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Metal processing facility in South Africa, with water in the foreground and the forst and sky in the background

Tax Policies for Enhancing Domestic Value Addition for Critical Minerals: Lessons from policy and practice

March 28, 2025
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Blog written by Ekpen Omonbude and Kudzai Mataba

As global demand for critical minerals surges due to the energy and technology transitions, resource-rich countries are seeking to harness more economic benefits from their critical minerals. While exporting mineral ores or concentrates can provide significant revenues if taxed effectively, governments are increasingly interested in value addition by processing and refining minerals in country to maximize economic returns through manufacturing and industrial development.

The topic of value addition often extends beyond domestic conversations into international forums, such as the principles and recommendations of the UN Secretary-General’s Panel on Critical Energy Transition Minerals and the Fourth International Conference on Financing for Development. However, many resource-rich countries have struggled to translate this ambition into sustained success. For example, an important action item in the 2009 Africa Mining Vision was the promotion of local mineral processing for use in manufacturing. Although processing facilities for minerals and metals exist throughout Africa, many African countries continue to export minerals that have undergone little processing and virtually no downstream manufacturing. When it comes to critical minerals, processing and especially large-scale refining and manufacturing capacity remains highly concentrated in select countries. 

 

Figure 1. Concentration of large-scale refining capacity for selected critical minerals

The mixed outcomes of previous attempts to promote domestic value addition often stem from a failure to prioritize primary enabling conditions for investment, such as infrastructure and regulatory frameworks, over fiscal incentives. Tax incentives are usually secondary for investors, particularly in less mobile sectors such as mining. A strategic approach to tax policies, combined with enabling non-tax measures, can drive domestic value addition in critical minerals and maximize long-term economic benefits.

 

Ensuring primary enabling conditions are in place

Tax incentives alone have rarely been sufficient to attract substantial investment in large scale mineral processing and refining, likely due to their inability to overcome the barriers to investment faced in these activities. Primary enabling conditions are fundamental prerequisites for fostering domestic mineral value addition and the effectiveness of incentives to the extent that they are necessary to attract investment. These conditions include the following:

 

Tailoring tax incentives to national priorities and mineral-specific features

Once primary enabling conditions are in place, tax incentives can play a role in enhancing domestic value addition for critical minerals. However, their design must be carefully calibrated to national priorities, the economic characteristics of each mineral, and sound commercial justification. Different minerals present varying processing complexities, cost structures, and market dynamics, which should inform the choice of fiscal and other tools.

Common tax policy instruments to incentivize critical minerals value addition include the following:

Other policy tools include the following:

 

Lessons from policy and practice

Case studies from countries like Indonesia, Australia, and Zambia demonstrate that tax policies can influence investment decisions, if they are carefully designed and aligned with primary enabling conditions. However, these examples also underscore the risks of poorly calibrated incentives. Export bans without complementary infrastructure investment or without an assessment of such important market conditions as ore grade, excessive tax holidays, or improperly targeted incentives can undermine domestic value addition objectives and domestic resource mobilization goals.

A key lesson is that tax incentives should be tailored not only to the type of mineral but also to the broader economic and institutional context. Governments must balance short-term revenue considerations with long-term industrial development goals. The timing and scale of financial benefits must be carefully weighed to avoid either deterring investment or generating unsustainable revenue losses. Also, governments must decide whether encouraging mineral value addition should be their focus. Their financial resources and bureaucratic capacities will mean that they have to prioritize development efforts, and mineral value addition may not be the best opportunity for industrial development, even for mineral-rich countries.

By adopting a more strategic and integrated approach to tax policy, resource-rich countries can unlock the economic potential of their critical minerals endowments while strengthening their position in global supply chains. However, success will depend on the careful sequencing of policy measures, with primary enabling conditions forming the foundation for any fiscal intervention.

 

This blog is an introduction to IGF’s forthcoming practice note on tax policy implementation options for value addition in critical minerals. The practice note will provide further guidance on how countries can design incentive regimes that strike a balance between revenue generation and industrial development.

Ekpen Omonbude and Kudzai Mataba are policy experts with the Tax and Sovereign Debt Program of the International Institute for Sustainable Development.