Europe’s FDI Test In Critical Minerals

Europe’s ambition to secure critical mineral supply chains has become central to its economic security and competitiveness agenda, yet funding gaps threaten to undermine that objective. As negotiations begin over the EU’s 2028–2034 Multiannual Financial Framework, the allocation of capital will determine whether the bloc can meaningfully reduce its dependence on China.

China currently controls about 60 per cent of global rare earth mining and more than 85 per cent of processing capacity, dominance built through decades of co-ordinated industrial policy and subsidised finance. Beijing has demonstrated its willingness to leverage this position through export controls and licensing requirements. The EU’s automotive industry, accounting for 7 per cent of GDP and supporting 13mn jobs, experienced disruption following China’s restrictions on rare earth magnets. The defence sector remains heavily exposed, importing nearly all heavy rare earth elements from China for use in advanced military systems.

Against this backdrop, the EU’s proposed $2tn seven-year budget remains modest compared with the €800bn in annual investment recommended by the Draghi report. The Critical Raw Materials Act sets targets to process 40 per cent, extract 10 per cent and recycle 25 per cent of critical mineral consumption by 2030. Initiatives such as RESourceEU, alongside national funds including Germany’s €30bn programme, France’s €500mn industrial resilience commitment and Italy’s €1bn Made in Italy fund, signal intent. Yet these efforts remain small relative to China’s estimated $98bn in global loans and grants between 2000 and 2023.

Public finance instruments, particularly debt and equity, are identified as underused tools to crowd in private capital. Proposals include enabling defence-related institutions to provide guarantees and investment to mineral projects, strengthening both supply security and industrial capability. However, the effectiveness of funding will depend not only on allocation but also on specialised expertise to deploy it efficiently.

Europe’s challenge lies less in project availability than in creating mechanisms that connect capital to viable investments. The forthcoming EU budget offers a rare opportunity to address structural vulnerabilities across extraction, processing and recycling, provided policy, finance and technical capacity are aligned.