Abstract
The era of hydrocarbons is nearing its end, and the world is actively pursuing a decarbonization agenda that puts forward another natural resource of strategic importance - lithium, often known as white gold. While lithium has served various industrial purposes throughout history, its demand has been increasing since the 1990s, primarily driven by the widespread adoption of lithium-ion batteries (LIB). This article aims to look at the role of lithium in the development of Latin America, particularly in Chile and Argentina. This study adopts a comparative approach to assess the effectiveness of various national governance models in promoting lithium-linked development and mitigating the resource curse. This article further delves into the strengths and weaknesses of these models and examines the interplay between lithium governance and development and its future related consequences.
Author: Karin Michalikova (Junior Researcher G.E.O. Environment)
Introduction
Prior to 1850, oil and natural gas had a minimal impact on human society. However, as we enter the 21st century, a notable transition has occurred. The era of hydrocarbons is nearing its end, and the world is actively pursuing a decarbonization agenda that puts forward another natural resource of strategic importance - lithium, often known as ‘white gold’. While lithium has served various industrial purposes throughout history, its demand has been increasing since the 1990s, primarily driven by the widespread adoption of lithium-ion batteries (LIB). This article aims to look at the role of lithium in the development of Latin America, particularly in Chile and Argentina. The selection of these two Latin American countries is strategically significant. While Chile currently holds the lead in lithium exports, Argentina is anticipated to experience a surge in exports owing to enhanced production resulting from ongoing investments in lithium mining. Additionally, the gap between these two countries is expected to diminish as Argentina increases production with a wave of new investments in lithium mining (Gonzales & Snyder, 2020). Both Argentina and Chile share the common recognition of lithium as a subject of sociotechnical imagination, wherein mining is seen as a vehicle for advancing development goals (Obaya et al., 2021). In this context, this study adopts a comparative approach to assess the effectiveness of various national governance models in promoting lithium-linked development. This is particularly significant considering the substantial reliance on natural resources for development in both countries (Carrasco & Madariaga, 2022). This analysis delves into the strengths and weaknesses of these models and examines the interplay between lithium governance and development. Furthermore, it raises a broader question: Can the presence of transparent, accountable, and uniform lithium governance serve as a predictor of the potential recurrence of the resource curse in the future?
What is the resource curse, and how does it connect to development?
To position this article within the broader context of the resource curse, it is necessary to first examine the definitions and trajectories of this phenomenon.
The puzzle of the ‘resource curse’ was first studied by Richard Steele in the 18th century; however, it vastly persists in modern times and remains a topic of significant research (Medlock & Miller, 2020). Contrary to the presumed economic “blessing” of countries rich in natural resources, the resource curse, coined by Auty (1993) and developed by Sachs and Warner (1995), claims that ‘‘countries with great natural resource wealth tend nevertheless to grow more slowly than resource-poor countries’’ (in Leonard et al. 2022). Often referred to as “the paradox of plenty,” the resource curse addresses a broad set of issues that undermine the ability of governments to utilize natural resource wealth to measurably improve domestic public welfare (Medlock & Miller, 2020). In summary, the resource curse claim suggests that countries with greater resources develop more slowly than their resource-poor counterparts. Moreover, the theory considers an extensive array of factors, including mining governance, conflicts, human rights abuses, labor conditions, land tenure and property rights, environmental concerns, and the equitable distribution of development benefits between the local and national levels (Ning, 2022). However, these factors are primarily interconnected from a political perspective.
While the original thesis refers to fossil fuels, there is potential for spillover to renewable energy. This phenomenon is often addressed as “the green resource curse.” This theory does not assert that subsoil resources and renewable energy can be treated as identical entities, as there are numerous significant distinctions between them (these disparities encompass geopolitical implications, the significance of geographical location, resource control, international competition, international dependence, key market factors, and various other aspects). Nevertheless, both renewable energy and subsoil resources entail intricate developments and require state involvement in managing the financial flows related to asset production (Leonard et al., 2022).
