supporting production technology, to the point where it is putting German solar panel producers out of business, where the technology originated.

0324 GLOBAL Solar panel production capacity percentage of total 2023 CAPECON

China is seeking to expand its leading role in solar production into related technology. In 2010 the government designated EVs a “strategic emerging industry” and began providing tax-breaks, subsidies and preferential loans to EV manufacturers. Thirteen years later and China has now become the largest EV producer and biggest exporter in the world, accounting for more than half of global EV sales and 70% of global EV exports in 2023.

0324 GLOBAL China share of EV automotive sales percent CAPECON

The US is already fighting back with a series of bans on exports of technology to China such as the CHIPS regulations that are an attempt to cut China off from US technology completely, in parallel with heavy tax breaks and subsidies for US producers as part of the Inflation Reduction Act (IRA), which is more about maintaining the US’ technologic dominance than prices.

At the same time, the US is investing in allied EMs in an attempt to build up the technological base to  counter China’s leading position. Investment deals with allies in parts of Southeast Asia such as the Philippines and Vietnam are a key part of this plan, garnering presidential visits in 2023 from the likes of US President Joe Biden and French President Emmanuel Macron.

Late to the game, burgeoning India is hoping to capitalise on its abundant cheap labour pool to close the gap on value added goods production and has made solar manufacturing a key priority area through its Production-Linked Incentive (PLI) scheme.

Mexico is another rising star in the EM productive world, recently earning the moniker “the new China” as it expands its production capacity to cater to US demand over its northern border. There has been heavy investment in the automotive sector, which is already strong, and a new Tesla plant is in the works that could prove pivotal, if it helps to form an ecosystem of suppliers or encourages other EV manufacturers to move in.

China’s EV champion BYD is also planning to open a plant in Mexico, highlighting the potential for inward investment into US allies by Beijing as one way to circumvent trade restrictions. Parts of Central and Eastern Europe (CEE), in particular Poland, also look well placed to shift into EV production, which should help to offset a loss of labour cost competitiveness.

Countries that straddle the political divide and which are friends with both Beijing and Washington are well placed to benefit from inbound investment from both sides. Morocco could prove to be the biggest winner, as it is on good terms with the US but China has sought to increase its influence in the country by providing easy access to green technology, and it has abundant sunshine and wind, with the EU not far away suffering from an energy deficit.

0324 GLOBAL EM winners and losers from green transiation table CAPECON