A Specter Haunting Latin American Mining? Not So Fast
Nationalization means too many things to too many people.
When a commodity is hot, it has many takers. These takers include the government, as is evident in the return of the word “nationalization” to describe Latin American government policy on mining.
It is a well-established trend that higher prices for commodities favor resource nationalism. But no two nationalizations are the same, and observers need to look beyond a label used by both resource nationalists themselves and their detractors.
What lies behind this possible boom time for Latin America? The answer is policy choices elsewhere. Governments in the region are responding to demand created for green transition minerals by the world’s largest economies. National policies on critical minerals such as lithium will therefore only proliferate as Latin American countries assume their own green industrial policies and react to those of other countries.
The new era of green industrial policy began in 2015 with China’s “Made in China 2025” framework for renewables use. Others followed soon after: the European Union’s Green Deal (2019) and the combined U.S. measures of the infrastructure (2021) and anti-inflation (2022) bills. The scope of these initiatives is something to behold. The European Union is pushing to have over 50,000 companies realign their business models and strategies with sustainability, while together EU and U.S. policies amount to over a trillion dollars in energy spending. They also drive demand for so-called transition minerals, including copper, nickel, cobalt, and lithium.
In the cobalt market, Latin America (south of Cuba) is not a major player. For nickel, Brazil is third only to Australia and Indonesia globally in terms of reserves, while Chile is the clear leader in the mine production of copper with Peru coming in second place. For lithium, Chile lags only to Australia in terms of production.
According to U.S. Geological Survey figures, the “Lithium Triangle” in the border regions of Argentina, Bolivia, and Chile, contains over half of the world’s identified resources. It is a function of the rush for lithium—an essential element of today’s battery technology—that both absolute and relative deposit numbers are liable to continue to change rapidly.
Divergent Approaches in the Lithium Triangle
Lithium is also the resource around which the term “nationalization” has most prominently reared its head. Notably, it was not the term used by President Gabriel Boric when he announced Chile’s National Lithium Strategy in late April nor when his administration began detailing it in June. Instead “nationalization” was the way that many overseas news outlets chose to describe a policy that strengthens the hand of the state in future public-private partnerships. This strategy does not exist in a vacuum, but, as energy expert Patricia I. Vásquez has highlighted, in a context in which lithium is already considered a strategic resource with strong elements state control. As a result, even today, only two mining companies extract lithium in Chile.
Whatever one thinks of the impact of the strategy on the Chilean business environment, for example vis-à-vis its neighbors, “nationalization” is big word that carries connotations from earlier eras. To describe a settlement on the extraction of a natural resource in those terms misleads more than it clarifies. It can also alienate possible Chilean partners.
If U.S. or European companies read their own press, they may assume a Chilean stance that is too skeptical or combative for engagement in the first place. As the energy transition abhors a vacuum, their disinterest or faulty assumptions may be someone else’s benefit. A Chinese consortium is already exploring for lithium in Bolivia as a result of a multiyear process which the ruling Movement for Socialism (MAS) party calls a “sovereign alternative” to privatization.
Even if a new state company at the heart of future lithium partnerships may run predictable risks regarding inefficiency or corruption, outsiders must be careful of not charging Boric with foul play. The employment of the term nationalization harks too easily back to the 1970s, an era during which Salvador Allende first expropriated foreign-owned copper companies and, then, Augusto Pinochet formed today’s Codelco, the state-owned copper giant.
Boric has made clear that the purpose of the new strategy is not to control the entire industry but to recover a greater share of profits, ultimately through more localized processing of lithium. Such vertical value chains should bring more of tomorrow’s green economy to Chile than the mere extraction of its resources would. These are also objectives that those in the Global North should not reject out of hand.
Chile presents only one example of the shortcomings of the language of nationalization in that it mischaracterizes the aims of political leadership and creates unnecessary confusion. The far-right stance of Chile’s new constitutional assembly also makes it unlikely that any strongly leftist arrangement on lithium production would survive.
If the Chilean approach illustrates the pitfalls of an over-eagerness to decry “nationalization” Argentina demonstrates the consequences of allowing the unchecked delegation of mining policy to subnational actors. Argentina’s constitution grants provincial governments control over all mineral resources within their borders, a feature of special importance for the northern provinces of Jujuy, Salta, and Catamarca. These three contain the bulk of Argentina’s lithium, but have long tended to be marginal players in the national economy. As a result, there are strong incentives for such mineral-rich but historically neglected provinces to embrace the highest bidder and downplay potentially significant environmental, social, and political risks.
