How Latin America can harness the white gold rush

Chile, Argentina and Bolivia have vast lithium reserves but must entice international investors to do more than dig mines, writes Jewellord Nem Singh.

The World Today Published 2 February 2024 Updated 21 March 2024 3 minute READ

Jewellord Nem Singh

Assistant Professor in International Development, International Institute of Social Studies, Erasmus University Rotterdam

The world needs lithium more than ever. Between 2017 and 2022, the energy sector tripled its demand for the element often referred to as ‘white gold’. One of the ‘critical raw materials’, lithium is essential for the energy transition required to restrict global warming to 1.5C this century.

The enormous reserves of what is South America’s ‘Lithium Triangle’ – where Argentina, Chile and Bolivia meet – offer these Global South countries the prospect of significant economic gains. But exploiting their lithium riches will require deft public policy and wise handling of billions of dollars in foreign investment over the coming decades.

Latin America is home to more than 65 per cent of the world’s reserves of lithium, the most important element for producing lithium-ion batteries. These batteries are needed for renewable energy storage, whether in small electronic devices or electric vehicles, wind turbines and solar panels. Public policies worldwide pushing for the rapid deployment of these clean-energy technologies have underpinned the demand for metals such as lithium and nickel, and rare-earth elements.

Renewable capitalism

Venture capital funding and foreign direct investments are looking to profit from this ‘renewable capitalism’. Critical minerals took 4 per cent of all venture capital funding for clean energy in 2023. In this category, battery recycling followed by lithium extraction and refining technologies were the largest recipients, mostly from American capital.

Canadian and Chinese start-ups have also been active in raising funds to support battery recycling and lithium refining. The projected demand for lithium is attracting yet more investment in exploration, production and refinement. 

Holding reserves does not necessarily translate into commensurate production, however. Chile is the world’s second-largest producer of lithium, at 39,000 metric tons annually, Argentina produces 6,200 metric tons, yet both lag behind Australia’s 61,000 metric tons. Bolivia holds the world’s largest reserves at 21 million tonnes, but it is not among the top 10 producers. 

In part that is due to important differences in resource extraction strategies which determine the market power of the countries in the lithium triangle.

Bolivia is known as the ‘Saudi Arabia of lithium’, but it struggles to attract investment.

Following recommendations by the Chilean Lithium Commission in 2016, which were bolstered by the announcement by President Gabriel Boric in April 2023, Chile is moving to further nationalize lithium as a strategic mineral. While Chile’s lithium production is mostly in the control of two large private firms in Salar de Atacama, Chile’s largest salt flat, new lithium contracts with private mining interests would require them to partner with a state entity and remain subject to production quotas.

By contrast, foreign direct investment in Argentina’s lithium mines benefits from foreign exchange controls, a 30-year guarantee of tax stability, a promise of a fixed royalty rate at 3 per cent and concession grants without time limits. Thus far, it has paid off.

Two production sites have been developed and some 36 projects are under exploration and development despite there being only 2.2 million tons of reserves. Also, a French–Chinese mining partnership is working to develop faster and more efficient production technologies than those relying on brine evaporation. The election of Javier Milei as president indicates a commitment to attract foreign investment, although he has indicated a shift towards the United States government and away from China.

Bolivia, with its vast resource, is known as the ‘Saudi Arabia of lithium’ and President Luis Arce is keen to establish lithium battery production facilities in the country. Yet, after 14 years of trying to attract investment, it lags far behind its neighbours.

Avoiding the resource curse

The competition to exploit lithium is taking place in an era of striking geopolitical uncertainty. America is all too aware that its global competitor China refines more than half of the world’s lithium production. Accordingly, carmakers, battery cell makers and equipment manufacturers have moved decisively.

China’s Contemporary Amperex Technology Limited, the world’s largest battery cell maker, has acquired important assets in Latin America, as well as Southeast Asia and Africa. America’s General Motors invested $650 million in Lithium Americas’ US mining operations, while the electric carmaker Tesla plans to build a new lithium refinery in the US.

Such developments in the clean-energy revolution illustrate how technologies for refining and the construction of downstream industries remain in the hands of advanced, rich states and multinational corporations.

Some have suggested an Organization of Lithium Exporting Countries, akin to OPEC.

Faced with this, the middle-income, Global South countries of the Lithium Triangle must avoid the ‘resource curse’ and handle their international partners carefully if they’re to benefit and become successful long-term actors in the energy transition.

Some have suggested establishing an Organization of Lithium Exporting Countries, a geopolitical alliance equivalent to Opec, as a solution to stabilize lithium prices and secure a coordinated response among the Lithium Triangle countries. After all, price control guarantees profits for Opec’s member states.

Yet, the divergent resource management practices and intensifying competition for foreign investment make any form of geopolitical coordination difficult in the Lithium Triangle. Crucially, technological developments such as alternative chemicals to build batteries are on their way, making a cartel less effective over the long-term.

Instead, to generate inclusive, sustainable growth from lithium, Latin America’s national players must coordinate resource governance with industrial policy aimed at building non-extractive sectors. Lessons can be learnt from other Global South countries.

Indonesia, for instance, implemented an export ban on raw nickel and expanded downstream industries to refine nickel for battery production. The policy has led to higher value-added nickel exports.

A second aspect of resource management hinges on the capacity of mineral states to mitigate the ‘resource curse’. Because mineral prices respond to speculative capital, mineral states’ national incomes are subject to price volatility. To offset this, in 2006 Chile set up a sovereign wealth fund to save surplus copper profits during price booms to cushion the impacts of low prices on the national treasury.

Not just mines

A wider challenge is how to mobilize foreign investment to focus on other parts of the lithium value chain. China’s investment spree in the region has seen billions of dollars sunk into Argentina’s and Chile’s lithium mining sectors.

But to generate long-term economic gains, Chinese investors must be convinced to build lithium refining plants and battery production facilities. By doing so, the lithium sector can enhance its legitimacy not only in generating profits but in local employment and the transfer of technological know-how.

Only then might Latin America truly benefit from the white gold rush.