Green Economy Driving Resource Nationalism in Latin America – BRINK – Conversations and Insights on Global Business

The political tide in Latin America has turned decisively toward leaders who openly eschew laissez-faire economics. A new generation of presidents and legislative leaders are advocating for greater government control of national economies, and with this trend, the specter of resource nationalism has again gained a foothold in the region.

It’s not new. Pemex, PetroBras, YPF, PdVSA and many more are proof of the region’s entrenched penchant for nationalizing some or all of its oil and gas industries.

What is different this time is that these new interventionist policies do not just focus on the traditional energy sector. Instead, the region’s attention is turning to increasingly valuable minerals that are essential to the new green economy that is rapidly gaining momentum across the world. From Mexico to Chile, governments are under increasing pressure to exercise greater control over these resources.

The new green economy needs Latin America

At the heart of this renewed resource nationalism in the region are the minerals essential to high-tech products and a growing green economy.

Minerals such as lithium, copper and zinc are essential for developmentdevelopment of future technologies such as electric vehicle batteries, solar panels and wind turbines, as well as energy storage batteries. As the demand for these green economy technologies increases, so does the need for these key minerals. Renowned energy scientist and author, Daniel Yergin, echoed the emergence of Latin America as a commodity leadernecessary for this new economy, affirming that Latin America is “a major, major source of lithium, a major source of copper. These are two of the critical elements of the energy transition. … But you also have a wave of populism across Latin America.

Argentina, Bolivia and Chile are at the heart of this new mineral revolution. The countries form the lithium triangle, which analysts say contains more than half of the world’s lithium reserves.

Bolivia’s lithium reserves are considered the largest in the world at 21 million tons; Argentina is not to be outdone with nearly 15 million tonnes; and Chile has nearly 9 million tons. Mexico is also in the lithium business. Recently, President Andrés Manuel López Obrador called that the lithium deposits be reserved for the exploitation of the State and kept away from foreign investors.

This resource nationalism should not be confused with predictions of a highly ideological shift to the left. Driving this new resource nationalism is also the need for more government revenue to deal with the impact of the COVID-19 pandemic.

“We will refuse any request for a concession to exploit lithium and we have the power to do so. What we want is for it to be established in the constitution that lithium is owned by the state,” the president said. Lopez Obrador during one of his daily early morning press conferences. Mexico is already home to at least one major lithium deposit in the state of Sonora, which has notably been exempted from presidential declaration and allowed to operate under a Chinese company.

Left and right want more government control

The recent election of Chile’s new center-left president, Gabriel Boric, has emboldened this new resource nationalism in all the countries of the Lithium Triangle, plus Peru, which is also home to vast mineral resources, such as copper.

All four countries are now led by more ideological leaders who support greater government intervention in the economy. We even talk about creation of an OPEC-style “lithium cartel”“, and according to the experts, the lithium market could quintuple in the next 35 years.

In Chile, newly elected President Boric has proposed the creation of a national lithium company, and reports indicate that some of his advisers are concerned about the lack of a national lithium policy. Already, some center-left parties in President-elect Boric’s coalition have sought court injunctions to stop new private lithium mining deals.

In Peru, President Pedro Castillo is pushing for increased mining royalties and has taken a hands-off approach to growing social conflict in the country’s mining regions. It is a clear signal that his government is far more interested in supporting community concerns than defending the interests of mining companies. In Argentina, the government is developing a new strategic mining roadmap with lithium as a key element. His administration is considering policies that include “analysis of investment incentives for lithium mining, including a possible exemption for repatriation of profits…and a system of ‘progressive’ export taxes to apply lower rates at the start of a new project”.

A particularly Argentinian wrinkle is that, according to the country’s constitution, the provinces own the natural resources located within their territories. This makes it harder to claim federal control of mining activities, but still leaves plenty of leverage to influence the sector.

Driven by the need to fill government coffers

To be sure, Latin America is moving away from the neoliberal economic policies that have dominated much of the region’s economic policy-making in recent decades. These policies have modernized the region, created much improved efficiencies and lifted many people out of poverty. But COVID-19 has shown how the region’s stratospheric inequalities are bubbling below the surface. As President-elect Gabriel Boric recently stated, Chile aims to become the graveyard of neoliberalism.

But this resource nationalism should not be confused with predictions of a highly ideological shift to the left. Driving this new resource nationalism is also the need for more government revenue to deal with the impact of the COVID-19 pandemic, which has increased the demand for social programs and investments to reactivate national economies.

Additionally, rising commodity prices have prompted governments to try to profit from these minerals.

Whether this new resource nationalism avoids the mistakes and problems of the past remains to be seen. In past episodes of resource nationalism, inefficient government bureaucracies have become symbols of clientelism and corruption, giving greater government control at the whim of political parties in charge.

How the region will avoid these diseases in the future is the question that should be at the center of the debate.