Lithium: A Chance to Challenge the Resource Curse

As the move toward energy conservation takes hold, lithium for use in ion batteries is destined to play a significant role in the energy equation of the next generation. From 2003-2007, global demand for lithium carbonate doubled, and realizing current hybrid car technologies will require access to massive stocks of lithium, which is largely harvested from an oily brine that can seep out of barren, cracked desert lands.

Nissan’s plan to put 500,000 electric vehicles over the next several years, to cite just one example, will mean much more intensive use of lithium batteries than the current generation of hybrid cars.

And South America has the vast majority of the world’s lithium reserves. Almost half of the world’s known reserves are in Bolivia, making it “the Saudi Arabia of lithium”; when combined with Argentina, and Chile—the world’s largest exporter of lithium—the three nations enjoy over 80% of known reserves.

Bolivia’s abundance of lithium once beckoned foreign investment, as pharmaceutical, telecom, and later car firms sought to harness lithium for use in lithium ion batteries and mood-stabilizing drugs. Yet investment in lithium recovery is now bypassing Bolivia, and increasingly targeting Argentina and Chile.

This is because of the Bolivian government’s distaste for foreign investment, epitomized by President Evo Morales’ nationalization of the oil and gas industries in 2006. In 2008 Luis Echazu, Bolivia’s Mining Minister, said regarding lithium mining: “We want to send a message to the industrialized countries and their companies…We will not repeat the historical experience since the fifteenth century: raw materials exported for the industrialization of the West that has left us poor.” Support for Mr. Morales efforts to keep Bolivia’s lithium recovery under national control is broad, especially among the very poor in the country. His position is unlikely to change much.

Enter the runners-up of lithium reserves, Argentina and Chile. In January, Ford and Toyota announced they would initiate projects to recover lithium in Argentina. The separate investments will top $110 million. Chile has appealed to the lithium-minded (no pun intended) for much longer. It surpassed the US as the world’s largest exporter of lithium a decade ago, and its sophisticated firms, such as the Chemical & Mining Company of Chile, have developed strong supply networks in Asia and America.

There are several unknowns regarding lithium’s future: Estimates of total recoverable lithium ranges widely; it remains to be seen if recent green initiatives, by the Obama administration for instance, will fulfill their promise; and, existing lithium batteries may well be recyclable, dampening the demand for new stocks. Still, lithium can be a powerful source of growth for several nations in South America over the next decade or two, allowing a chance for a large swath of Latin America to upend the sad history of natural resources feeding corruption, oppression, and inequality.

Sound long-term planning by moderate governments, coupled with fresh access to a natural resource that is in high demand like lithium, may provide for a development purse, instead of a development curse.