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The German government earmarked about €1 billion ($1.1 billion) for raw materials investments as it seeks to reduce dependency on producers such as China for critical minerals, according to people familiar with the plan.

A selection process will be established to determine which projects — including in extraction, processing and recycling materials — are eligible, the people said, speaking on condition of anonymity. Financing, via Germany’s state-owned KfW development bank, will consist of equity capital to make acquisitions of minority stakes.

Projects in Germany and abroad will “contribute to the security of supply of critical raw materials,” an Economy Ministry spokeswoman said. The ministry didn’t give details on how the state fund would be structured.

Pandemic-triggered supply-chain disruptions across the globe and Russia’s invasion of Ukraine exposed the vulnerability of Europe’s reliance on energy and raw materials for high-tech and green projects. Chancellor Olaf Scholz’s government pledged to ratchet up efforts to access to critical materials over the longer term.

Raw materials including cobalt, copper, lithium, silicon and rare earth metals are needed to make microchips, wind turbines and batteries for electric vehicles.

As Germany’s parliament approves Scholz’s 2024 budget on Friday, the billion-euro fund is to be set up for four years. Investments will be coordinated with Italian and French initiatives in the raw materials sector, the people said. Policymakers will focus on mineral projects defined as critical in the European Union’s Critical Raw Materials Act.

Veronika Grimm, a member of Scholz’s panel of independent economic advisers, said the aim of diversifying raw-material supplies must be a “top priority” for the EU as a whole.

“The raw-material fund can be an element, but it won’t be a enough,” Grimm told Bloomberg.

KfW declined to comment on the plans. The lender is expected to make a statement about its role managing the project at its annual news conference next week on Feb 7. The EU agreed on measures in November under the Critical Raw Materials Act to boost domestic mining and reduce dependency on any one country.

While Germany still has to set up a structure to organize its investments into raw materials, Japan could provide a model. Since 2004, the state-owned Japan Organization for Metals and Energy Security has invested in the storage of raw materials, explored reserves, provided loans or guarantees for commodity companies and bought their shares directly.

(By Kamil Kowalcze)