Good morning Africa Briefers,

This week we’ll be taking a closer look at China’s quiet but growing influence in North Africa, following an announcement two weeks ago of US$2bn investment in Moroccan battery factories from a major Chinese battery manufacturer. We’ll review this news and then put it into a broader regional context, as China expands its influence in countries that are increasingly important to Europe for imports and exports and in efforts to curb migration into the EU.

Two weeks ago (19/09), the Chinese battery firm CNGR Advanced Material announced a US$2bn investment in battery manufacturing in Morocco. The deal represents a partnership with Al Mada - one of the largest private investment funds in Africa, owned by the Moroccan royal family (CNGR). The investment targets the construction of a battery manufacturing site in Jorf Lasfar - a port city to the Southwest of Casablanca.

Construction on the site will begin this year, with the first output estimated in the fourth quarter of 2024, and it will produce in-demand lithium iron phosphate (LFP) batteries, as well as other industrial elements, made from “nickel-based materials, phosphorus-based materials, and recycled battery materials” (CNGR). Once fully operational, it will produce enough materials for more than 1 million electric vehicles (EVs) per year primarily for export (Bloomberg), with the CEO of CNGR’s European division telling the FT that there was the potential for this figure to grow substantially (FT). For context, the IEA anticipates 14 million EVs to be sold in 2023, with this figure set to continue to increase dramatically, so while this annual production wouldn’t contribute more than 7% of international annual supply, there is the potential for the plant to grow, and this initial investment is a glimpse of things to come.

Morocco is an advantageous location for the construction of this site for various reasons. The North African country has around 70% of the world’s currently identified phosphate reserves - a vital ingredient for the production of low-range, cheap batteries for electric vehicles (FT). With Western governments passing legislation to expedite the green transition, demand for electric vehicles is growing dramatically. Given Morocco’s position at the edge of Europe, it is well situated to become an important player in the production of EVs for export to that market. Furthermore, the announcement of subsidies for EVs in the US in President Biden’s Inflation Reduction Act (IRA) means that Morocco, which is a free trade partner of the US, is eligible for subsidies for EVs sold in the US of up to US$7,500 per unit, making the country an even more attractive prospect for green investment (FT). In effect, a Chinese company, based in Morocco can access preferential US trade.

Indeed, just days after the CNGR announcement, another investment agreement was made between China’s Huayou Group and South Korea’s LG Chem for the construction of a lithium refinery and cathode materials plant, also in Morocco (Reuters). Production is expected to commence in 2026, with the site making enough LFP cathode materials annually for 500,000 EVs. An additional agreement between the two firms was also made to construct a lithium conversion plant in the North African state, which should produce around 52,000 tonnes of lithium yearly from 2025, and furthers Morocco’s capacity to grow into a major exporter of EVs in the medium-term (Reuters).

Amidst growing tensions between China and the West, Morocco is thus becoming a bridge between the two regions. Chinese firms do not want to miss out on the subsidies from Western governments for battery production, but they also want to de-risk by investing outside of the West, in case China is hit in the future by sanctions resembling those targeting Russia - a possible outcome if it pursues an invasion of Taiwan. Investing in countries like Morocco thus enables Chinese firms to maintain indirect access to Western markets indefinitely, and represents insurance against prospective future efforts on the part of the West to limit or reverse Chinese penetration into their domestic markets.

These events in Morocco are not exceptional - they represent the latest developments in a longstanding Chinese commitment to expand its influence and market access in North Africa. China-North Africa trade has grown steadily over the past two decades, though for the most part North African states maintain trade deficits with China - importing Chinese products and exporting relatively small amounts of oil and other natural resources (IEMED). However, where trade between China and North Africa has now plateaued, Chinese investment in North Africa has been on the increase, though uneven in its distribution, with Algeria and Egypt the largest beneficiaries so far.