In June 2023, an amendment to the Jujuy constitution served as the catalyst for mass demonstrations that left at least 170 people injured, and dozens detained. The amendment sought to ease environmental and local consultative requirements for mining companies looking to set up lithium extraction in the province. Another component of the reform placed restrictions on protesting and freedom of assembly, further enhancing Jujuy’s appeal to foreign companies by assuring them of the government’s willingness to keep a lid on anti-mining mobilizations.
This latest episode not only underscores the corrosive effects on civil society which excessive devolution of regulatory authority can produce, it also exposes Argentina to further geopolitical risk in the mining sector. Chinese firms in particular have proven adept at leveraging relationships with provincial governments to secure an outsized stake in Argentina’s lithium resources. One recent report found that a lack of accountability, environmental standards, and frameworks for managing large mining investments among the northern provincial governments offered “a long-term competitive advantage to Chinese state and quasi-state entities in Argentina.”
For U.S. policymakers worried about the People’s Republic of China’s advancements in the Southern Cone, it seems a dose of Chilean-style “nationalization” could be welcomed in Argentina. This means simply that seeing lithium as a key question for national economic development can also lead to considered and productive policy. Within the Argentine government recognition of the strategic importance of lithium appears to be coalescing, with state-owned oil company YPF announcing it would begin exploration for lithium in Catamarca, as well as develop a battery production plant. However, more ambitious proposals to designate lithium as a strategic resource and grant the federal government power to limit exports seem unlikely to move forward amid constitutional hurdles as well as staunch opposition from the provinces and industry.
With the left-leaning, pro-nationalization elements of President Alberto Fernández’ bloc likely to face setbacks in the coming general election, Argentina’s decentralized, private sector-led model will most likely remain. At the very least, a national-level effort by the Casa Rosada to strengthen oversight and environmental regulations for lithium projects would not only help level the playing field for companies struggling to compete with the resources and diplomatic clout wielded by Chinese firms, but likely be welcomed by indigenous and environmental activists as well.
New Nationalization and Lost Opportunities in Mexico
The risk in Chile is unfounded fears of nationalization creating hesitancy from Western governments and the private sector, which potentially leaves Chinese companies to navigate private-public partnerships. In other instances however, the language of nationalization may provide governments the cover that they want to consolidate power. That is the case of Mexico, a country in which President Andrés Manuel López Obrador (AMLO) is expropriating different parts of the economy, sometimes with the assistance of the armed forces.
AMLO favors the language of nationalization as it plays well amongst his supporters, many of whom want to see a stronger, centralized orientation for Mexico’s economy. When those north of the Rio Grande or “colonizers,” as AMLO regularly calls the former colonial powers from Europe, attack nationalization, all the better for AMLO.
Unlike in Chile, today’s policies do bear some resemblance with those from the twentieth century. Indeed, AMLO’s rhetoric explicitly harkens back to the 1960s with his call for the creation of a “lithium OPEC” a proposal which has tellingly received the warmest reception from fellow semi-authoritarian Luis Arce in Bolivia. The ghosts from the past are haunting not merely lithium deposits which in Mexico are now under the control of the energy ministry, but, importantly, have also undermined existing mining concessions of foreign companies.
A new mining law shortens the duration of concessions, and AMLO has notably yet to grant any new concessions during his presidency. Yet, the state company for lithium production has affirmed that it welcomes private partnerships, although with the state exercising majority control of such ventures. The most promising candidate for such a partnership, a joint venture by China’s Ganfeng Lithium and Bacanora Lithium, remains mired in uncertainty following AMLO’s nationalization.
In fact, it is not mining but other sectors that give rise to the greatest worries. In May, the navy, under a presidential decree, seized a 75-mile stretch of private railway. AMLO has also ordered the expropriation of private land for the building of commuter train stations. In such acts there appears a growing body of evidence of the president’s lack of respect for the rule of law.
It is in this context that nationalization, or the “new nationalization,” as AMLO prefers, provides him with some legitimacy, suggesting a public good. This language was on display in April when the Mexican government pushed forward with takeover of the majority of the Mexican assets of Iberdrola, a Spanish company whose market position and influence AMLO has wished to diminish. This centralization of the energy supply also represented a further step away from renewables and toward fossil fuels. With AMLO’s general skepticism toward green policy, Iberdrola is looking to pursue green projects elsewhere.
