Investment Bank
With AI adoption picking up pace, Barclays Research examines new, urgent questions about the technology’s massive infrastructure demands, and how public & private sectors might collaborate to deliver AI responsibly & sustainably.
Is that risky? Not necessarily, according to our Research analysts. In normal circumstances, high levels of concentration do not pose serious threats to operations. But sudden geopolitical tensions, conflicts or shocks such as those currently present in the global economy can transform dependencies into structural vulnerabilities.
The supply of finished products such as chips, computers and electrical boards is dominated by Asian economies, especially China, Taiwan and Korea. But our Research team’s analysis shows that emerging and developing economies are the primary sources of the minerals essential for these products.
The minerals used in AI components span the periodic table, including readily available elements such as silicon and phosphorus, as well as rare-earth elements such as germanium, gallium and thallium, which are prized for their magnetism, conductivity and resistance to heat. Other minerals such as cobalt, lithium, aluminium, nickel, and copper (collectively, ‘the CLANCs’) are crucial for energy storage, battery materials and electrical wiring.
And while China is the dominant buyer, purifier and processor of many of these minerals, almost all of the actual mining happens in countries such as Chile (supplier of 20% of the world’s raw copper), the Democratic Republic of Congo (73% of raw cobalt) and Guinea (70% of aluminium ores). As a group, emerging and developing economies supply close to two-thirds (62%) of the world's raw rare earth elements and minerals. And demand is likely to rise: Congo’s cobalt ore exports have grown five-fold since 2010, while Guinea’s aluminium ore exports have grown twelve-fold.
The implications are significant. Nations rich in critical minerals have the potential to establish new mining operations and value-added processing industries, helping to create jobs, spur economic growth and attract new investment from abroad. Moreover, by developing deeper and more reliable supply chains, these countries could gain geopolitical leverage, forming alliances with tech-intensive economies such as the US, the EU and Japan.
Meanwhile, importing nations can do their best to reduce vulnerabilities by diversifying suppliers or recycling used materials more efficiently, although extraction tends to be difficult and recovery rates low – 1-5%, for rare earths. If supply chains start to buckle, for whatever reason, importers could find themselves in an uncomfortable position: facing real, physical constraints on their AI ambitions.
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