Lithium development and policy in Chile and Argentina
In both Chile and Argentina, the ownership of natural resources is predominantly private; however, lithium is an exception. The expansion of lithium extraction began in the 1980s in both countries and experienced a significant peak during the mid-1990s. This surge occurred in the lithium-rich northwestern provinces of Argentina, encompassing Catamarca, Jujuy, and Salta, along with Chile's Atacama Province. This momentum persisted, culminating in a significant boom in 2010 and has since maintained a consistent upward trajectory (Barandiarán, 2019).
However, it is crucial to thoroughly examine the distinct approaches to the lithium policy as a pathway to national development in Argentina and Chile. Chile and Argentina differ significantly in their approaches to lithium development, given their dependence on national policies implemented by the respective governments. The greatest difference between the two countries is the role that the state plays in lithium.
In Chile, the strategies adopted for lithium-related development are specific to the dominant role of state and state-owned companies, given their unitary system. Nevertheless, this situation has not always been the case. Prior to 2012, many officials in Chile advocated deregulation of lithium to attract foreign investment. This sentiment was driven by the perceived limited importance of lithium in the country’s development. However, a shift occurred in Chilean policy after 2015 during President Michele Bachelet's administration. This administration was significant as it pushed for the formation of a committee of lithium experts that vouched for the formation of a state-owned company tasked with overseeing lithium extraction. This approach aimed to promote sustainable and equitable development, emphasizing the importance of active state involvement. Furthermore, the committee recommended enshrining the strategic status of lithium as a key resource in the country's constitution. The role of the state in the lithium industry in Chile was further boosted in April 2023, when Chile’s left-wing president G.Boric announced plans of a national lithium strategy that includes the creation of a state-owned lithium company. If legislation is passed later this year, private companies will have to form joint ventures in which the state firm has a majority stake (The Economist, 2023).
Argentina is characterized by a more open pragmatic approach to lithium, characterized by federalism, which translates into less important positions of the central government, as well as lower taxes. The mining regulatory scheme in Argentina has a marked liberal orientation, shaped in the 1990s, under the influence of the Washington Consensus (Haslam et al., 2016), and the country does not consider lithium as a strategic mineral under strict state control. Instead, companies are granted concessions to explore and produce lithium, which they can retain indefinitely if they comply with the specified investment rules and regulations. This alternative policy approach in Argentina has attracted various foreign companies, such as Ganfeng Lithium and Zijin Mining from China, Lithium Americas from Canada, and the Rio Tinto Group from the UK (MacDonald, 2022). The normative governance of lithium in Argentina is fundamentally based on three pieces of legislation: the National Constitution, the Mining Investment Law, and the Mining Code (Slipak, 2015). Lithium rights in Argentina are controlled by provincial governments (Osborn, 2023), which may be part of the reason why plans for an Argentine lithium strategy do not foresee the creation of state-owned companies such as Chile.
In Argentina, the prevalence of provincial governments has resulted in diverse approaches towards lithium within lithium provinces. For example, government officials in the province of Salta demonstrated a positive stance towards lithium extraction, focusing on maximizing foreign investment by attracting a new wave of lithium mining companies that often join ventures that involve multiple aspects of the supply chain of lithium, such as mining, electronics companies, and car companies (Barandiarán, 2019). On the other hand, officials in Jujuy Province adopted a different approach. Following the Chilean example, they recognized the potential of lithium beyond raw material exportation, declaring lithium to be of “strategic national interest.” This led to the establishment of JEMSE, a state-owned company. However, unlike Chile, state-owned companies participate only as minority partners along with foreign majority partners. Therefore, the state company contributes mostly to the local experience, while the majority partner provides capital and expertise (Barandiarán, 2019).
Furthermore, these disparities in lithium governance have led to a significantly larger presence of private lithium companies in Argentina, in contrast to only a couple major companies operating in Chile, namely, Albemarle and SQM.
Effective lithium governance as a strategy to combat the resource curse?
Strategies are available to effectively mitigate the impact of the resource curse. Ideally, countries with valuable natural resources should be well prepared in advance and have robust institutions with well-developed oversight mechanisms and sector-specific frameworks. Optimally, the central government should make socially conscious investment decisions that lead to prosperity and visible social improvements. However, in reality, countries often lack the necessary readiness to effectively manage their resource wealth. The importance of establishing effective governance, particularly in terms of transparency, uniformity, and inclusivity, is crucial because it remains the most relevant strategy for mitigating the resource curse and benefiting both the public sector and investors (Medlock & Miller, 2020).