A Balancing Act in Brazil
Whereas in Mexico, the rhetoric of nationalization serves as a fig leaf for continued consolidation of power, in Brazil, an administration that rose to power on appeals to the heady days of resource sovereignty has seemingly bucked the nationalization trend. President Luis Inácio Lula da Silva (Lula) campaigned on his old-school leftist credentials, yet so far his government has backed away from efforts to reassert state control over extractives. In May, for instance, the government walked back statements about re-nationalizing the power company Eletrobras. In the mining space, Brazil has sought to market itself as a rules-based and private sector-friendly alternative to the tumultuous minerals policies found in the Lithium Triangle countries.
Vitor Saback, Brazil’s undersecretary of geology, mining and mineral transformation remarked in May 2023 that the country was “very aligned with Australia’s policy” on lithium, contrasting this favorably with Chile and Mexico. While Brazil’s lithium reserves pale in comparison to its neighbors at just 730,000 tons, it has already climbed to the world’s fifth-largest lithium producer of behind Argentina.
In minerals-rich Minas Gerais state, established firms, some with decades of history in the region, are being met with new private sector investment aimed at developing the hard-rock lithium deposits. To date, three projects have entered various stages of production in the state, with the largest of these owned entirely by Canadian firm Sigma Lithium.
Furthermore, Brazil is home to an impressive array of mineral resources, including copper, graphite, nickel, and iron ore. Demand for these is set to grow dramatically in the coming decades, opening new opportunities, but also placing new strains on Brazil’s regulatory frameworks. Already local outcry has surfaced over the planned lithium projects in Minas Gerais, while rampant illegal gold mining in the north of the country feeds negative public perceptions over the extractives industry.
The Lula administration may accordingly find itself caught on the horns of a dilemma. On the one hand, the country’s mature mining laws and institutions, coupled with continued receptiveness to foreign investment, can enable it to leapfrog competitors, opening new revenue streams which will in turn be critical to fund Lula’s ambitious social programs. At the same time, the significant local externalities created by mining operations cuts against the president’s pledges to curb environmental degradation in the Amazon, increasing pressure on the government to more forcefully constrain foreign mining operations. Also, the potential reputational cost of contributing to deforestation, in addition to the lingering custo Brasil (the cost of doing business in Brazil), will continue to keep many foreign interests at bay.
Details matter. To speak of nationalization can, on the one hand, provide cover for the serious undermining of the rule of law or, on the other hand, lead to unnecessary irritation. It is better to call expropriation by its name, while understanding that Latin America’s leaders often have legitimate objectives of their own for tomorrow’s green economy.
Observers would also do well to pay close attention not only to policies around the extraction of raw materials, but possible export restrictions on critical minerals. In late 2020 for instance, Indonesia tightened restrictions on exporting unprocessed nickel, in effect mandating that mining companies develop smelting and processing infrastructure within the country, helping Indonesia capture a greater percentage of the value chain. The move was met with consternation on the part of private mining companies while the European Union brought a dispute to the World Trade Organization. Nevertheless, the Indonesian model seems to be gaining admirers, with Zimbabwe banning raw lithium exports in 2022.
Countries throughout Latin America are also exploring ways to draw more value from their mineral wealth. For their part, the United States and allies should welcome such efforts, which can play an important role in breaking China’s current near-monopoly on mineral processing. Such efforts need to be carefully calibrated however, and not enacted by fiat. Processing infrastructure takes time and money to develop, and in the case of smelters for minerals like copper and nickel, can be highly polluting in its own right, further exacerbating the environmental harms that accompany mining operations. Nevertheless, the United States and Europe needs to back up their rhetoric on diversifying processing capacity with tangible investments, or risk a wave of export bans causing a global disjunction in the minerals supply chain.
With a worldwide rush for lithium, outsiders should avoid giving the impression that the rules governing the exploitation of transition minerals are, in the first instance, theirs to set. Latin America’s leaders have legitimate objectives of their own for tomorrow’s green economy. That is the case even if processes of balancing public and private goods may sometimes lead to less-than-ideal conditions for multinationals and even some national champions. Ideally, the policies that emerge will allow local communities to prosper, just as their resources fuel the global economy. Instead of making broad and imprecise statements about nationalization, it is better to just call out expropriations when they do happen and to highlight how all can benefit from building tomorrow’s economy.
Lauri Tähtinen is a senior associate (non-resident) with the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Henry Ziemer is a research associate with the CSIS Americas Program.