This is reflective of China’s diplomatic relations with North African states: Algeria and Egypt have been strong partners for some time, both entering into ‘comprehensive strategic partnerships’ (CSPs) with China in 2014. CSPs are China’s highest level of bilateral partnership and typically involve frequent high level meetings between officials to coordinate trade, investment, and other ties, and Beijing places significant emphasis in these discussions on developing trust and communication (Brookings). Algeria and Egypt have thus been the recipients of significant recent investment. In a 2016 state visit to Egypt, President Xi signed 21 agreements relating to bilateral relations with his counterpart President Fattah El-Sisi - one of these was a set of investments in various sectors of the Egyptian economy, totalling US$15bn. This and other agreements has led to Chinese investment in Egypt increasing by 317% between 2017 and 2022 (Washington Institute). In March 2023, China announced a further US$2bn in iron and steel plants in Egypt’s Suez Canal Economic Zone (Reuters). In Algeria meanwhile, China this July announced investments totalling $36bn in multiple sectors, including agriculture, manufacturing, technology, and transport (Reuters).

Morocco, it seems, is next on China’s list. Historically, China maintained good relations with Muammar Al-Qaddafi’s government in Libya, but the recent conflict and political instability in the country has limited Chinese engagement in the country, especially given its fraught and divisive geopolitical implications. Tunisia meanwhile, has presented various challenges to Chinese efforts to engage - there are major issues with corruption, legal frameworks to implement public-private partnerships are lacking, and the West has maintained a stronger position here than it has in Algeria, Egypt, and Libya (Washington Institute). Thus, while China is trying to develop its ties with Tunisia - including it in its Belt and Road Initiative in 2018 for instance - its success in doing so has been limited (The Diplomat). Nonetheless, there are rumours of Chinese plans to build a number of deep sea ports in the country, in which one of these, in Zarzis, would include the creation of a free-trade zone due to its presence on the Libyan border (Washington Institute).

Given these limitations in Libya and Tunisia, Morocco is a logical next step for efforts to expand Chinese influence in the region. Besides the abovementioned battery plants, China has funded enormous solar farms near Marrakesh and has invested US$10bn in the creation of an industrial centre in Tangier (The Diplomat; NPR). Investment in Morocco’s burgeoning automotive industry is what has captured the most attention, however. In an interview with the FT in 2019 Patrick Dupoux, the head of BCG-Africa, said: “Morocco is doing for Europe what Mexico did for the US [in the automotive industry]”, namely providing geographically proximate automotive production at a lower price than possible elsewhere (FT).

China has long seen North Africa as being geopolitically crucial in connecting Europe, Asia, and Africa, and in recent years it has been able to fund large scale infrastructure projects and (what those involved consistently claim to be) ‘mutually beneficial’ economic partnerships. This is in stark contrast to European countries, which have been insufficiently coordinated and engaged in the region.

However, with the right investment and governance, North Africa could and should be Europe’s ‘near abroad’: countries there hold the answers to many important questions facing European states, including those relating to migration, climate change, the war in Ukraine, natural resource flows, Islamist extremism, and economic stagnation, among others. Yet despite the crucial role that North Africa could play in European efforts to solve some of these problems, coordinated, holistic action is lacking, and China is swooping in to take advantage of the medium- and long-term economic opportunities that the region presents. The EU and UK in particular are concerned about migration through North Africa to Europe, and while they are engaging with North African states to try to reduce the number of trans-Mediterranean boat crossings, this is not supplemented by coordinated economic investment, effective trade policy, or industrial planning involving international coordination that goes beyond immediate political horizons.

Russia’s invasion of Ukraine has forced some European states, such as Italy, to engage with their southern neighbours - most notably with Algeria, which has large natural gas reserves - but the difficulty in solidifying bilateral relations across the Mediterranean is plain to see. At present, Europe offers neither an alternative, nor a real, substantive supplement to Chinese investment - but it does offer a lucrative market amidst a green transition. Savvy investors should be aware of these opportunities, even as the West sleeps on them.

That’s all from us this week! Thanks for reading.

Cheers,

Josh