In this regard, it is necessary to ask the question: How do different ways of governance in Chile and Argentina result in different development outcomes and how is this consequential to the ‘good governance’ of lithium (understood in terms of transparency, uniformity, and inclusivity) as a strategy to mitigate the resource curse?
Chile serves as a compelling example when considering the pivotal factors of transparency and uniformity that significantly impact the potential to mitigate the resource curse. By embracing a centralized governance approach and moving towards lithium nationalization, Chile has the capacity to foster heightened certainty and transparency in its lithium policy. This strategic approach, when combined with Chile's favorable rankings for ease of doing business, low corruption levels, and the quality of its bureaucratic and judicial systems (The Economist, 2017), holds promise for combating the resource curse. Such favorable conditions in Chile may foster a secure environment for foreign investors, further encouraging the development of viable lithium projects.
However, despite these efforts, it is not clear whether the Chilean government is capable of making private lithium companies comply with the new policies and regulations. In the words of Carroste and Madariaga (2022, p. 449) “by openly bypassing existing regulations, mining capitalists have long mocked the state’s regulatory efforts, showing that the state significantly lacks the capacities that could make it a truly developmental leader in the country’s—and the world’s—green transition.”
Comparing Chile with Argentina, the Argentinian federal system does not allow for a great policy uniformity and given its overall complexity, it may result in hindering the lithium policy transparency. Simultaneously, adopting a province-specific approach to lithium mining in Argentina poses challenges to ensuring a cohesive and uniform framework for lithium governance across the country, negatively affecting efforts to achieve national development goals. This is particularly the case, as some provinces have shown enthusiasm for development, while others have been less inclined. The provinces of Salta and Jujuy in Argentina exemplify two distinct approaches. In Salta, a coherent exploration and approval process has facilitated progress, whereas in Jujuy, the historically inconsistent process has hindered exploration and processing efforts. Despite increasing lithium mining in Jujuy, the province has not experienced significant growth in local development.
Argentinian regionalist governance has a particular advantage in shaping the development agenda and contributing to greater inclusiveness, which is still lagging in Chile. Given the nature of the federalist system and its strong emphasis on the local element of governance, it has the potential to move beyond mere trade to incorporate rights-based developments. In this regard, civil society in the province can actively participate in shaping extraction policies and contributing to environmental sustainability. Additionally, this phenomenon underscores the influence and agency of local and regional actors in determining their approaches to managing natural resources, which is particularly important when addressing sustainable development.
Conclusive remarks
The significance of lithium governance and its ever-changing nature in Argentina and Chile underlines the importance of lithium as a strategic factor in the country’s development agenda. The various development approaches to lithium governance demonstrated that the resource curse is not a fatal destiny of a newly found resource wealth of strategic importance; rather, it is a choice that can be influenced by the various approaches adopted regarding lithium extractivism.
The observations presented underscore the importance of both countries’ future efforts to manage and mitigate the risks associated with their lithium resources adequately. While the true test of the current lithium development policies lies in its endurance over time, it appears clear that Chile’s failure to involve local communities in lithium decision-making and Argentina’s lack of a clear national strategy to lithium could both stand as factors susceptible to developmental hardships in the future.
Overall, it remains challenging to definitively predict the emergence of the green resource curse in the future, as the evidence presented suggests that both Chile and Argentina have a long road ahead in mitigating risks. However, as Chile’s model presents the potential for increased developmental prospects, Argentina’s lithium governance may face future development challenges owing to the lack of a strong, unified, and transparent approach, representing a challenge in mitigating the effects of the resource curse. Nevertheless, both countries may face future challenges related to social involvement and local development as a result of their adopted policy approaches.
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1 | Confirmed | Confirmed by other independent sources; logical in itself; coherent with other information on the topic |
2 | Presumably true | Not confirmed; logical in itself; coherent with other information on the topic |
3 | Maybe true | Not confirmed; reasonably logical in itself; coherent with some other information on the topic |
4 | Uncertain | Not confirmed; possible but not logical in itself; no other information on the topic |
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